"Value" Focused Funds and ITs

[msantiago]

Hi,

I've been spending some time over recent weeks reviewing my work-based Pension, and have been regularly reading the range of excellent insights on this board to assist in my portfolio rebalancing.

Historically the pension was all invested in unit trusts, via the Standard Life Group Pension Scheme. The range of funds was limited and costly and I've watched in frustration over some time as I hadn't been able to get exposure to ITs I liked.

I recently switched to a Standard Life SIPP to increase my investment flexibility and have now added some ITs/ETFs.

Background is I'm 36 and working in financial services.

Currently my pension is invested as follows:
Unit trusts 66%, Cash 17%, ITs / ETFs 17%

Trusts are as follows: Blackrock Gold (14%), ASI Global Smaller Companies (10%), ASI UK Smaller Companies (8%), Fidelity Asia (5%), JPM EM (10%), M&G Global Macro Bond (9%), iShares NA (10%).

ITs/ETFs: SMT (5.4%), WWH (2.6%), BGS (2.9%), BGEU (2.7%), iSHares Physical Silver (2.5%)

The objective over time is to:
1) switch most, if not all, of the unit trust to investment trusts. I've been fairly happy with the performance of the funds I currently hold however so not in a hurry to do this
2) fully invest cash. as part of the switch to a SIPP I sold some under-performing and undesirable unit trusts and have been looking to retain some dry powder should there be another sell-off

One point I am conscious of is that my portfolio is very "growth" centric, with high-volatility investments such as Blackrock Gold (a multi-year holding), iShares silver. Given my age and risk tolerance this is not necessarily a problem but I do feel I am under-exposed to "Value" stocks. There's clearly been huge divergence in the performance of both strategies over recent years, however I think now could be a good time to add some exposure to cheap / unloved stocks for an investor with a long-term horizon. I'm inclined to hold approx. 10% of my portfolio in "value".

One UT I have looked at is LionTrust Special Situations. Are there other unit trusts or ITs (preferably the latter) that people would recommend?

Also, if there are any suggestions for switching my unit trust holdings into ITs these would be greatly received to.

Apologies for what may seem a long-winded way to ask for some recommendations.

Many thanks
Mark

[richfool]

I note you have quite a few smaller company funds and limited sectors like EM, Asia. I would look at some more general growth orientated IT's, such as: MWY (Mid Wynd), MNKS (Monks) and JGGI (JP Morgan Global Growth and Income).

[Hyndford]

If you are interested in specific sectors, environmental issues / energy efficiency could be something to consider. I have a holding in Impax Environmental Markets and iShares Global Clean Energy is on a great run.

I don't think I'd look at value. While some companies may be unloved and recover for others their glory days could be behind them. I'd stick with growth.

I'd also consider swapping out the bond fund for more defensive trusts such as Personal Assets or Capital Gearing Trust where the managers have more flexibility about where to invest, but with the aim of preserving capital.

[Wuffle]

I find when I look at some of the mixed investment trusts, the defensive like CGT mentioned above, I start to realise that they contain the vast majority of the stuff I was going to buy anyway. How much of the 'bits of this and bits of that' is us kidding ourselves that we are smart [expletive deleted] when just buying one thing has the wrong 'look' about it.
I have just bought a lump of MATE on a decent discount with half a mind on the infrastructure contained within that will also come with the discount that I would have to pay a premium for on its own. The rest (to within a description like large cap US) I would buy anyway but all split up.
Am I bonkers?
Just throwing this in for comment that both the OP and I may benefit from.

W.

[msantiago]

If you are interested in specific sectors, environmental issues / energy efficiency could be something to consider. I have a holding in Impax Environmental Markets and iShares Global Clean Energy is on a great run.

I don't think I'd look at value. While some companies may be unloved and recover for others their glory days could be behind them. I'd stick with growth.

I'd also consider swapping out the bond fund for more defensive trusts such as Personal Assets or Capital Gearing Trust where the managers have more flexibility about where to invest, but with the aim of preserving capital.

Thanks for those suggestions.

I think ESG is definitely an interesting space and one I've been considering recently.

The macro bond fund performed well this year as the managers were long duration with minimal Credit exposure going into the March volatility, but it's probably a good example of a fund that I likely wouldn't buy if I was starting a portfolio from scratch. I think current Central Bank policies and likely government action needed to generate growth will be inflationary (hence gold/silver bias) so would expect bonds to be a poor performer over the coming years.

[midgesgalore]

Hi,
...
Background is I'm 36 and working in financial services.

Currently my pension is invested as follows:
Unit trusts 66%, Cash 17%, ITs / ETFs 17%

Trusts are as follows: Blackrock Gold (14%), ASI Global Smaller Companies (10%), ASI UK Smaller Companies (8%), Fidelity Asia (5%), JPM EM (10%), M&G Global Macro Bond (9%), iShares NA (10%).

ITs/ETFs: SMT (5.4%), WWH (2.6%), BGS (2.9%), BGEU (2.7%), iSHares Physical Silver (2.5%)

The objective over time is to:
1) switch most, if not all, of the unit trust to investment trusts. I've been fairly happy with the performance of the funds I currently hold however so not in a hurry to do this
2) fully invest cash. as part of the switch to a SIPP I sold some under-performing and undesirable unit trusts and have been looking to retain some dry powder should there be another sell-off

One point I am conscious of is that my portfolio is very "growth" centric, with high-volatility investments such as Blackrock Gold (a multi-year holding), iShares silver. Given my age and risk tolerance this is not necessarily a problem but I do feel I am under-exposed to "Value" stocks.
...
Mark

Hi msantiago
As a point of view:
I can't understand why you would invest in gold, silver and bonds in a SIPP when you have at least 19 years before you can withdraw from your pension.
With that in mind "Value" stocks have not been a great investment for quite a while (if UK high yielding shares are anything to go by) but maybe one day in the future Value may come around again.

I would be looking to add more regions to the trusts you have already to cover your view of a balanced global growth strategy using the best asset managers for the trusts (UT and or IT) or ETFs you view that would meet your needs to cover the areas you think are missing.

Or just buy core global growth trusts or ETFs and save the heartache.

midgesgalore

[shawsdale]

A few suggestions:
- for the global smaller companies exposure Edinburgh Worldwide (EWI) and Smithson (SSO).
- for the UK smaller companies allocation perhaps the new Buffettology investment trust launching at the moment, or a UK micro-cap fund/trust such as River and Mercantile UK Microcap (RMMC).
- Europe is arguably underweight in your current portfolio, so Montanaro European Smaller Companies (MTE) might be worth exploring, although I'm not sure how different its portfolio is from BGEU.
- is IShares NA North America? How does that look relative to (say) Baillie Gifford US Growth (USA) or a technology trust like ATT or PCT?

Your question regarding an allocation to 'value' is very pertinent and hard to answer both in terms of the timing of such a call and the best investment vehicle(s) to use, especially in the investment trust arena. As I've mused on one or two other threads AVI Global (AGT) is a possibility, not least as it has quite a large weighting to what the manager defines as Japanese value.
I'm not sure what would be the best fund or trust for gaining exposure to global small cap value which is where I'd want at least some of the long-term value exposure to be focused. Maybe such an ETF exists?

More generally, I agree with other replies that a bit less in gold/silver (and in my view global bonds) and more emphasis on growth investments, particularly with a smaller company tilt, seems appropriate given your nearly two decade investment horizon.

[msantiago]

[/quote]

Hi msantiago
As a point of view:
I can't understand why you would invest in gold, silver and bonds in a SIPP when you have at least 19 years before you can withdraw from your pension.
With that in mind "Value" stocks have not been a great investment for quite a while (if UK high yielding shares are anything to go by) but maybe one day in the future Value may come around again.

I would be looking to add more regions to the trusts you have already to cover your view of a balanced global growth strategy using the best asset managers for the trusts (UT and or IT) or ETFs you view that would meet your needs to cover the areas you think are missing.

Or just buy core global growth trusts or ETFs and save the heartache.

midgesgalore[/quote]

Thanks for the thoughts.

The rationale for owning gold is more of a short to medium-term view. I think current Central Bank policies and likely government action needed to generate growth will be inflationary. And gold/silver is an excellent inflation hedge, plus with rates of close to zero, there is no opportunity cost for owning gold. Looking back to the inflationary period of 72-79, nearly all major equity and fixed income markets had negative real returns, whereas commodities performed extremely well. Blackrock Gold has been a long-term holding and has delivered annualised returns of >20% over last 5 years, though I may reduce some exposure given outperformance YTD.

I acknowledge I'm taking a view which may or may not be right but I'm comfortable with that approach. If it doesn't work it's an expensive lesson that I have a number of years to recover from

Agree completely on bonds and I'll be looking to sell this fund and switch into an equity.

Are there particular SE Asia / EM focused ITs that you'd suggest looking at? The JPM EM Trust is one I have looked at - this looks almost identical to the closed-end fund I own, except with the added bonus of buying at a discount to NAV. The drawback being the initial transaction/stamp costs. And whilst I am generally trying to pivot into ITs, I'm not sure if switching from an open ended fund to it's closed ended equivalent is unnecessary tinkering!

[msantiago]

A few suggestions:
- for the global smaller companies exposure Edinburgh Worldwide (EWI) and Smithson (SSO).
- for the UK smaller companies allocation perhaps the new Buffettology investment trust launching at the moment, or a UK micro-cap fund/trust such as River and Mercantile UK Microcap (RMMC).
- Europe is arguably underweight in your current portfolio, so Montanaro European Smaller Companies (MTE) might be worth exploring, although I'm not sure how different its portfolio is from BGEU.
- is IShares NA North America? How does that look relative to (say) Baillie Gifford US Growth (USA) or a technology trust like ATT or PCT?

Your question regarding an allocation to 'value' is very pertinent and hard to answer both in terms of the timing of such a call and the best investment vehicle(s) to use, especially in the investment trust arena. As I've mused on one or two other threads AVI Global (AGT) is a possibility, not least as it has quite a large weighting to what the manager defines as Japanese value.
I'm not sure what would be the best fund or trust for gaining exposure to global small cap value which is where I'd want at least some of the long-term value exposure to be focused. Maybe such an ETF exists?

More generally, I agree with other replies that a bit less in gold/silver (and in my view global bonds) and more emphasis on growth investments, particularly with a smaller company tilt, seems appropriate given your nearly two decade investment horizon.

Thank you for the suggestions.

Could I ask why you'd suggest switching from ASI Global and UK Smaller Companies into those ITs? Both have been good performers over a long-period of time, so I've been wary of unnecessary tinkering. Admittedly performance not as strong as EWI and SSO though I'm wary of chasing past performance.

The Buffetoloogy tip is interesting as I'd read about that earlier today. My main reservation had been it's a new fund with no track that will be trading at par, so I'd been inclined to look for a similar strategy that might be available at a 5-10% discount, but one I'll definitely consider.

Agree on Europe being underweight so I'd likely top up BGEU although also considering BRGE. Thanks for the MTE suggestion.

Yes, iShares NA is North America. I think a switch out is definitely sensible as I'm paying nearly 1% for a tracker which is scandalous! The apprehension I guess with a more growth focused trust, particularly ATT / PCT at the moment, is about exposure to tech given the sky-high valuations, so I wonder whether there may be a better entry point. Though I appreciate with just 5% in SMT plus some exposure to tech / other growth stocks through my iShares NA holding I'm probably underweight growth

Wrt to value, I'm considering TMPL, though certainly a contrarian pick!

[jonesa1]

I'm not sure if switching from an open ended fund to it's closed ended equivalent is unnecessary tinkering!

I've seen it promoted as a strategy - buy ITs on discount, wait for the discount to close then swap to the fund, then swap back if and when the trust moves to a decent discount again. Possibly works for trusts with volatile discounts, especially if you plan to hold (in one form or another) for a long time and your platform doesn't make one form a lot more expensive to hold than the other.

[Backache]

If you are looking at Value funds bear in mind that value has performed badly as a category for quite a number of years now so if the manager has truly been a follower the chances are they have a poor recent track record, however some of the trusts are at a significant discount so if value returns as a plus and you have a manager who genuinely sticks to value there may be considerable upside.
AVI global trust consider themselves a pure value trust In the UK Aberforth Smaller companies are very much a value orientated smaller companies trust.
Keystone Investment trust is a larger companies trust that has an emphasis on value.

[midgesgalore]

Hi msantiago
As a point of view:
I can't understand why you would invest in gold, silver and bonds in a SIPP when you have at least 19 years before you can withdraw from your pension.
With that in mind "Value" stocks have not been a great investment for quite a while (if UK high yielding shares are anything to go by) but maybe one day in the future Value may come around again.

I would be looking to add more regions to the trusts you have already to cover your view of a balanced global growth strategy using the best asset managers for the trusts (UT and or IT) or ETFs you view that would meet your needs to cover the areas you think are missing.

Or just buy core global growth trusts or ETFs and save the heartache.

midgesgalore

Thanks for the thoughts.

The rationale for owning gold is more of a short to medium-term view. I think current Central Bank policies and likely government action needed to generate growth will be inflationary. And gold/silver is an excellent inflation hedge, plus with rates of close to zero, there is no opportunity cost for owning gold. Looking back to the inflationary period of 72-79, nearly all major equity and fixed income markets had negative real returns, whereas commodities performed extremely well. Blackrock Gold has been a long-term holding and has delivered annualised returns of >20% over last 5 years, though I may reduce some exposure given outperformance YTD.

I acknowledge I'm taking a view which may or may not be right but I'm comfortable with that approach. If it doesn't work it's an expensive lesson that I have a number of years to recover from

Agree completely on bonds and I'll be looking to sell this fund and switch into an equity.

Are there particular SE Asia / EM focused ITs that you'd suggest looking at? The JPM EM Trust is one I have looked at - this looks almost identical to the closed-end fund I own, except with the added bonus of buying at a discount to NAV. The drawback being the initial transaction/stamp costs. And whilst I am generally trying to pivot into ITs, I'm not sure if switching from an open ended fund to it's closed ended equivalent is unnecessary tinkering!

I wouldn't think you need to be tinkering but with about 20 years of potential further investment, or close to the extent of the rest of your LTA for SIPP investment you could re-bias your portfolio any way you like. If you get fed up investing in your pension you can always stuff the income type investments in an ISA - where they are better suited.

I have been retired since 2014 but not pulled on my investments so some of my IT holdings are slanted somewhat to income and the rest still gung-ho on growth. So I'm not frightened to hold Smithson IT (SSON), Baillie Gifford's Scottish Mortagage (SMT), Monks (MNKS) & USA Growth (USA) whilst I have other ITs and unit trusts less aggressively seeking growth.

In Asia for example I currently hold
Stewart Investors Asia Pacific Leaders to keep and plod on
Henderson Far East Income for some income (dearly purchased for me at the moment -2% after including dividends, from May 2019)
JPMorgan Japanese Investment Trust (JFJ), growing quite well now after a period of indifferent performance
Baillie Gifford China Growth (BGCG) a recent purchase (post Witan Pacific)
Murray International (MYI) a global income trust but has 28% Asia + 5% Asian bonds. Some here think it is a trust that fetches sticks but, hey, every dog has its day.

You asked what would I suggest looking at?
I would still buy more BGCG as a growth investment.
Schroder Oriental income (SOI) would be of interest and it is at a 4.8% discount at the moment. I nearly bought that and purchased JFJ instead.
JFJ is JPMorgan Japanese IT, a Japanese fund
Schroder Asia Pacific (SDP) looks of interest
your selection, JPM EM Trust looks to be on a par with SOI but is neither at discount nor premium to NAV at the moment

Remember I would look at these and I am not saying I would buy excepting BGCG and that is I would for my purposes.

Good hunting

midgesgalore

[midgesgalore]

...
Are there particular SE Asia / EM focused ITs that you'd suggest looking at? The JPM EM Trust is one I have looked at - this looks almost identical to the closed-end fund I own, except with the added bonus of buying at a discount to NAV. The drawback being the initial transaction/stamp costs. And whilst I am generally trying to pivot into ITs, I'm not sure if switching from an open ended fund to it's closed ended equivalent is unnecessary tinkering!

I hear what you say about transaction and stamp costs and I don't like tinkering very much myself.

Note that stamp duty is 0.5%
Some ETFs (and I think trusts registered in the Channel Islands) don't have any stamp duty
Broker fees are around £12.50 with HL etc.

Generally the biggest tranche is the stamp duty.
Considering MYI increased 1.39% today or SSON increased 0.65% today should put stamp duty in perspective (I hold both).
Meaning if I really have a conviction that I want to swap out one investment story into another I would not let stamp duty prevent me.

midgesgalore

[torata]

One point I am conscious of is that my portfolio is very "growth" centric, with high-volatility investments such as Blackrock Gold (a multi-year holding), iShares silver. Given my age and risk tolerance this is not necessarily a problem but I do feel I am under-exposed to "Value" stocks. There's clearly been huge divergence in the performance of both strategies over recent years, however I think now could be a good time to add some exposure to cheap / unloved stocks for an investor with a long-term horizon. I'm inclined to hold approx. 10% of my portfolio in "value".

Hello Mark

I know you've only indicated Funds and Trusts, but there are "Smart beta" ETFs.
I hold the Vanguard Value ETF (VVAL), which I twinned with their Momentum ETF in my pension with the idea of rebalancing between the two when it was worthwhile.

torata

[shawsdale]

On the ASI open-ended funds: they've both performed well and if you're not as set on switching to investment trusts as I'd inferred from your original post you may be wise not to tinker unnecessarily. One rationale for switching out of one or the other is that they're both now co-managed by Harry Nimmo. An excellent fund manager, but worth keeping an eye on possible holdings overlap between the two? I don't know either fund in depth.

On the Buffettology IT launch: the open-ended versions have performed well and the IT structure may enable the managers to go further down the market cap scale than even their Free Spirit fund. As I observed in my reply some micro-cap exposure is probably a good idea given your long-term perspective.

On EM: like 'value' the definition of EM and how each fund/trust puts it into practice deserves careful scrutiny. Specifically, consider any EM exposure in the context of the existing EM/China large cap holdings in SMT and any other global/Asian funds you hold or choose from now. As well as the BG China Growth trust suggested in one of the replies, yet another Baillie Gifford offering, Pacific Horizon, has broader SE Asian and Indian exposure.

On 'value': Temple Bar is, as Sir Humphrey used to say in Yes Minister, 'very brave', but exactly the kind of thinking your long-term perspective allows for!

[msantiago]

Thanks Torata - yes, I'd definitely consider ETFs. I'm looking at adding VWRL but VVAL is a good suggestion, albeit has a heavy US concentration (like many global trusts/ETFs!)

Shawsdale, many thanks
Yes, my original post did infer that so sorry if unclear. I wouldn't say I'm dogmatic about ITs over UTs, though any new investments are almost certainly going to be ITs. for UTs with good performance / where I like the manager and strategy I may hold or slightly reduce positions. That's a good point on ASI Smaller companies so perhaps a reduction in holdings there and switch in SSON, EWI, Buffettology is sensible. I'm showing my ignorance by not being aware of the open-ended fund, which has a stellar reputation it would seem.

Thanks for the pointers on EM/APAC. PHI has had stellar performance and is trading at a huge premium, which puts me off. It also feels lots of the ITs on my watchlist are Baillie Gifford offerings! Clearly they've been successful in their approach, but also wary of recency bias and having too much exposure to a single house. (though I'm definitely nowhere near that level yet!)

[shawsdale]

On PHI: I don't hold it so hadn't realised it was at such a high premium.
Thinking further about non-UK value, Fidelity Asian Values (FAS) might be worth a look.
I do hold this and after a strong start to his tenure the manager's small cap value style has struggled in the last two years.
The discount is now about 10% so it could be a good entry point, the NAV has recovered somewhat in recent months.
The annual results are due shortly which might give more context.

If you're not doing so already, keeping in touch with the Quoted Data site and the weekly City Wire Investment Trust Insider Trustwatch feature would be worthwhile for coverage of investment trusts:

https://quoteddata.com/research/

https://citywire.co.uk/investment-trust-insider/news/trust-watch-battered-uk-trusts-rise-in-nascent-ftse-rally/a1410976?ref=investment-trust-insider-latest-news-list

[richfool]

If I was to widen my suggestions to focus on growth rather than value, and bearing in mind you are still relatively young and so have many years for these to grow, I would suggest:

Global Growth: SMT, Monks, Mid Wynd and JGGI (the latter growth & income)
UK: FGT (Finsbury Growth & Inc)
USA: USA (Baillie Gifford USA)
Europe: BGEU and also BRGE is worth a look to assist diversification
Asia Pacific: PHI, JAGI and SOI (the last two are growth & income)
IBT (International Biotechnology Trust)

I hold all of the above in addition to other more income focused trusts.

BGEU - Baillie Gifford European Growth
BRGE - BlackRock Greater European Growth

[richfool]

I find when I look at some of the mixed investment trusts, the defensive like CGT mentioned above, I start to realise that they contain the vast majority of the stuff I was going to buy anyway. How much of the 'bits of this and bits of that' is us kidding ourselves that we are smart [expletive deleted] when just buying one thing has the wrong 'look' about it.
I have just bought a lump of MATE on a decent discount with half a mind on the infrastructure contained within that will also come with the discount that I would have to pay a premium for on its own. The rest (to within a description like large cap US) I would buy anyway but all split up.
Am I bonkers?
Just throwing this in for comment that both the OP and I may benefit from.

W.

I also hold MATE, bought at a healthy discount last year, because I liked it's multi asset holdings; though it fell in the Covid falls and has struggled to recover. I'm something like -10% down currently. Though I note the dividends keep rolling in. Yield: 4.75% currently.

[richfool]

If you are interested in specific sectors, environmental issues / energy efficiency could be something to consider. I have a holding in Impax Environmental Markets and iShares Global Clean Energy is on a great run.

I don't think I'd look at value. While some companies may be unloved and recover for others their glory days could be behind them. I'd stick with growth.

I'd also consider swapping out the bond fund for more defensive trusts such as Personal Assets or Capital Gearing Trust where the managers have more flexibility about where to invest, but with the aim of preserving capital.

I would agree with you about looking for growth.

Interesting you mention Impax Environmental Markets (IEM). I have been looking at that over the last week or so. I like what it invests in and its capital performance to date, though I think I might be a bit too late to the party if I bought at the current SP, and there isn't much of a dividend to help compensate. It would however be an alternative to holding renewable energy companies (on very high premiums -TRIG & JLEN) directly.