Best of British
If you’re looking for exposure to a select basket of the best British companies, take a look at Finsbury Growth & Income Trust (FGT). Its manager, Nick Train, runs a concentrated portfolio of companies with strong brands and/or powerful market franchises. The trust typically doesn’t hold more than 30 stocks – at the end of November it had just 24.
Examples of holdings include drinks company Diageo (DGE) which owns iconic British brands such as Johnnie Walker whisky and Tanqueray gin, and Mondelez International (US:MDLZ), which is listed in the US but owns chocolate maker Cadbury.
Train aims to buy stocks priced below his estimate of their true worth and hold them for the long term, regardless of short-term volatility, in the hope that their value will double or do even better over time. He only sells them if he no longer considers that they are quality companies, or if an increase in value causes them to become too large a proportion of the trust’s assets. This investment approach results in low turnover and saves on transaction costs, so these detract less from the trust’s returns.
This approach has resulted in strong returns over the long-term relative to the FTSE All-Share index and other UK equity income investment trusts. Because of this and Finsbury Growth & Income Trust’s board’s policy of buying in or issuing shares when required, the trust usually trades at close to its net asset value (NAV). However, due to under performance over the past year the trust was trading at a discount to NAV of 4.7 per cent at the end of 2021. The trust can underperform, for example, when value and recovery stocks are doing well as it does not hold them. Reasons for lagging in 2021 include lack of exposure to areas such as energy stocks.
There is no guarantee that Finsbury Growth & Income Trust’s performance will improve and the discount will tighten. But it has bounced back from periods of underperformance in the past and resumed its delivery of strong returns.
So if you want the best of British and potential for strong long-term performance at what appears to be a bargain price, Finsbury Growth & Income Trust could be worth a punt. LW
A good way to capture any bounce back could be Jupiter Financial Opportunities (GB00B5LG4657). Financials stocks such as banks are cyclical and can do well in recoveries and rallies. And they could benefit from rising inflation and interest rates, for example, by increasing the interest rates they charge on their products. Jupiter Financial Opportunities had about 41 per cent of its assets in banks at the end of November. Its 10 largest holdings included commercial lending and services provider Signature Bank (US:SBNY), and major US banks such as JPMorgan Chase (US:JPM ) and Morgan Stanley (US:MS).
However, the financials sector and this fund are far more diverse than just banks. There are many different types of financials companies and Jupiter Financial Opportunities offers exposure to them. For example, it had about a quarter of its assets in investment banking and brokerage services at the end of November, areas which could benefit from a recovery and market upturn. And it invests in finance and credit services companies which could benefit from a pick up in consumer spending.
The fund also invests in newer types of companies which are beneficiaries of longer term trends as more financial transactions are made and processed online. Holdings in this area include Coinbase Global (US:COIN), a financial technology company that provides infrastructure and technology for cryptocurrencies. And the fund has also invested in Alliance Data Systems (US:ADS), a provider of data driven marketing, loyalty and payment solutions, and payment technology services company Global Payments (US:GPN).
When selecting stocks, Jupiter Financial Opportunities’ manager, Guy de Blonay, looks at the economic backdrop as a whole and individual companies’ credentials, and tries to identify themes which could affect financial services companies. He favours companies which are able to grow organically and sustainably but still at a reasonable valuation. He also looks at whether a company’s products can continue to grow, and its position in the market and management team.
Jupiter Financial Opportunities has performed well against its benchmark, MSCI ACWI/Financials index, over the long term though can undergo periods of underperformance. LW
From clean energy to the rise of artificial intelligence, there are more than enough “mega trends” from which to choose. But targeting them can be difficult, for example, some thematic funds have been accused of taking too narrow a focus while broader ones may seem too diluted.
One fund with an interesting approach is HAN-GINS Tech Megatrend Equal Weight UCITS ETF (ITEP). The Solactive Innovative Technologies index that it tracks focuses on companies poised to benefit from the “fourth industrial revolution”. So this index currently has a focus on blockchain, future cars, robotics and automation, digital entertainment, cyber security, cloud computing, genomics, and social media. The index is designed to include companies driving innovation in these areas.
HAN-GINS Tech Megatrend Equal Weight UCITS ETF is fairly diversified with more than 100 holdings. Its equal weighting process means that it spreads assets across different companies, though its investment themes have recently had differing levels of representation. Blockchain, future cars, and robotics and automation recently were its biggest allocations, while social media was less well represented than any of the others. Around half the fund’s assets are in US stocks and its second biggest geographical allocation is China.
Innovative tech stocks are a common feature in many popular funds including US, global and thematic equity funds. But this ETF aims to avoid a common area of overlap by avoiding concentration in larger stocks such as the FAANGs – Facebook owner Meta Platforms (US:FB), Amazon (US:AMZN), Apple (US:AAPL), Netflix (US:NFLX) and Google owner Alphabet (GOOGL). The equal weighting approach means that these big tech names never become an overwhelming presence in HAN-GINS Tech Megatrend Equal Weight UCITS ETF.
You may well wish to make more targeted plays on individual themes or back an active fund when seeking the winners of tomorrow. But this ETF may offer a useful middle ground or starting point because with it you can back a multitude of exciting tech trends via one holding. DB
Best in the world
Rathbone Global Opportunities (GB00BH0P2M97) has quietly become one of the biggest “generalist” global equity funds thanks to a proven knack for backing winners. A look at performance from the past decade shows that its process has delivered double-digit total returns in most calendar years. In rough years, the fund has tended to suffer less than MSCI World index.
While many of the most popular global funds can claim to back the best companies, this fund stands out for its focus on both innovation and durability. The fund's manager, James Thomson, and his team seek businesses that are growing fast and disrupting their industries, with a desire to spot these companies before they become household names. They like companies that are durable and difficult to imitate, but avoid emerging markets and “unpredictable sectors with poor growth prospects”. They also tend to shun businesses that have previously performed poorly, and back some companies producing slow and steady growth as a way of reducing risk.
The fund had 61 holdings at the end of October, with familiar names among its biggest holdings such as NVIDIA (US:NVDA), Alphabet and Amazon. Like many global funds, Rathbone Global Opportunities has a hefty weighting to the US.
Although Rathbone Global Opportunities has a level of overlap with some other big global funds, its managers reduced tech exposure in 2021 to create space for industrials, consumer, banking and medical technology stocks. They explained: “We believe that some stocks in the ‘old economy’ will awaken from their hibernation as capital expenditure and capacity expansion plans are triggered to meet higher demand as many industries modernise, and integrate digital strategies into legacy products and services.”
This could be an important dividing line as we move into 2022. DB
BlackRock Smaller Companies Trust (BRSC), a fund we highlighted in our 2021 Ideas of the Year, has delivered in spades over the past 12 months. It has capitalised well on the bounce back for UK smaller companies, with a total return of nearly 40 per cent over the year to 13 December. But while its focus on high quality, cash generative companies continues to appeal, it’s also worth considering a stablemate with a broader remit.
BlackRock Throgmorton Trust (THRG) has also had a bumper year when it comes to returns. This is impressive because its managers spread the assets across a mixture of small and medium sized companies. It may be less of a pure small-cap play, but BlackRock Throgmorton Trust has tended to offer better returns than many dedicated smaller companies funds over different periods.
The trust's investment team likes to back what it considers to be the UK’s “most differentiated and exciting emerging companies”, with a focus on businesses with strong management teams, and strong or dominant market positions. They also seek companies leading change in their sectors, and some 'market darlings' can be found among the trust’s bigger positions, for example, Watches of Switzerland (WOSG) and Impax Asset Management (IPX).
As the trust’s board highlighted in its last annual report, it’s encouraging that some of the biggest positive returns have come from a broad range of stocks in different industries. A common feature identified among these was that of “continuous delivery (and upgrades)” against clear business objectives, and a tendency to benefit from secular growth trends.
The trust's managers can also take short positions – bet on the price of an asset falling. This ability could prove useful if 2022 proves to be a rockier year for equities. DB