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Last updated: January 11, 2013 6:54 pm

Wanted: seasoned pro for junior portfolio

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Looking for an investment trust for a Jisa

One of my resolutions for 2013 is to stop worrying about Greece, Spain, hard landings and fiscal cliffs. Instead, I spent a good portion of the festive break figuring out what I will do with a Junior Isa (Jisa) that I have opened for a young saver, with an emphasis on keeping it as simple as possible.

One sensible approach is to use John Redwood-style passive portfolios, comprising cheap index tracking funds that “do the job” of tracking major asset classes. This approach, which I’ve written extensively about in my book on exchange traded funds (ETFs), has much to commend it. As strategies go, it is cheap, transparent and ideally suited to the long term.

The disadvantage is that with no fund manager calling the shots you are never going to outperform an index. I don’t regard the absence of an active fund manager as a terrible imposition; there is plenty of evidence that active managers generally don’t add much value.

But the main reason for not using this approach with the Jisa is that most of my other investments have a strong passive tilt. For this investment, I want something a bit different. I’m after one fund, for the long term, at low cost where the manager adds real value, or alpha as it’s called in the trade.

To find the right fund, I’m using all sorts of different measures. Data about past returns is useful and I’d certainly like to avoid clunkers which have a terrible relative performance to a benchmark index. But past returns data are only the beginning. I’m also looking for an “individual” manager with a style and process of their own and a passion for investing their investors’ money wisely.

There’s more (I’m quite demanding). I’m after a bias to equities, since this is a long-term investment to pay for no doubt gargantuan university fees and such like, but it would be nice if the manager were also willing to make bets on bonds or hedge funds when he or she thought it appropriate.

I’d also like to see a concentrated portfolio with a relatively small number of holdings. After all, if I want lots of diversification within a fund I’d just buy the index through an ETF.

I’m a big believer in managers having “skin in the game”. I’d like to see evidence that the manager has invested lots of his or her own money in the fund and might even be using it as a form of family trust. I don’t want anything too large to be nimble – I’d like between £50m and £500m in assets under management.

And of course I don’t want to be paying too much for all this. Ideally I’d want a total expense ratio of 1 to 1.2 per cent, including any performance fees, I don’t fancy paying a premium to book value and I don’t want to have to make a chunky profit just to overcome the bid-offer spread.

Many quixotic investment instruments have appeared in this column over the years, but in this instance there’s a gaggle of London-listed investment trusts that tick most of these boxes. Most of them sit in an industry category called something like global growth or global fund of funds. I’ve put up a table (see below) based on data from researchers at Numis. I reckon there are at least eight funds that tick most of my boxes, leaving aside the giants such as Alliance Trust or Scottish Mortgage.

David Stevenson’s investment trust suggestions
Fund name Share price (p) Premium discount Market cap £ (m) Bid offer spread % Launch date NAV returns year to date % NAV returns 5 yrs % NAV returns 10 yrs %
Establishment 201.0 -9.8 40 3.0% Mar-02 19.6 38.6 193.1
Independent IT 212.8 -11.7 126 1.2% Oct-00 12.9 23.0 184.7
Personal Assets 34,980.0 1.3 558 0.4% 1983 5.8 47.4 125.7
RIT Capital Partners 1,120.0 -7.0 1,740 0.1% 1988 6.7 9.4 199.3
Capital Gearing 3,418.0 13.2 100 3.3% 1963 6.9 52.8 184.4
London & St Lawrence 293.5 -4.0 84 1.0% 1957 15.3 23.2 117.6
Lindsell Train IT 29,500.0 14.4 59 10.2% Jan-01 17.2 71.0 221.1
Ruffer 196.9 1.0 282 0.6% Jul-04 3.5 75.5 -
Bacit 106.3 7.8 220 0.5% Aug-12 - - -
Fund name No of holdings Top 10 holdings as % Listed % Unquoted % Bonds % UK holdings as % Total expense ratio %
Establishment 30 33.9              98                 2            -                                      16 1.57
Independent IT 38 41.7           100                  -            -                                      73 0.39
Personal Assets 21 31.2              69                  -        31                                      29 1.01
RIT Capital Partners - 28.8              56              23            -                                      14 1.42
Capital Gearing 104 38.3           100                  -            -                                      30 1.30%
London & St Lawrence 50 42.7              96                  -           4                                   100 0.74%
Lindsell Train IT 19 78.8              91                  -           9                                      60 1.53%
Ruffer 65 40.0              62                  -        38                                      18 1.16%
Bacit - - - 100 - - -
 Source: Numis

Looking at the funds listed in the table, the Rothschild’s investment trust RIT Capital Partners has been one of the most popular choices in the last decade, especially for finance industry professionals. But performance hasn’t been that great in recent years and I sense it may now be a bit too big for its own good.

The contrarian Personal Assets Trust has mopped up a lot of money in recent years and ticks boxes for a multi-asset approach, a fabulous board of directors, reasonable charges and a very distinctive view of the world. But again, I’m slightly underwhelmed by recent numbers and I’m not overly keen on the portfolio composition, especially its bias towards gold. Nevertheless though if capital preservation is your game, go for personal assets.

Then there’s the long established Capital Gearing Trust and the slightly younger Lindsell Train Investment Trust. Both funds tick almost all my boxes: they are run by hugely respected, experienced managers who boast distinctive approaches. But there’s a downside – shares in both funds are expensive. They trade at whopping premiums to book value and their bid offer spreads can be a bit chunky. I’d also note that Lindsell Train’s total fees including performance charges are also quite high and I’m concerned that the long-established manager at Capital Gearing could retire in the next few years.

I have a great deal of respect for the Independent Investment Trust and the Establishment Trust, but on balance I find myself slightly preferring London and St Lawrence Investment Trust (run by Jenny Sculley) as well as the larger more diversified Ruffer Investment Trust, run by Steve Russell and Hamish Baillie. Both trade at reasonable discounts, and both look to be a sensible balance between capital growth and preservation.

It’s also worth mentioning one last fund: the Battle Against Cancer investment trust which has just listed and adopts a very distinctive multi-asset class fund of fund policy. It’s managed by Tim Henderson, who’s put lots of his own money in, has very low running costs and invests in some first-rate underlying fund managers, including a star-studded cast of hedge funds who provide their funds for free. Unfortunately this fund is so new that one can’t make any meaningful analysis of its record so far, and its shares already trade at a premium.

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