UK-focused investment trusts may offer a safe haven

Like that other great rhetorical saying about ‘crisis and opportunity’ that is invariably attributed to the Chinese, the curse ‘may you live in interesting times’ may not originate from China. However many UK investors are probably finding the recent market gyrations, currency devaluation and trimmed growth forecasts coming out of the world’s second largest economy rather too ‘interesting’ for their risk profiles.

With this in mind and coupled with the fact that UK’s albeit stuttering recovery still offers the promise of some of the best growth in the developed world, we examine two investment trusts that offer investors UK-only exposure.

Getting started

A good starting point in researching the investment trust space is by going to AJ Bell Youinvest Investment Trust quickrank.

A drop-down menu on the right offers a choice of sectors and for our purposes, we are looking for the ‘UK All Companies’ option then click Search This will reveal a list of investment trusts listed alphabetically.

If we then click on the ‘Structure’ tab, clicking the column header ‘Market Cap (m)’ will sort the list by size of market capitalisation. Mercantile Investment Trust (MRC) at £1.65 billion is one of the largest; we can access more detailed information about Mercantile by clicking on its name.

On this page there is a lot of information with a number of additional page options on the left hand side. If one is looking to ascertain the kind of companies in which the trust is invested, the ‘Portfolio’ option offers a breakdown in terms of geography; in this case, 87% of total assets are invested in the UK.

The Portfolio option also gives site-users an industry/sector breakdown. This reveals that three quarters of the total assets are invested roughly evenly between companies in the consumer services, general finance and general industrials sectors with the rest of the porfolio’s assets being divided between consumer goods, technology, basic materials, healthcare and oil and gas.

The breakdown

On a sectoral breakdown the Mercantile Investment Trust satisfies our UK-biased investment criteria.

Looking at the exposure levels, and given the current state of affairs in terms of oil prices and its impact on further exploration (at least in the short term), one would probably conclude that an exposure of 0.6% in Oil and Gas is plenty.

Mercantile’s top holding is in support services play DCC (DCC) at 2.3%, followed by high-end, housebuilder Berkeley Group (BKG) at 1.9% while carpentry specialist Howden Joinery (HWDN) completes the top three at 1.8%.

Staying in the UK All Companies list, it’s worth checking the contents of another fund’s portfolio. Take for example Woodford Patient Capital (WPCT), a quick look at the geographic breakdown reveals a UK exposure of only 64.6% with the remainder being invested in Ireland (10.8%), USA (9.9%), Norway (1.9%) and Luxembourg (1.9%).

In terms of industry allocation, this investment trust is currently heavily weighted towards healthcare from late-stage clinical biotechnology play Prothena (PRTA:NASDAQ) at 3.3% to Northwest Biotherapeutics (NWBO:NASDAQ) at 3.0% and probably wouldn’t suit the profile of a risk-averse investor seeking exposure to UK income or growth.

Data correct as at 29 September 2015.

Sean Flynn