Shares to buy, hold and sell: Tony Yarrow
BUY: 3I INFRASTRUCTURE
Yarrow calls this trust a reliable but boring asset. It owns companies with rolling stock, companies leasing trains to train operators and ones leasing oil terminals, for example. The trust's strategy is to provide long-term, reliable, index-linked income while retaining ownership of the asset.
It does not matter who wins the franchise to operate the trains – they will still need to be leased.
Yarrow says this model varies from traditional infrastructure companies, which often lease the asset, say a building, for a set period, and ownership of the asset is then transferred to the company that has been renting it. "This is a buy and hold share for us," says Yarrow, who is expecting it to make an ongoing annual return of between 10% and 15%.
Despite this he is not wary of a surge in popularity for the trust. "People have the smell of recovery in their nostrils at the moment so this trust is not very interesting to them." Bought at £1.21, he says it is "a real opportunity". 3i Infrastructure also owns a large chunk of Anglia Water group, which provides a steady income stream and helps diversify the trust's portfolio.
This is a private equity investment trust looking for rapidly growing companies in specific sectors, such as technology. "I like it because it is very picky about the companies it chooses," says Yarrow. The products these companies sell are "safe" ones, with good customer
Yarrow admits the trust "did not read the cycle well" and "came unstuck before the crisis". It raised cash and then laid low for a while before investing in a range of companies in 2010, which Yarrow is looking forward to seeing mature over the next year or two.
HG Capital is expected to announce its end-of-year financial report in March and Yarrow feels this will have a positive impact on its value. "I think we might see quite an improvement as we are going into a sweet spot in the business cycle," says Yarrow.
The trust is a long-term hold, with TB Wise Investment first buying into it in 2005. "It's done well for us and I have a lot of confidence in the management and feel like I know what they are doing." The fund is restricted to a maximum of 10% in any one share, and the fact that HG Capital accounts for 9.5% of the fund is testament to Yarrow's confidence.
SELL: TR EUROPEAN GROWTH
Run by Henderson, this trust looks for smaller company opportunities in Europe. Its biggest holding is in Swiss-based healthcare company Novartis. It is managed by Ollie Beckett, who Yarrow rates highly.
With investors becoming more bullish in recent weeks, however, European smaller companies have become more popular and Yarrow has sold the shares for fear of a backlash.
"These companies have become flavour of the month and the price of the trust has gone up. I can't believe how much they've gone up in such a short space of time and I'm scared it might go down," he admits.
Yarrow adds: "There are so many fireworks that could go off in the eurozone still and people really do seem to have forgotten that. If we have a bad headline or two we could see a sell-off."
TB Wise Investment bought shares in the trust at £2.77 three years ago and sold them for a 47% profit at £3.90. But Yarrow is still a fan of smaller companies and thinks European funds, where managers have access to so many individual markets, are well placed to find the best opportunities.
He's disappointed he has had to close his position, though. "I never feel comfortable selling things I like."
Investment trusts are companies that invest money in other companies and whose shares are listed on the London Stock Exchange. As with unit trusts, private investors buying shares in an investment trust are buying into a diversified portfolio of assets (to reduce risk), which is managed by a professional fund manager. Investment trusts differ from unit trusts in two important ways: they are listed on the stockmarket and so are owned by their shareholders and are closed-ended funds with a finite number of shares in issue. This means the share price of investment trusts might not reflect the true value of the assets in the company (known as the net asset value, or NAV) and if the NAV value of a share is £1 and the share price in the market is 90p, the trust is said to be running a discount of 10% to NAV. But this means the investor is paying 90p to gain exposure to £1 of assets. Investment trusts can also borrow money and use this money to buy investments. This is known as gearing and a geared trust is thought to be more of an investment risk than an ungeared one.