Last-minute picks: Eight trusts and funds for ISAs

As we continue to creep closer to 6 April, and with ISA season well under way, many people will be considering their investment choices and reviewing what’s in their portfolios before the start of the new financial year. We take a look at eight investment trusts and funds for investors to consider, with different risk levels covering bonds, global equities, insurance, healthcare and dividends.

Cautious investors:

TwentyFour Corporate Bond

TwentyFour is a specialist fixed income boutique with a large team of investment professionals specialising across multi-sector bonds, investment grade bonds and asset backed securities. The business has expertise across these core capabilities.

The managers of this risk aware, sterling corporate bond fund led by Chris Bowie and the team target superior risk adjusted returns versus peers, and the fund is therefore often cautiously positioned within its peer group. The shape of the portfolio in recent years has tended to include an underweight to interest rate risk, offset by an overweight to credit risk. The managers typically view the financials sector as a particularly rich hunting ground for opportunities.

Whilst credit spreads have remained relatively tight heading through the first quarter of 2024, the fund’s all-in yield is still attractive thanks to the now structurally higher risk-free rate in the UK. Providing no major pullbacks in credit spreads, the fund should be able to deliver its c.6% yield over the coming 12 months, with further potential for capital returns should interest rate expectations in the UK fall.

Personal Assets Trust

Personal Assets Trust is a defensively managed multi-asset investment trust where the experienced manager, Sebastian Lyon, puts a high degree of emphasis on capital preservation. The the company aims to protect and increase the value per share for the funds of shareholders over the long-term, with concentrated equity holdings and low turnover.

The manager tends to invest in traditional asset classes (equities, government bonds and gold), and is reactive to market opportunities with his weightings to these core asset classes. Within his equity holding his preference is for higher quality, cash generative businesses. Despite being invested in major, liquid asset classes, the trust still takes on market risk, and there is therefore no guarantee the trust will protect capital over any period. That said, the trust’s long-term performance has been impressive, delivering a return ahead of UK equities with lower volatility.

At the time of writing, the trust is defensively positioned, with the bulk of the trust held in government bonds, mostly inflation linked, with c.10% in gold bullion and c.25% in equities. The trust is not typically geared, and a discount control mechanism (DCM) is in place. This DCM keeps the trust’s share place trading close to its net asset value.

Balanced investors:

BlackRock Continental European Income

This European equity fund is managed with a concentrated approach without reference to its benchmark. The fund’s manager looks to identify quality companies with a high but sustainable dividend yield coming from a strong balance sheet and stable earnings. In addition, the fund will also look to identify opportunities in companies that have the opportunity to deliver long-term dividend growth but may currently yield less than the broader market. The result is to build a diversified portfolio that offers both a reliable and growing income over time.

The fund has been managed by Andreas Zoellinger since 2011 and he is supported by Brian Hall, who became a co-manager in 2021. The pair are backed by an extensive team of analysts who carry out detailed company analysis. The managers typically run the fund with a more defensive risk profile when compared to broader European equity markets. The portfolio is built on an unconstrained basis; however, it is typically focused towards large and medium sized companies and will have around 40 holdings.

Polar Capital Global Insurance

This fund has many of the elements that make for a specialist strategy. A genuine niche in market exposure (non-life insurance businesses), an experienced and specialist team in Nick Martin and Dominic Evans, and committed corporate backing from Polar Capital.

The managers target at least 10% book value growth across the portfolio each year. This growth is made up of the underwriting margins of the invested companies, alongside market returns from their investment portfolios. The expectation is that this book value growth should, over time, lead to an equivalent share price growth, and therefore a doubling of capital returns for the fund every 7-8 years.

Two structural tailwinds for the insurance industry persist at present. Firstly, increased risk complexity within the insurance market, such as cyber risk, increases the premiums charged. Secondly, higher risk-free interest rates, which boost the investment yields earned within investment portfolios.

Adventurous investors:

Baillie Gifford Global Alpha Growth

This is a long-term global equity strategy invested in growth-oriented companies. The fund therefore follows the investment style that is firmly embedded throughout Baillie Gifford. The investment process is entirely driven by bottom-up stock research stemming from a belief that companies which have the potential to grow at a faster rate, and on a more sustainable basis, than their peers are positioned for higher long-term returns.

The research process identifies companies which offer the prospect of sustainable, above average growth in earnings and cash flow. The managers use the broader regional teams to identify stocks for consideration with company meetings an important input into the research process. The resulting portfolio is typically benchmark agnostic and low turnover, usually comprising 70-120 stock positions. Investors should note however that the fund is likely to be highly volatile and act remarkably different to its index over short to medium time frames.

Worldwide Healthcare Trust

The Worldwide Healthcare Trust is managed by OrbiMed, the world’s largest specialist healthcare fund management company. OrbiMed have been active for over 30 years, investing in early-stage private companies to large multinational corporations. The trust has a growth approach to what is traditionally a more defensive industry within equity markets.

The strategy’s three and five-year relative returns are disappointing, predominantly driven by the portfolio’s large weightings within emerging markets and the emerging biotech sector, as well as the accompanying underweight to large cap pharma. The trust has also swung to a c.10% discount over the period. However, the managers believe that fundamentals within biotech remain attractive, with supportive valuations and increasing M&A expected across the sector, particularly given the increased investor attention towards innovation within drugs and related technology.

Given the calibre of the investment team and looking at the longer-term success of the strategy within the OrbiMed franchise, the Worldwide Healthcare Trust provides a strong investment proposition within the healthcare space.

Income seekers:

M&G EM Bond

This emerging market debt fund has a neutral weighting of two third government bonds, issued in either developed market (DM) or local currencies, and one third corporate bonds, issued solely in developed market currencies. The fund is managed by a strong investment team, headed up by the experienced and knowledgeable Claudia Calich. The fund’s long-term performance has been very impressive, outperforming its composite index in all but one calendar year since its 2013 launch.

The neutral split across (two third) government and (one third) corporate bonds, as well as (two third) developed market and (one third) emerging market currencies, results in a diversified portfolio by risk factors. The team’s bottom-up credit selection tends to then generate a higher yield than the composite index, given the team’s preference for both high yield issuers as well as peripheral country bonds.

Man GLG Income

Man GLG Income is a UK equity fund invested across the market cap spectrum. Fund manager Henry Dixon is very e xperienced and his analytical mindset provides a level of pragmatism that allows the fund to navigate through a variety of market conditions. He is ably supported by a small number of portfolio managers and analysts.

The team seek out undervalued and unloved companies through identifying two types of stocks, those trading below their replacement cost and those where the market appears to be undervaluing profit streams. Given the focus on generating income, all stocks held must have a yield in line with the market. The manager also has a preference for stocks which have strong potential for dividend growth (exceeding twice the market average) and bonds (max 20%) that on a relative basis appear more attractive than their company’s equity. In order to avoid value traps the manager additionally focuses on a firm’s cash, cash flow, and assets.

This is a very actively managed fund, which can diverge significantly from the index and have high levels of turnover. These factors often result in both the fund’s volatility and transaction costs being elevated.