Investment trusts for 2012

Alan Brierley, director, Collins Stewart

Cautious: BH Macro (BHMG)

"BH Macro gives investors exposure to the Brevan Howard Master Fund, one of the most successful hedge funds using a global macro investment strategy. It has performed well since launch and its fortunes are inversely correlated to that of the underlying financial markets. Accordingly, we would expect challenging market conditions to prove a fertile environment for the managers to extend a highly impressive performance record. We regard it as a core holding for investors looking to improve portfolio quality and diversification."

Adventurous: Pantheon International Participations (PIN)

"Pantheon, a fund of private equity funds, has outperformed the MSCI World Index by an annualised 4.5 per cent over the past 15 years, yet somewhat inexplicably the shares trade on a 45 per cent discount to net asset value (NAV). The balance sheet has been strengthened in the past couple of years, and the portfolio is in good health, generating strong revenue and earnings growth, and maturing well. Provided the global economy can avoid a sharp contraction, we expect continued NAV outperformance to be compounded by a re-rating from deeply distressed levels."

Charles Cade, head of investment companies research, Numis Securities

Cautious: Personal Assets Trust (PNL)

"Personal Assets has delivered strong performance through a risk-averse approach, which emphasises protection of capital. Its manager, Sebastian Lyon, is wary about the market outlook and believes there are underlying inflationary pressures. As a result, the fund maintains a high level of liquid assets, primarily US index-linked securities, which represent 35 per cent of assets. The fund also has 14 per cent in gold bullion and 5 per cent in gold mining shares.

The remainder of the portfolio is invested in long-term equity holdings in market leaders with pricing power, such as British American Tobacco, Tesco, Coca-Cola, Unilever and Nestlé. The fund is different from its peers in that it has a zero discount policy, a commitment to buy back shares at a tight discount and to issue shares on a small premium."

Adventurous: Pantheon International Participations (PIN)

"This fund invests in a diversified global portfolio of private equity funds with a focus on secondary assets. Its manager is a leading private equity specialist with over 60 investment professionals. Investors are nervous about private equity investments and, as a result, PIP's discount has widened to more than 40 per cent. But this derating has gone too far. PIP's balance sheet is in good shape and it has a mature portfolio with relatively low debt which is generating significant amounts of net cash flow from realisations. This means the fund can repurchase its own shares and take advantage of attractive investment opportunities. We see scope for NAV growth in 2012 to be enhanced by a narrowing of the discount."

Stephen Peters, investment trust analyst, Charles Stanley

Cautious: Schroder Income Growth (SCF)

"Many investment trusts considered to be more cautious are on premiums to NAV. Schroder Income Growth is on a discount of around 6 per cent but yields 5.7 per cent, which is higher than most of its sector peers and just about covered by the fund's revenue from its investments. The trust has a market cap of around £130m so it is a decent size, and its managers run their money in a fairly cautious and defensive way."

Adventurous: TR European Growth (TRG)

"The prospects for this trust are in part dependent on a resolution to the European debt crisis, because TR European Growth invests in smaller companies in this region. Performance was shocking over 2011 and the trust is currently on a discount of around 21 per cent. However, TR European got a new fund manager in July who has a good record with other investment funds, and European smaller companies are an interesting sector."

Nick Sketch, senior investment director, Investec Wealth & Investment

Cautious: International Public Partnerships (INPP)

"Infrastructure investment trusts offer a decent return, probably 5 to 7 per cent a year over long periods, with little direct economic risk. They are not cheap today, but may offer an opportunity to earn a decent return without taking much equity risk. I would suggest International Public Partnerships (INPP) which currently trades on a premium of around 9 per cent, but has indicated that it is looking to issue more shares, probably at a premium of only 1 or 2 per cent, which would be worth targeting. The trust has exposure to assets that should start to produce more revenue in the next 18 months, something the other infrastructure trusts don't have and why INPP is apparently more expensive than them."

Adventurous: Advance Frontier Markets (AFMF)

"The debris of recent years has left many investment trusts likely to see discounts close by 15 per cent or more over the next couple of years, which suggests impressive share price returns if economic disaster is averted. But diversification will be important, as not all will prosper even if we see a modest recovery. For those looking to take a higher-than-average degree of risk, it may be simplest to look for well-run trusts that one would expect to hold for many years, but where today's prices offer a good entry point. For example, Advance Frontier Markets looks cheap at a 14 per cent discount to NAV."