Citywire A-rated investor Richard Scott discusses the funds on his radar running the Vanburgh fund.
by Caelainn Barr on Feb 23, 2012 at 17:28
Article from City Wire Money
Richard Scott, the Citywire A-rated manager of the Vanburgh fund, has bought into the British Empire investment trust following a period of poor performance.
Vanburgh is a fund of funds buying positions in both unit trusts and investment trusts. It made a loss of 2.66% over the last year but since its launch three years ago has returned 56.9%, compared to the Lipper Composite Index returns of 38.2%.
Scott, who works for Hawksmoor Investment Management, has placed 2% of Vanburgh into British Empire, an £800 million investment trust that specialises in buying shares in unfashionable conglomerates it believes can be broken up.
In the past year British Empire shares have fallen 6.6% although over three years the price has risen 46.8%.
Scott said: 'We are looking to buy with fund managers, we believe are extremely good managers, at times when their investment areas are comparatively low valued. Quite often we buy into areas where managers have been having a tough six to nine months and their investment style is out of favour.’
He says: ‘British Empire is a good example, we think its manager John Pennick is a great investor but he’s just had a poor 12 months and his performance is due to turn around.’
Bought Aberforth on the cheap
Scott likes investment trusts, particularly when they give him the opportunity to buy a good fund on the cheap. Unlike unit trusts, which are 'open ended' and can create and cancel units in response to investor demand, investment trusts are 'closed ended' with a limited number of shares. This means their shares can often trade at a discount, below the net asset value (NAV) of their investment holdings.
'An example of that would be something we bought in the fourth quarter last year, Aberforth Smaller Companies investment trust which we bought into a discount of about 17%.
‘They have an opened-ended fund which is identical, the only difference is the investment trust has gearing [borrowing] of about 10% but for all other intents and purposes, the portfolio is the same so you can buy the same underlying portfolio for effectively 83p in the £1 rather than buying the open ended fund and paying 100p on the £1 for the same investments.’
Private Equity Investor
Scott also likes Private Equity Investor, an investment trust operating in the US technology sector.
He says: ‘One thing we have in the portfolio at the moment which is quite interesting is Private Equity Investor, which is only invested in technology private equity. It’s a comparatively unknown trust that invests in early stage technology companies and has investments in some companies that are just getting under people’s investment radars, like Groupon and Twitter.
‘It’s selling at a very large [30%] discount to its net asset value despite the fact that it’s periodically returning cash to its shareholders and obviously there’s no way you could get access to that asset class through open ended funds.
Cautious on government bonds
The fund's top holdings by asset class are in shares, followed by fixed income, or bonds.
Scott says he’s not bullish on the outlook for returns from government bonds, which have slipped back from record highs in the UK in recent weeks.
However two of the fund's top holdings are the Cazenove Strategic Bond fund, managed by Peter Harvey, which invests in a range of corporate bonds where prospects are better; and the M&G Inflation Linked Corporate Bond, run by Jim Leaviss, which invests in index-linked government bonds, which are still in demand as a protection against high inflation.
Scott explains: ‘With a fund in the mixed investment sector, you have to have at least 30% of your assets in fixed interest and cash. We’re not positive about the prospect of government bonds on a global basis that’s the lion share of the fixed interest asset class, so if you’re looking at our top holdings they’re reflective of all fixed interest exposure.’
Article from City Wire Money
