The broker has revised its recommended list for the second half of the year and jettisoned some firm investor favourites for alternatives, either because of cost or for more strategic reasons.
Here we look at Winterflood’s recommendations in the mainstream UK Growth & Income and Global Growth sectors.
UK Growth & Income
Switch from Lowland to Diverse Income
James Henderson’s £328m Lowland Investment Company has seen the biggest returns in the IT UK Growth & Income sector over the past 12 months, making 43.82 per cent compared with 29.47 per cent from the average trust, according to data from FE Analytics.
Performance of trust vs sector and benchmark over 1yr
Source: FE Analytics
On a total return basis, NAV gains were 30.2 per cent over the year, the fifth-best result out of the 23 funds in the sector, with the trust moving from a discount to a 2.5 per cent premium, boosting share price returns.
However, Winterflood says that the Diverse Income Trust, managed by Gervais Williams, now represents a more interesting strategy.
Diverse Income is a multi-cap income trust and Winterflood says the small cap exposure offers a good way to diversify away from the mega cap stocks that fill most yield-paying portfolios.
Since launch in April 2011 it has made 40.69 per cent, compared with 33.3 per cent from the average trust in the sector.
Performance of trust vs sector since Apr 2011
Source: FE Analytics
Williams (pictured) believes that income stocks will continue to be in high demand, but that this has yet to filter through into the valuations of smaller companies, making it a good time to buy into the sector.
The fund has two thirds of its portfolio outside the FTSE 350, including one-third in AIM.
The AIM holdings could receive a boost later this year once stocks in the index become eligible for inclusion in an ISA.
Winterflood points out that as a result of a merger with Miton Income Opportunities Trust (formerly Henderson Fledgling), which is due to be completed in September, the £138m market cap will increase even further.
It said that with a 3.6 per cent yield, the shares are currently attractive, even on a 3 per cent premium.
Global
Switch from Personal Assets to RIT Capital Partners
Sebastian Lyon’s cautious approach in the £587m Personal Assets Trust has won him many plaudits in the current difficult economic environment.
Lyon took over in March 2009 and has run the trust with capital preservation as its core aim. With markets seeing turbulence and uncertainty, it has been a safe haven for many retail investors, with the board employing a discount control mechanism to keep the shares trading at a 0 per cent premium.
However, the trust has struggled recently, losing 0.68 per cent over 12 months compared with gains of 21.48 per cent from the sector and 20.63 per cent from the FTSE All Share.
Performance of trust vs sector and benchmark over 1yr
Source: FE Analytics
Winterflood notes that the long-term record is good and points out that the trust’s large position in gold has hurt it. It also says that RIT Capital Partners, another portfolio to have had weak recent results, now looks more attractive.
Lord Rothschild has a significant holding in the £1.94bn trust and is also involved in managing the portfolio, which Winterflood says helps to give it many of the properties of a family office. Like Personal Assets, its main focus is capital preservation.
The portfolio, which buys both public and private equity, has been very defensively positioned over the past five years, which has led to it underperforming its sector and benchmark.
The trust has made just 19.09 per cent in share price terms while the MSCI World has risen by 57.41 per cent and the average Global Growth trust has made 48.52 per cent, according to data from FE Analytics.
Performance of trust vs benchmark and sector over 5yrs
Source: FE Analytics
The trust’s track record is much better over the longer term, beating its benchmark index over the last decade and returning 206.49 per cent to the 174.75 per cent of the sector average.
The trust has appointed Ron Tabbouche as investment director over the past year, and the former head of public equity, David Haysey, has departed.
It is currently trading on a discount to NAV of 9 per cent, which Winterflood says is wide by historic standards, and makes the trust more attractively valued than Personal Assets Trust.
Switch from Scottish Mortgage to Witan
James Anderson is starting a six-month sabbatical from the Scottish Mortgage trust, leaving control of the £2.15bn portfolio in the hands of deputy manager Tom Slater.
Winterflood says that it rates Slater and believes he shares Anderson’s strategy of focusing on future growth potential, but it is removing the fund from its recommended list and will keep it under review.
An alternative Global Growth fund that makes it on to its list is the £1.17bn multi-manager Witan Investment Trust.
Andrew Bell was appointed as chief executive in early 2010 and has overseen a greater emphasis on active management, Winterflood says.
Bell has removed the enhanced index trackers from the portfolio and switched a number of managers for those with higher alpha.
The current 11 managers are very strong, the broker says, pointing out the new appointments have coincided with an uptick in performance.
In 2013 so far the trust is up 24 per cent in NAV terms, according to Winterflood figures, compared with 15 per cent for its hybrid benchmark of 40 per cent the FTSE All Share, 20 per cent the FTSE AW North America, 20 per cent the FTSE AW Europe ex UK and 20 per cent the FTSE AW Asia Pacific.
Since Bell took over, NAV is up 53 per cent compared with 47 per cent from its benchmark, while the trust has made 54.76 per cent in the past three years in share price terms.
Despite this, it is still sitting on a discount of 10 per cent, according to Winterflood data, which the broker says represents an opportunity.
Winterflood notes that expenses are low, beneath 1 per cent inclusive of performance fees to external managers, and the trust has a policy of growing its dividend, with the yield currently at 2.2 per cent.
In an upcoming article, FE Trustnet will look at Winterflood's new recommendations in more specialist areas such as high yield and property.
