By Annabel Brodie-Smith
Spring is in full bloom in Oxfordshire, and it was looking glorious. However, I can hear thunder and rain right now and my dog is Scooby-Doo howling at the storm. With the bank holiday weekend approaching, it was inevitable that the rain would return.
On the plus side, the UK stock market has finally come back to life, with the FTSE 100 enjoying a run of all-time highs. With this in mind, this month we have looked at several UK investment trusts where managers currently have high levels of gearing as they expect strong returns from UK markets.
“The UK stock market has finally come back to life, with the FTSE 100 enjoying a run of all-time highs.”
Gearing, namely borrowing money to invest, is an advantage of investment trusts, which gives managers the ability to supercharge returns in rising markets. These higher levels of gearing suggest that managers are optimistic about the future of UK markets, and the recent record highs reinforce that positive outlook.
Guy Anderson, manager of the Mercantile Investment Trust, says his gearing, at roughly 15%, is the highest it’s been in over a decade. He says he is “highly optimistic about UK equities.” Laura Foll, manager of Lowland Investment Company, which is 11% geared, says they use gearing “particularly at times like now when we are finding a large number of value opportunities across the UK market.” And Iain Pyle, manager of Shires Income, which is 15% geared, explains that “UK valuations are significantly lower, with an approximate 40% discount to global equities”.
,Many of these trusts are on deep discounts which, looking on the bright side, may bring the prospect of a triple whammy for their shareholders: rising share prices, narrowing discounts and a performance boost from the gearing. However, it’s important to understand that gearing increases risk, as it magnifies performance during market downturns. Do read the article to find out more about which UK managers have high gearing and why.
Meanwhile Ian Cowie explores the plentiful opportunities that India offers at a time when the country is heading to the polls. Ian knows the benefits of long-term investing in India better than anyone. He bought JPMorgan Indian in 1996 for 63p per share, and this week it was trading at 969p. It’s also his longest continuously-held share. More recently he’s invested in India Capital Growth Fund.
India is also a special place for me for an entirely different reason – I went there on honeymoon nearly 19 years ago. I visited the Hawa Mahal in Jaipur (pictured on the cover of this section), which was designed to allow royal ladies to observe everyday life and festivals in the street below without being seen.
Looking at the performance figures, the India / Indian subcontinent sector has had quite a run. The best performer over the short and medium term is Ashoka India Equity, up 49% over one year and 163% over five years. Ayush Abhijeet, investment director at White Oak Capital and adviser to the trust, expressed confidence that there is more to come. He said: “A potential multi-decade growth opportunity is unfolding as incomes per head rise.”
Finally, four financial advisers have given their investment trust recommendations for those building up a pension and those drawing an income from their pension. There are lots of suggestions so don’t miss this.
I’d like to wish you all a lovely bank holiday weekend whatever the weather. We have a 17th birthday to celebrate at home next week – along with the exciting, but somewhat scary, prospect of my son taking driving lessons. Wish me luck!
See you next month,
Annabel Brodie-SmithCommunications Director, AIC
