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| Subject: There is also Utilico Investment Trust | |
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Author: 31.01.2004--NZ time |
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Date Posted: Friday, February 13, 03:04:52am In reply to: Channel 10 news. 's message, "Sydneys rail system in chaos--5/2/04--Oz" on Wednesday, February 04, 10:00:38pm Brian Gaynor: Solid performance with less anxiety 31.01.2004 COMMENT UK investment trusts and other listed portfolio investment groups have been among the top performers on the New Zealand stock exchange since the end of 2002. These entities receive little media attention yet they have produced an average return of 14.6 per cent since December 31, 2002, compared with a 17.6 per cent rise in the NZSX40 Capital Index. Listed portfolio investment groups should not be confused with the traditional New Zealand investment companies, Chase Corporation, Equiticorp, Brierley Investments, Guinness Peat Group, Hellaby Holdings and others. These have had extremely volatile returns, mainly because they are not constrained by investment mandates. Portfolio investment groups are far less risky and volatile because they have clearly defined mandates. These mandates usually require the investment manager to track a particular sharemarket index, hold a minimum and maximum number of shares, have a maximum exposure to any one company, a clearly defined policy on the use of derivatives and a maximum gearing ratio (borrowings). The positive feature of portfolio investment groups is that they are well-diversified within their given mandates. Emerging markets, particularly Venezuela, Thailand, Argentina, Brazil and India, were the top performers in 2003 and it is not surprising the best performing NZ listed investment trusts specialise in this area. Templeton Emerging Markets Investment Trust, which is benchmarked to the MSCI Emerging Markets Index, is weighted towards China (including Hong Kong listings) 15 per cent, South Korea (14 per cent), Brazil (13 per cent), Thailand (11 per cent) and Turkey (7 per cent). The top country weightings of F&C Emerging Markets Investment Trust are Korea (18 per cent), Taiwan (15 per cent), Brazil (12 per cent), Mexico (8 per cent) and Russia (6 per cent). Templeton and F&C have different investment styles. Templeton takes a bottom up approach: it picks the best companies in emerging markets regardless of where they are based. F&C takes a top-down approach: it forms an opinion on preferred countries, based on the economic and political outlook, and invests in the best companies in these countries. In addition, F&C takes advantage of gearing whereas Templeton does not. Emerging market funds can be volatile but according to figures produced by First NZ Capital, F&C has had a positive return of 9 per cent a year over the past five years and Templeton 8.4 per cent. Both funds have outperformed the MSCI Emerging Markets Index over this period. F&C Small Companies, Fleming Japanese Investment Trust, Henderson TR Pacific Investment Trust and Henderson Far East Income Trust have also performed strongly since the end of 2002. F&C Small Companies has 44 per cent of its investments in the UK, 26 per cent in the United States and 10 per cent in Japan. The fund is well diversified with nearly 300 individual holdings and its fourth largest is Lloyd Morrison's Infratil, which represents 0.9 per cent of the total portfolio. The fund trades at a big discount to net asset backing because investors are cautious about small company funds that invest outside the UK and US. Fleming Japanese Investment Trust has a diversified portfolio of nearly 100 stocks, including small companies. Henderson TR Pacific Investment Trust and Henderson Far East Income Trust focus on the Asia/Australasia region ex Japan but the latter has a bias towards high dividend yield stocks. Reflecting this, TR Pacific had a 23 per cent weighting towards Korea and 21 per cent in Taiwan as at October 31 while the Income Trust had 22 per cent in Australia and 14 per cent in Hong Kong. The two best-performing Australasian focused funds over the past 13 months have been the NZSX10 Fund and The New Zealand Investment Trust. The former is a passive fund that has to track the NZSX10 Index to maintain its tax-free capital gains status. NZSX10 Fund trades close to its asset backing as investors can redeem their holdings at, or marginally below, asset backing. As a consequence the total number of units has fallen from 188 million to 77.8 million over the past five years. The New Zealand Investment Trust is a UK-based fund with 76 per cent of its assets in New Zealand, 18 per cent in Australia and 6 per cent in cash. Its major holdings are Fisher & Paykel Appliances (10.6 per cent), Fletcher Building (9.1 per cent) and Telecom (8.8 per cent). The other investment trusts listed in New Zealand: * Foreign & Colonial Eurotrust, which invests in a wide range of companies in Western Europe with a strong emphasis on banks and other financial institutions. * Merrill Lynch European Investment Trust, which also invests in European companies but has less exposure to the well-performing financials and medium and small companies. * Foreign & Colonial Investment Trust, a huge diversified fund that is included in the FTSE100 Index, the benchmark index of the London Stock Exchange. It has 39 per cent of its assets in the UK, 24 per cent in Northern America, 23 per cents in Europe and 14 per cent in Japan and other markets. * Bankers Investment Trust, which has a global mandate but at present has a heavy weighting towards the UK (57 per cent and financial companies (27 per cent). * JP Morgan Fleming Overseas Investment Trust, a diversified global fund that is benchmarked to the MSCI World Index. * City of London Investment Trust, which invests in UK companies with a strong emphasis on financial and service companies. * Anglo & Overseas Trust, a global fund with a strong emphasis on the UK (44 per cent) and North America (34 per cent). Its performance has lagged because of poor stock selection in the US and too much gearing in a falling market. There is also Utilico Investment Trust, which is run by the unconventional Duncan Saville. Its performance is difficult to assess because the trust was formed last year following the winding up and reconstruction of The Special Utilities Investment Trust. Its top two holdings in August were Australia-based ERG, which is also held by the New Zealand listed company Utilico International, and Infratil. The other listed portfolio investment groups are: NZ Mid-Cap Index Fund, which is similar to the NZSX10 Fund; Tortis-Ozzy, which invests in the largest Australian companies; Australian Foundation Investment, one of the listed Australian companies that trades at a premium to asset backing, and WINZ, AMP's global fund. Most of the UK investment trusts trade at a discount to asset backing because there is an overhang of institutional held units and investors worry about the ability of the managers to realise portfolios at market value. Nevertheless these vehicles offer investors an excellent opportunity to diversify into world markets, particularly the funds that are listed here because their announcements are made available to the NZX and unit prices are included in the Herald's daily share table. Two New Zealand brokers, Peter Irwin of First NZ Capital and Michelle Perkins of ABN-Amro Craigs, specialise in investment trusts. Irwin recommends JP Morgan Fleming Overseas as a good exposure to world markets, Henderson TR Pacific because of its focus on Asia, and Foreign & Colonial Eurotrust because he believes Europe offers undervalued opportunities. Perkins likes Fleming Japanese as it has a high exposure to exporters and is under-weighted in the troubled Japanese banking sector; Templeton Emerging Markets because it takes a bottom-up approach and focuses on value, and City of London, which invests in the top UK multi-nationals and has a high dividend yield. There is a wide range of internationally oriented listed portfolio groups on the New Zealand stock exchange. Investors interested in diversifying their portfolios should talk to their brokers about these funds. * Disclosure of interest: Brian Gaynor is a director and shareholder of The New Zealand Investment Trust. * Email Brian Gaynor - ADVERTISEMENT [ Next Thread | Previous Thread | Next Message | Previous Message ] |