Bankers "excited" about China A-shares

"The Bankers Investment Trust already invests in Chinese companies through 'H' shares listed in Hong Kong, however the greater depth and wider selection opportunities of the 'A' share market are restricted to many investors," says Mr Crooke. "We are very excited to have been granted a Qualified Foreign Institutional Investor quota to invest directly into this market. The overall market is appealing as we see significant potential for earnings growth over the next five years from a low valuation point. The 'A' share market has de-rated significantly so we will be buying in at incredibly low valuations.

"The breadth of the 'A' share market also gives us access to companies operating across many more sectors within the Chinese economy (at the end of May 2013 over 2,400 companies were listed on the 'A' share markets of Shenzhen and Shanghai). There is a huge wealth of companies to look at including ones which will benefit from drivers such as wage growth as there is greater potential to access stocks linked to consumer spending and growing income."

The quota will be invested across a number of Chinese companies and is expected to be completed before the end of November 2013.

At the same time as investment in China will increase, exposure to the UK will steadily reduce. UK-listed companies currently account for the vast majority of assets, 41.5 per cent as at the end of May.

However, Mr Crooke acknowledges that only around a third of the revenue of the UK market comes from domestic sources, and he uses shares listed in London to play international themes. Examples include the development of shale gas via UK listed energy services provider Hunting (HTG), which provides services for fracking, the process used to extract gas from shale. This relatively new method of extraction has created great interest but Mr Crooke feels that "the hype has gone a bit too far. Only North America is driving this method which works in the US, and also Russia and parts of China. But I struggle to see it work in Europe."

This intensive process is less likely to be well received in countries with a smaller land mass and higher population density.

"Also, within one year shale gas wells typically offer 75 per cent less production, and usually it is over within two years," he says. "We also need to see how alternative forms of energy play out as well as taking into account efficiency improvements."

Mr Crooke believes there will be limited upside to oil prices and is underweight oil majors but overweight oil services.

But he adds: "However, I think within North America fracking will be important for at least the next five to six years."

Another theme the trust is investing in is the dramatic growth in wealth inequality since the 1970s. The rich getting richer tends to benefit luxury goods companies such as US leather goods producer Coach. However, bearing in mind that these might reverse for reasons including the US extending healthcare to a further 35m people and the possibility of an increase in the US minimum wage, the trust also has exposure to healthcare companies such as GlaxoSmithKline (GSK), education companies such as Investors Chronicle owner Pearson (PSON) and mass market retailers such as US listed Wal-Mart.

Despite having nearly 60 per cent of its assets listed outside the UK, the trust still uses the FTSE All-Share Index as its benchmark. Analysts such as those at Investec argue that given the trust's international exposure a more appropriate benchmark might be the FTSE World or MSCI World indices against which it has performed roughly in line.

However, Mr Crooke says it is appropriate to use the FTSE All-Share because if the trust is taking the risks of investing overseas "we'd better outperform the domestic market to improve on the capital returns you can get in the UK."

He adds that The Bankers Investment Trust has consistently outperformed this index except in 2009.

While The Bankers Investment Trust is classified by the Association of Investment Companies in its Global Growth sector, as well as its aim of growth in excess of the FTSE All-Share, the trust also aims for regular dividend growth in excess of the increase in the Retail Price Index. As a result the trust targets companies with a growing cash flow, which has enabled it to raise its dividend every year for the past 46 years. Careful stock selection also meant the trust did not have to dip into its reserves to raise the dividend over 2008 and 2009 because, for example, it was not relying on banks many of which scrapped their dividends.

Mr Crooke adds: "We invest in companies which grow their cash flow because this is what drives future dividend growth and pays dividends long-term."