Protecting downside and achieving good equity growth are not two things you would necessarily assume could be achieved in the same fund, especially not a listed one. But Keystone Investment Trust (KIT) proves otherwise.
- Good performance
- Mitigates downside
- Attractive yield
- Low charges
- Lags in market rallies
This UK growth investment trust has outpaced the FTSE All-Share over one, three and five years by a good margin, as well as the average UK growth investment trust. In terms of annual returns, in difficult years such as 2008 it was one of the trusts which lost the least - 16.7 per cent as opposed to more than 39 per cent for the average UK growth trust, and around 30 per cent for the FTSE All-Share.
"We think Keystone is a good choice for the more cautious equity investor," says Jackie Beard, head of fund information company Morningstar's investment trust research team. "The fund manager, Mark Barnett, places great emphasis on understanding the downside risk. Risk is considered from an absolute perspective, and position sizes are then weighted by perceived risk. Returns under his tenure have been solid, but he's achieved these results without taking excessive risk."
IC TIP RATING | |
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Tip style: | GROWTH |
Risk rating: | MEDIUM |
Timescale: | LONG TERM |
The shares have traded at a modest discount since Mr Barnett took charge in 2003 fluctuating only slightly. Wide and volatile discounts are a reason why some cautious investors stay away from investment trusts, but this has not recently been a problem for Keystone.
The trust also doesn't use derivatives as Mr Barnett likes to keep his process simple and focus on picking the right shares.
Mr Barnett has also done well both in terms of capital growth and dividend payments with IC Top 100 Fund Perpetual Income & Growth Investment Trust (PLI). Read our tip
Mr Barnett has worked at Invesco Perpetual since 1996 and runs a number of UK equity portfolios, specialising in income investing. He has more than 20 years investment experience having begun his career at Mercury Asset Management in 1992.
His investment style with Keystone leads him to dividend paying companies, although he does not require a yield to invest in a share, and he favours strong cash flows on the grounds they are a good indication of a company's ability to grow dividends. Mr Barnett believes the best companies are those that grow their dividends over time, and this leads to capital growth. So despite having long-term growth as its primary objective Keystone throws off a good yield of 3.5 per cent - almost as high as Perpetual Income & Growth, and as good or better than many UK income investment trusts. But unlike many of these, including Perpetual Income & Growth, Keystone trades at a slight discount rather than at a premium.
The trust has a low turnover (typically less than 40 per cent), which means less of the profits are eaten up by trading costs.
The trust is not always the top performer in its sector, though is among the best few over three and five years. Because of its cautious stance it may lag in market rallies, such as in 2009.
But with a good yield and downside protection, all for a modest ongoing charge of 0.95 per cent (even when a performance fee is levied), for a cautious equity investor this trust is a good BUY.
KEYSTONE INVESTMENT TRUST (KIT) | |||
PRICE | 1362.5p | GEARING | 110% |
AIC SECTOR | UK Growth | NAV | 1,374.24p |
FUND TYPE | Investment trust | PRICE DISCOUNT TO NAV | 1.21% |
MARKET CAP | £183.17m | YIELD | 3.52% |
No OF HOLDINGS | 65* | ONGOING CHARGE | 0.95% |
SET-UP DATE | 19 November 1954 | MORE DETAILS | www.invescoperpetual.co.uk/investmenttrusts |
Source: Morningstar, *Invesco Perpetual
1-YEAR PRICE PERFORMANCE (%) | 3-YEAR PRICE PERFORMANCE (%) | 5-YEAR PRICE PERFORMANCE (%) | |
Keystone share price | 21.57 | 50.22 | 53.95 |
FTSE All Share TR GBP | 14.09 | 27.5 | 29.35 |
Source: Morningstar as at 18 January 2013
TOP 10 HOLDINGS as at 30 November 2012
Imperial Tobacco | 6.0 |
BT | 5.6 |
British American Tobacco | 5.3 |
Reynolds American (US Common Stock) | 4.9 |
AstraZeneca | 4.4 |
Roche (Swiss Common Stock) | 4.2 |
Novartis (Swiss Common Stock) | 3.7 |
GlaxoSmithKline | 3.7 |
Reckitt Benckiser | 3.4 |
BAE Systems | 3.3 |
Sector Breakdown
Healthcare | 20.6 |
Consumer Goods | 20.5 |
Financials | 17.2 |
Industrials | 14.2 |
Consumer Services | 10.7 |
Telecommunications | 10.7 |
Utilities | 5.7 |
Basic Materials | 0.2 |
Fixed Interest | 0.2 |