Hidden gems: 12 funds and trusts that deserve the limelight

29th November 2021 10:17

by Jennifer Hill from interactive investor

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The shiniest things come in small packages, as we discovered when we asked professional investors to unveil the sub-£300 million funds worth unwrapping.

Over the past couple of years, there have been various examples of big funds continuing to swell in size amid high demand from investors – most notably Fundsmith Equity and Scottish Mortgage (LSE:SMT).

It can pay to think outside the box, however. Analysts and professional investors, from financial advisers and wealth managers to multi-managers, see value in propositions that have fund managers at the helm with proven track records but for whatever reason have relatively low amounts of assets.

Here, they reveal a dozen – six funds and six investment trusts – with assets below £300 million that could be worth unwrapping.

Allianz UK Listed Opportunities

Kingswood, a wealth manager, bought the Allianz UK Listed Opportunities fund in late 2018 and is surprised it is not bigger than its current size of £132 million.

“One reason could be its value style, which has been out of vogue for most of the past decade,” says investment analyst Sam Buckingham. Despite this style headwind, Matthew Tillett, manager since the strategy’s launch in 2011, has presided over outperformance of the FTSE All-Share index in the last six calendar years.

“The fund’s relatively high volatility due to its small- and mid-cap bias could be another reason,” added Buckingham. “But even when looking at risk-adjusted returns performance has been impressive.”

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ES River and Mercantile UK Recovery

The £216.2 million ES River & Mercantile UK Recovery fund has experienced similar headwinds given its focus on the unloved UK market and value stocks particularly.

Managers Hugh Sergeant and Will Lough use ‘Moneypenny’, River and Mercantile’s proprietary stock screening system, to generate ideas from companies of all sizes.

The multi-manager team at BMO Global Asset Management initiated a position in the fund in July 2018 to get exposure to a “diverse, well-thought out value offering to complement other funds held”, says investment manager Kelly Prior. The move is paying off: the fund is a top decile performer over the past year. The fund has been in interactive investor’s Super 60 list since launch, January 2019.

Miton UK MicroCap Trust

Run by the highly experienced smaller companies duo Gervais Williams and Martin Turner, Miton UK Microcap (LSE:MINI) has around 80% of its £106.2 million assets in FTSE AIM stocks.

“UK equities have not been front and centre in asset allocators’ minds, let alone the smaller end of UK small-caps, but there are exceptional companies in this part of the market that experienced active equity investors can access, particularly with the benefit of the investment trust structure,” says Anthony Leatham, head of investment companies research at Peel Hunt.

He regards the trust’s discount as attractive (currently 5%), particularly considering its annual redemption feature, which allows shareholders the opportunity to exit at or close to net asset value (NAV).

Ninety One UK Sustainable Equity

This £125 million Ninety One UK Sustainable Equity fund is a very recent purchase for Casterbridge Wealth, having been added to its sustainable impact portfolios in mid-October.

The discretionary fund manager likes the fact that the team conducts its own sustainability analysis instead of relying on external data. “This allows it to gain much greater clarity on the underlying companies and then actively engage on planned business developments,” says research analyst Annie Borg.

“Although a couple of years old, the team hasn’t marketed it heavily and we don’t expect this leader in the UK sustainable space to stay small for long.”

Climate Assets

A constituent of interactive investor’s ACE 40 list of best-in-class ethical investments, Quilter Cheviot’s £264 million Climate Assets Fund has significantly outperformed over the longer term under the stewardship of long-standing manager Claudia Quiroz.

She has two decades’ experience in sustainable, ethical and responsible investing and favours businesses driving solutions to some of the world’s toughest challenges – from climate change and resource scarcity to population shifts.

Dzmitry Lipski, head of fund research at interactive investor, deems it suitable for investors with a balanced risk appetite, seeking to invest in sustainability and environmental technologies with lower volatility than other growth investments.

Martin Currie Global Unconstrained

Ben Yearsley, a director of Shore Financial Planning, has recently started using the FTF Martin Currie Global Unconstrained fund. It is the smallest of our dozen with assets of just £54 million, but Yearsley likes the focused approach of the global long-term unconstrained team at Martin Currie, led by Zehrid Osmani. The fund owns 20 to 30 of what the team believes are the world’s strongest companies.

“The simple philosophy is that markets underestimate the long-term growth potential of stocks and under-price or tire of them too soon,” says Yearsley. “The team tries to exploit these inefficiencies. Buy and hold for the next decade.”

Mobius Investment Trust

An interactive investor Super 60 pick, the £159 million Mobius Investment Trust (LSE:MMIT) suits investors with a higher risk tolerance.

Veteran emerging market investors Mark Mobius and Carlos von Hardenberg invest in a concentrated portfolio of 25 to 30 smaller companies across emerging and frontier markets for the long term (five-plus years). In addition to the growth opportunities and diversification benefits is their belief that they can impact positive change due to the lower environmental, social and governance (ESG) standards in their investment universe.

“The trust could be best utilised as a satellite growth engine to complement a well-diversified portfolio,” says Lipski.

Invesco Asia Trust

Asian investment trusts have tended to trade at discounts, something that Alex Moore, head of collectives at Rathbones, attributes to their higher risk and relative underperformance to developed market peers. “This has hindered trusts’ ability to grow by being able to issue shares at a premium, but can present opportunity,” he says.

He rates the £260 million Invesco Asia Trust (LSE:IAT). Manager Ian Hargreaves blends attributes of growth and value investing and his approach has been rewarded in recent years. The trust is not being overly tilted towards growth or cyclicality, while still holding names in attractive sectors such as technology and consumer cyclicals.

Ashoka India Equity

Ashoka India Equity (LSE:AIE), an investment trust, might only have £180 million of assets but it has grown considerably since its £47 million floatation in July 2018.

“While it might have been easy to overlook this trust at launch, it is nimble, it makes good use of the investment trust structure and has produced very strong absolute and relative performance,” says Leatham at Peel Hunt.

Its Mumbai-based management team at White Oak India favour smaller companies and can invest up to 10% in unlisted companies – a particularly lucrative source of returns.

There is no management fee with the manager preferring to be paid in shares based on outperformance.

AVI Japan Opportunity Trust

In existence for three years and on wealth manager Ravenscroft’s buy list since then, the £162 million AVI Japan Opportunity Trust (LSE:AJOT) offers exposure to the relatively untapped asset class of Japanese smaller companies.

The investment team led by Joe Bauernfreund focuses on companies that have a substantial amount of net cash on their balance sheet or are rich in other assets such as property.

“Most of the companies have no broker coverage and AVI uses ‘activism’ as a catalyst to close the discount they perceive to intrinsic value,” says portfolio manager Chris Bell. “This process is constructive and not aggressive, engaging with management on a shared goal.”

Jupiter Emerging and Frontier Income Trust

Jupiter Emerging & Frontier Income (LSE:JEFI), run by Ross Teverson, has the highest yield in the global emerging markets investment trust sector at 4.3%. It is not doing badly in capital growth terms either, having outperformed sector stalwarts such as Templeton Emerging Markets (NYSE:EMF) and JPMorgan Emerging Markets (LSE:JMG) over the past year.

Despite that, it has assets of only £65 million. “The launch [May 2017] was reasonably successful for an equity trust at the time. However, sentiment turned against emerging markets a year later,” says James Carthew, head of investment companies at QuotedData. “The board is keen to see it re-expand.”

Magna Emerging Markets Dividend

Wealth manager WH Ireland has held Fiera Capital’s €184.3 million (£157.8 million) Magna Emerging Markets Dividend fund in its model portfolios for more than five years and believes its blend of attractive characteristics deserve more recognition.

“The portfolio screens cheaper than the market with faster forecast earnings and dividend growth, while also bettering the benchmark on quality metrics,” says deputy portfolio manager Jack Byerley. “Thus, we have a fund that combines value, growth and income investing in one of our favoured regions.”

It has outperformed the MSCI Emerging Markets index since inception in 2010, despite being unable to invest in non-dividend paying Chinese tech giants.

These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. 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.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

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