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Advisers back income focused investment companies for the ISA season


With low-interest rates and inflation an ongoing concern for investors, financial advisers are once again turning to the income potential of investment companies and the long-term growth story of Asia and Emerging Markets for their ISA recommendations.

The AIC has collated ISA recommendations from Dennis Hall, Chartered Financial Planner at Yellowtail Financial Planning, Tim Cockerill (pictured), Head of Collectives Research at Rowan Dartington, Gavin Haynes, Managing Director of Whitechurch Securities Ltd and Neil McCarthy, Investment Analyst at Heron House Financial Management.
For the second year running, advisers have singled out Templeton Emerging Markets as an adventurous pick, whilst Asian smaller companies and private equity are also tipped via Aberdeen Asian Smaller Companies and HGCapital Trust.
An income theme dominated the more cautious recommendations with John Laing Infrastructure, Schroder Income Growth and Edinburgh Investment Trust being tipped whilst a defensive position was represented by Personal Assets.
Neil McCarthy, Investment Analyst at Heron House Financial Management, says: “Personal Assets has an excellent track record of navigating its shareholders through difficult times. Its primary focus is to preserve capital and then achieve growth. The trust remains defensively positioned with a continued focus on global blue chips, index linked bonds and gold. Its success has not gone unnoticed and at times the shares do trade at a premium although a mechanism is in place to control the premium level. In fact the company aims to trade close to NAV, and has a zero discount policy.”
Gavin Haynes, Managing Director of Whitechurch Securities Ltd recommends Edinburgh Investment Trust. “This trust provides a low cost way to get exposure to the management of the very highly regarded Neil Woodford at Invesco Perpetual. Woodford has an exceptional track record of managing UK equity income funds and the trust performed excellently in 2011, providing a positive return in a tough climate. In fact it has outperformed the FTSE All Share index over one, three and five years. This is an excellent way to gain exposure to blue chip, defensive equity income stocks.  Whilst the trust regularly trades on a small premium, this reflects the high regard in which the manager is held. The trust provides a compelling 4.5% yield.”
Tim Cockerill, Head of Collectives Research at Rowan Dartington recommends Schroder Income Growth. “The objective of this fund is to generate real income growth and with this capital appreciation. It invests in the UK and looks for companies where valuations are attractive given the manager’s view of their future potential. Most will be higher yielding of course given the fund objective, but the ability to maintain and grow their dividends is an important aspect of the stock selection.  Although the trust may appear to be rather conservative it is concentrated, presently holding around 39 stocks. This means each stock held within the trust is significant; the largest holding is currently Vodafone at 8.9%. With a yield of 5% and a good long-term capital growth track record the trust is suitable for those investors wanting a balanced long-term investment.”
Dennis Hall, Chartered Financial Planner at Yellowtail Financial Planning recommends John Laing Infrastructure Fund. “This fund seeks to make long term sustainable distributions from its investments. It invests in both the equity and/or subordinated debt issued in respect of completed infrastructure projects that are in an operational phase. The investments are mainly in the UK (66.4%) and Canada (21.7%), with smaller holdings in cash and in projects in Finland. The fund currently trades at a small premium (4.9%) which reflects the quality of underlying investments and the attractive 5.4% dividend yield. Over its short life – it launched in late 2010 – it has outperformed the index and its benchmark. The size of the fund places it within the FTSE 250 index.”
For his higher risk preference, Dennis Hall, Chartered Financial Planner at Yellowtail Financial Planning recommends HgCapital Trust. “The company was established in 1989, and its objective is to provide long-term capital appreciation in excess of the FTSE All-Share Total Return Index by investing in unquoted companies. The Trust provides investors with exposure to a diversified portfolio of private equity investments primarily in the UK and Continental Europe. It trades at a discount of 13.2% which is surprisingly small given that most other private equity funds have discounts of between 30% – 50% to NAV. It is a relatively concentrated portfolio of underlying investments, with the top 20 holdings accounting for 90% of the portfolio value.”
Tim Cockerill, Head of Collectives Research at Rowan Dartington recommends Aberdeen Asian Smaller Companies. “A lot of positive factors come together in this trust. Firstly it is managed by Hugh Young and the Aberdeen Asian team whose process and approach is tried and tested and among the best in this area. The region offers investors exposure to high growth dynamic economies, a huge population that is growing steadily wealthier, resulting in an expanding domestic economy. And smaller companies have the ability to grow more quickly than larger companies. The fund is focused on the domestic markets in the region and smaller companies which are high quality, profitable and well managed. All in all a very attractive package.”
Gavin Haynes, Managing Director of Whitechurch Securities Ltd recommends Templeton Emerging Markets. “I believe that after a tough year in 2011, valuations across emerging markets offer an attractive entry point for the long-term investor. This trust is managed by the highly regarded Mark Mobius who has been managing the trust since 1989. His long-term track record with the investment trust is one of sound outperformance and this is a good choice to capture the exciting growth potential of these markets.  Mobius has over 30 years’ experience investing in emerging markets. His style is very much value-driven and portfolio construction may lead to deviations from the benchmark markedly at times. Mobius holds a diverse portfolio of 100-120 stocks and this is a good core holding for broad emerging market exposure.”
Neil McCarthy, Investment Analyst at Heron House Financial Management: “SVM Global is broadly structured into six different themes and offers the opportunity to gain exposure to areas that more mainstream trusts avoid. The trust currently trades on a discount of 16.5% and many of its underlying holdings also trade at significant discounts. We feel there is plenty of value on offer with the potential for a great deal of upside. Performance in the past has been volatile and we would expect this to remain the case in the future.”
Annabel Brodie-Smith, Communications Director, Association of Investment Companies, says: “ISAs are an ideal way to maximise your stocks and shares allowance. Advisers have highlighted the suitability of investment companies for investing in more specialist areas such as Private Equity and Emerging Markets, as well as highlighting the sectors strong representation in more generalist sectors such as the UK Income and Growth and Global Growth sectors. Investment companies have an enviable track record when it comes to consistent and growing income and with some interesting launches in recent years with an income theme, for example in the infrastructure sector, there is a wide range of choice for investors willing to do their homework.”


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