Please note that tax, investment, pension and ISA rules can change and the information and any views contained in this article may now be inaccurate.
How to put money into specific sectors with investment trusts
The simple option for investors these days is to choose a tracker fund which mirrors a certain part of the market. Therefore, actively managed funds really need to add value and deliver market-beating returns if they are to convince investors not to go for the easy option of a tracker fund.
There are numerous investment trusts offering broad exposure to specific geographies or investment styles like income or growth. Another benefit is their ability to provide access to specific sectors and there is plenty of choice available.
In this article we discuss some of the trusts on the market that provide exposure to commercial property, mining, private equity and technology. You’ll also find some useful tables which give examples of trusts targeting other sectors.
UK COMMERCIAL PROPERTY
For investors seeking to gain exposure to UK commercial property, there are various investment trusts to consider. These include BMO Commercial Property Trust (BCPT), which trades on a 23% discount to net asset value, the biggest in its sector, despite recording a 43% one-year share price gain. The trust also offers a 4.3% dividend yield.
The significant discount to NAV may be due to its heavy exposure to offices and retail outlets that are viewed as being out of fashion in the post-Covid world of remote working and online retail.
The average discount in the sector is 12.2% according to Winterflood data, with only two trusts in this space trading on a premium to net asset value. These are AEW UK (AEWU) at 1.3% and LXI REIT (LXI) at 19.5%.
In general, discounts have started to narrow versus the 12-month average and among those seeing this trend is Standard Life Investments Property Income Trust (SLI), currently trading 19.7% below the value of its net assets.
The 5% yielding trust has seen its share price rise by 29% over the past year and has a particular focus on industrial assets.
In a recent investor update fund manager Jason Baggaley explained that ‘we have sold two more offices further reducing our exposure to (this part of the) sector. As a result of these disposals, offices account for just under 30% of the portfolio, while our weighting to logistics and industrials is slightly over 50%’.
HarbourVest Global Private Equity (HPVE) is one way for investors to obtain exposure to the private equity sector. It offers a diversified approach with an emphasis on holding other private equity funds.
At the end of July, the trust had 51% of its assets invested in primary private equity funds, with 28% in secondary assets and 21% in direct investments.
From a net asset value and share price performance perspective HarbourVest has a better track record than the other four private equity fund of funds listed in the sector. These are BMO Private Equity (BPET), ICG Enterprise (ICGT), Pantheon International (PIN) and Standard Life Private Equity (SLPE).
According to Winterflood data, HarbourVest returned a one, three and five-year NAV performance of 47%, 84% and 127% respectively. This is significantly ahead of the corresponding sector averages of 38%, 66% and 108%.
HarbourVest’s share price performance tells a similar story recording one, three and five returns of 53%, 94% and 141% versus sector average returns of 50%, 68% and 119% respectively.
BlackRock Word Mining Trust (BRWM) may be of interest to investors who are income focused and eager to gain exposure to the mining sector.
The trust is run by Evy Hambro and Olivia Markham who believe that the increased regulatory emphasis on pollution and carbon emissions will continue to generate opportunities for mining companies. For example, lithium, cobalt and nickel are all in demand given their use in batteries for electric vehicles.
BlackRock Word Mining Trust has outperformed its benchmark, the MSCI ACWI Metals and Mining Index, on a one, three and five-year basis. Moreover, for income orientated investors it offers an 4.1% yield, which is the highest in the sector.
Ben Rogoff has managed the Polar Capital Technology Trust (PCT) since 2006. Recent underperformance has seen the discount to net asset value widen to 9.1%. However, it has a longer-term record of beating its benchmark, the Dow Jones Global Technology index.
The global pandemic has highlighted that the modern world is built on technology. In a recent investor update Rogoff described how Covid has fostered the emergence of ‘a new work modality in the form of hybrid working’, which will outlast the pandemic and provide the ‘foundation for the next wave of technology disruption’.
In London and New York workplace activity remains less than half of where it stood pre-pandemic. Rogoff believes that ‘business travel may not recover, and we have witnessed Zoom and other business platforms’ abilities to fill this gap, and they are far less environmentally damaging’.
According to analysts at Numis, the trust has achieved net asset total returns of 603% versus 584% for the Dow Jones World Technology index.
Numis says Polar Capital Technology is one way to gain diversified exposure to global technology stocks focused on driving future growth, rather than the industry incumbents.