Investment trust selection criteria

Closed-end funds and OEICs
Plutus
Posts: 43
Joined: January 3rd, 2017, 11:24 am

Investment trust selection criteria

Postby Plutus » January 7th, 2017, 1:14 pm

Good afternoon.

I'm considering the purchase of investment trusts as I prefer collective investments and would like some non FTSE350 diversification. From what I can see the only method to select investment trusts is to evaluate the following:

- management quality, experience, track record.
- charges. The largest single factor?
- performance compared to benchmark.
- top holdings via trustnet or similar site.
- premium/discount to NAV although is this a reflection of market sentiment more than an indication of bagging a bargain?

For what it's worth I have narrowed my choices down to:

Uk income: Finsbury growth & income.
International: Murray international or Scottish mortgage.
Smaller companies: Woodford patient capital trust, Aberforth or Henderson smaller companies.

Apologies for spelling and lack of capitals as I'm posting from a phone.

Thank you for any thoughts on how to make selections.

Plutus
Posts: 43
Joined: January 3rd, 2017, 11:24 am

Re: Investment trust selection criteria

Postby Plutus » January 7th, 2017, 1:33 pm

Plutus wrote:
- management quality, experience, track record.
*** The largest single factor? ****
.

Correction: above will be the most important factor? How does one allow for management changes when the aim is long term holding?

Nocton
Posts: 13
Joined: November 6th, 2016, 11:25 am

Re: Investment trust selection criteria

Postby Nocton » January 8th, 2017, 11:53 am

In my opinion if you are investing for the longer term you can't really know how each manager will perform in the future. So my approach is to decide whether I want income, growth or mixed and then choose about 10 ITs that meet the chosen criterion and have a variety of approaches/styles. Also check that charges are not excessive. I do not go for closely focused trusts, e.g. Russia, health, etc. as one can never know how these themes will pan out over the longer term. Stick with generalist trusts like Witan or Scottish Mortgage and let them make these more specific choices. An American or European focused IT is OK as these 'themes' are large enough to allow for lots of diversity. Then just let the managers get on with it. You may care to review your choice after 5 years. This approach has worked well for me and easily averaged +10% growth pa plus dividends.

Plutus
Posts: 43
Joined: January 3rd, 2017, 11:24 am

Re: Investment trust selection criteria

Postby Plutus » January 8th, 2017, 12:17 pm

Nocton wrote:... Also check that charges are not excessive.

Stick with generalist trusts like Witan or Scottish Mortgage and let them make these more specific choices.

...


That's a great help, thank you.

Do you check gearing, discount to NAV etc. please?

I don't think that I will be buying a large 'basket' I was aiming to buy between 1 and 3 per investment aim so I need to be confident with my choices. Unless I buy others over time.

Nocton
Posts: 13
Joined: November 6th, 2016, 11:25 am

Re: Investment trust selection criteria

Postby Nocton » January 8th, 2017, 1:39 pm

Do you check gearing, discount to NAV etc. please?

I don't worry about gearing. I leave that to the IT manager - if they are confident about the market/stocks then they will increase their gearing.
It's nice to buy at some discount, but if you are investing for the longer term then I don't think it is important. Of course if the shares are at a large discount (>10%) then it suggests a problem with the IT.

Plutus
Posts: 43
Joined: January 3rd, 2017, 11:24 am

Re: Investment trust selection criteria

Postby Plutus » January 8th, 2017, 1:44 pm

Nocton wrote:
Do you check gearing, discount to NAV etc. please?

I don't worry about gearing. I leave that to the IT manager - if they are confident about the market/stocks then they will increase their gearing.
It's nice to buy at some discount, but if you are investing for the longer term then I don't think it is important. Of course if the shares are at a large discount (>10%) then it suggests a problem with the IT.


Thanks for the reply it is very helpful. The smaller company trusts that I'm considering are at approx 15% discount so I would need to investigate. Aberforth and Henderson small companies.

ap8889
2 Lemon pips
Posts: 135
Joined: November 4th, 2016, 10:55 am

Re: Investment trust selection criteria

Postby ap8889 » January 8th, 2017, 3:11 pm

Henderson Smaller Companies is one I hold: IIRC I bought a few months back when it was tipped by Questor at a c16% discount. It has a decent track record, but again IIRC it is mostly FTSE 250 based.

Anyway, I am still slightly underwater on this holding. One thing I dislike about it is the presence of Mary Anne Sieghart on the board: I don't understand what she brings to the table. Smacks of jobs for the "great and good" really.

Anyway that's my opinion. Hopefully their performance will continue as it has historically. I will not be buying more at current strong prices, rather wait for a market pullback to buy on weakness. I feel I rather overpaid by buying with FTSE at 7000+.

Plutus
Posts: 43
Joined: January 3rd, 2017, 11:24 am

Re: Investment trust selection criteria

Postby Plutus » January 8th, 2017, 4:36 pm

ap8889 wrote:
Anyway that's my opinion. Hopefully their performance will continue as it has historically. I will not be buying more at current strong prices, rather wait for a market pullback to buy on weakness. I feel I rather overpaid by buying with FTSE at 7000+.

The ftse100 and the smaller companies won't be correlated? So you would only have overpaid if the trust price was relatively high and/or it was at a premium to nav?

Isn't the the net asset value at the time of purchase the effective price that you paid?

ap8889
2 Lemon pips
Posts: 135
Joined: November 4th, 2016, 10:55 am

Re: Investment trust selection criteria

Postby ap8889 » January 8th, 2017, 7:01 pm

Well as its main holdings are FTSE 250 it correlates with stock market sentiment, the index was at a peak at that moment. And quite honestly I knew that, and considered waiting. Had I waited a but a few weeks I could have bought more shares for the same money. My impatience cost me money.

Snorvey
Lemon Slice
Posts: 302
Joined: November 4th, 2016, 12:51 pm

Re: Investment trust selection criteria

Postby Snorvey » January 14th, 2017, 12:35 pm

AJ Bell/YouInvest do a handy IT screener which gives info on costs, performance, discounts etc.

https://www.youinvest.co.uk/research-tools/screener/it

LooseCannon101
Posts: 9
Joined: November 5th, 2016, 2:12 pm

Re: Investment trust selection criteria

Postby LooseCannon101 » January 17th, 2017, 6:02 pm

When choosing an investment trust I would look at the diversity of holdings i.e. small and large capitalisation companies from a wide range of countries, and include private equity as well. Excessive leverage e.g. 25%+ would put me off, as would a change of style every couple of years to keep up with the latest fad. A share buyback program to limit the discount would be good.

Currency risk e.g. British pound becoming devalued against the rest of the world and particularly the US dollar, should always be considered in this interconnected world. I would only look at relatively low-fee trusts with a long track record e.g. 20 years+ who also regularly beat their benchmark on a total return basis over 10 year periods.

I personally like generalist trusts like Alliance, Witan, and Foreign and Colonial where you can buy and leave well alone, allowing the power of compounding to build up a large capital sum whilst delivering a rising dividend.

Plutus
Posts: 43
Joined: January 3rd, 2017, 11:24 am

Re: Investment trust selection criteria

Postby Plutus » January 17th, 2017, 6:49 pm

Thank you for the additional replies since I last read this thread. I shall take the points on board while I'm conducting my research.


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