A professional investor tells MoneyWeek where he’d put his money now. This week: James Budden, marketing director of Witan Investment Trust.
Over the last few months, I have, out of necessity, been reconsidering where I’ve been investing my money. Like many other people, I found I no longer had a final-salary pension scheme and had to set up my own money-purchase pension. So, I’ve opened a self-invested personal pension, in which I intend to hold a core of investment trusts as, after all, they feature heavily in my working life.
Some commentators would have you believe the investment trust industry is sinking, what with the question marks hanging over the split-capital fiasco, poor performance and corporate governance. This manifests itself in a lack of demand and, as a result, widening discounts. But there are now real grounds for optimism within the global growth sector. It is true that most of the trusts in this category have turned in mediocre performances since the end of the bull market in 2000: thanks to their lack of proactivity, they have ended up simply tracking weak indices. However, this is changing fast. The trusts are aware that this won’t do and are taking action to improve their performance.
If they get it right, not only should they benefit from improving conditions for equities worldwide, but their share price discounts to net asset value will start to narrow too. Add to that the fact that trusts offer a nice diversity to portfolios, and they make a pretty good investment. They also tend to come at a pretty reasonable price: most have total expense ratios below 1%, whereas most open-ended alternatives (unit trusts) tend to weigh in at around 1.5%. Such a disparity might not seem that much taken in isolation, but, believe me, that 0.5% makes all the difference when you compound it over the 25 years that my Sipp will be running.
So where to put the core of my new pension? RIT Capital Partners stands out. Excellent performance through difficult markets has saddled the trust with a premium rating. RIT uses specialist managers for the various components of its portfolio, and invests in a blend of equities, both quoted and unquoted, hedge funds, fixed interest investments and property. An example of the trust’s past ingenuity is their investment in Japan’s Shinsei Bank, which returned around 500% within four years. You get the whole shooting match with RIT. As befits its provenance – being the Rothschilds’ trust – it has an emphasis on wealth preservation as well as wealth creation. Its performance through the bear market has been outstanding, returning 45% over a three-year period. RIT should continue to be a winner in uncertain times.
Another attractive option for my Sipp is a new entrant to the sector, Caledonia Investments. This used to be a shipping company in the 1880s, but now concentrates on taking active and influential minority stakes in other companies, both quoted and unquoted. It works closely with the management of these companies, usually with Board representation. Caledonia looks to outperform the FTSE and to pay a progressive dividend. Again, like RIT, it has family fortunes at stake – this time the Cayzers’. Through Caledonia, shareholders get a slice of Close Brothers, Polar Capital and British Empire Securities, among others. The last named is actually another hero of the global growth trust sector, standing on a discount of 2.4% – it has returned 83.7% over ten years. All in all, Caledonia is an attractive prospect at a discount of 17%.