Our experts' investment trust picks for 2011

Published by Ruth Emery on 11 January 2011.
Last updated on 12 May 2011

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Read: Our experts' share picks for 2011

Read: Our experts' fund picks for 2011

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Bank stress tests, fresh rounds of quantitative easing, fears of a double dip and problems across the eurozone have ensured a bumpy ride for stockmarket investors in 2010. The FTSE 100 started the year around 5500 and finished the year only a smidgeon up from that.

At the start of July 2010, we saw banks take a nosedive, as fear grew of a dreaded double-dip recession, and the FTSE 100 touched 4812.

Fast forward just four months and investors had perked up considerably at the news of a $600 billion (£380 billion) splurge of printed money in the US. On 4 November, the FTSE 100 soared to 5862, its highest since 2008.

Continued low interest rates and some better-than-expected company profits also helped keep the stockmarket fairly buoyant in 2010. But fund managers and stockbrokers believe volatility will continue in 2011 and that government spending cuts and tax rises will be painful.

Despite the uncertainty, our experts have picked their investment trusts to watch out for in 2011.

SCHRODER UK GROWTH FUND - Price 121p, discount 5%, yield 2.3%, gearing 13%

The Schroder UK Growth Fund has been managed since 2002 by Richard Buxton, head of UK equities at Schroders. He favours an exceptionally concentrated and actively managed portfolio and is prepared to deploy plenty of gearing.

This resulted in a steep plunge in 2008, but Buxton kept his nerve and was rewarded with a dramatic recovery in 2009.

James Brown of Winterflood Securities backed him in 2009 and is doing so again in 2011. "The trust's gearing has been reduced, but the portfolio remains concentrated. We rate Buxton highly and expect him to continue to add value," he says.

FIDELITY SPECIAL VALUES - Price 536.5p, discount 9.3%, yield 2.2%, gearing nil

Anthony Bolton picked Sanjeev Shah to succeed him as manager of Fidelity Special Values because he has a similarly brave investment style. The 39-year-old has achieved above-average returns over three years, but progress has been far from smooth.

James Burns of Smith & Williamson says: "I like Shah's contrarian approach and his zero weighting to mining shares. This hurt performance in 2010 but could stand him in good stead in 2011."

TROY INCOME & GROWTH TRUST - Price 47.5p, discount 1.7%, yield 3.8%, gearing nil

The former Glasgow Income Trust has been transformed by the board's decision in August 2009 to adopt an income and growth strategy, and appoint Francis Brooke of Troy Asset Management as manager.
Brooke invests mainly in UK blue chips with strong franchises and sustainable dividends, and puts an above-average emphasis on capital preservation.
Charles Cade of Numis Securities says Brooke has done well for the similarly oriented Trojan Income fund since 2004. He likes the trust's yield and its determination to keep the discount close to zero through share buy-backs and issuance.

HERALD INVESTMENT TRUST - Price 440p, discount 21%, yield 0.1%, gearing 11%

Herald invests in smaller quoted companies in the areas of technology, communications and multimedia companies. It has a global remit, but two thirds of its portfolio is in UK equities as that is where founder manager Katie Potts finds the best value.

Jean Matterson of Rossie House Investment Management made it her UK pick for 2010, and has been rewarded with a 40% total share price return. She agrees with Potts that there is still plenty of scope for its holdings to be re-rated or taken over.

"I expect the technology sector to continue to benefit from the drive to improve corporate productivity," Matterson says.

THROGMORTON TRUST - Price 163p, discount 18%, yield 1.7%, gearing 6%

Throgmorton invests in a wide mix of UK medium and smaller companies, with more than 40% of its holdings quoted on AIM.

It has been managed since 2008 by Mike Prentis and Richard Plackett of BlackRock, and is unusual in that it has a long/short portfolio that can raise its gearing to 30% or reduce its effective equity exposure to around 70%.

John Newlands of Brewin Dolphin, one of our top tippers in past years, says: "Richard and Mike have a knack not just of seeking out keenly valued smaller companies but of managing the portfolio, taking profits and reinvesting the proceeds in new ideas.

"This is a high-quality operation on an attractive discount."

NORTHERN INVESTORS COMPANY - Price 192p, discount 33%, yield 4%, gearing nil

Northern Investors is a small but well-established private equity trust that provides active managerial support to its unquoted holdings with a view to increasing their efficiency and value.

John Newlands of Brewin Dolphin tips the trust as one that highlights the advantages of the closed-end structure.

It originally focused on north east England, but now casts its net across the UK. 40% of its assets are in cash. If this is taken into account, its invested portfolio is priced on a excessively wide discount of around 60%.

He adds: "It is a well-managed company that is not well-publicised and is arguably mispriced as a result."

This article was originally published in Money Observer - Moneywise's sister publication - in January 2011

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