Investor Views: I Use Investment Trusts to Access Tech Firms

Private investor Stephen Jenkins is using investment trusts to get exposure to higher risk and more illiquid assets

Emma Simon 20 March, 2019 | 9:52AM

Financial Targets

Stephen Jenkins says he is looking to grow the value of his savings by investing in new technology funds.

Jenkins has worked as a salesman in both the oil industry and the driverless car industry. His experience in both has led him to look to invest in companies that are making the most of new technology and greener energy solutions.

Jenkins has been an investor for about 20 years. He says: “I have company pensions with a couple of previous employers. But I have also tried to invest additional sums through ISAs and SIPPs.

“When I started investing it was at the height of the dotcom boom. I put quite a bit of money into companies where share prices soared and subsequently crashed. It taught me a few useful lessons on the way.”

This hasn’t put him off investing in tech-based stocks, or funds. He says: “I still have exposure to this sector, but I guess I am a bit more wary, particularly of new companies or industries which make over-ambitious claims about how they will transform their sectors. Some might achieve this, but a lot of fingers might get burned along the way.”

Jenkins, who now lives in Edinburgh with his wife, says that in recent years he has tended to focus on the investment trust sector as a cost-effective way to access more smaller tech companies and other start-ups.

He also tries to balance his higher risk growth holdings with more defensive stocks, or ones that have the potential to pay a decent dividend stream.

“When you are investing in higher risk shareholdings it makes sense to diversify. Also it’s hard to get the information or access to newer start-up companies, so I tend to invest through some smaller company or VCT trust structures. I think the managers there are often good at sourcing potential opportunities.”

When it comes to investment trusts, Jenkins has a holding in NextEnergy Solar (NESF). As the name suggests this trust invests in a diversified portfolio of solar assets, primarily within the UK, although up to 15% may be invested outside the UK.

The trust, which has delivered decent returns in recent years, aims to deliver an element of capital growth through the reinvestment of net cash generated in excess of the target dividend. According to Morningstar, shareholders have received total annualised returns of 13.46% over the past three years, and a return of 14.05% over the past year.

REITS Balance the High-Tech Trusts

Other technology holdings include shares in Polar Capital Technology Trust (PCT). This trust has a five-star rating from Morningstar, reflecting its strong growth in recent years against peers.

This trust is managed by Nick Evans and Ben Rogoff, both of whom have built formidable reputations as managers in this specialist sector.

This trust has delivered stellar returns for shareholders. Over the past three years, for example, it has delivered total annualised returns of 30.82%. Its longer term track record is almost as impressive: over 10 years shareholders have received total annualised returns of 23.43%.

Jenkins says that as a counter balance to these hi-tech holdings, he also has shares in a couple of real estate investment trusts (REITS).

These include holdings in Primary Health Properties (PHP) and Empiric Student Property (ESP).

As the names suggests, the former invests in commercial property that is owned and then leased to the health sector, while the latter owns student properties that are rented out.

Jenkins says: “A few years ago I did think about investing in a buy-to-let property, but it did seem to require a lot of money upfront, which would all be invested in one property.

“Reits seemed a more cost-effective way to access this sector. Both these investments give me some exposure to the property market, albeit it not the direct residential one.”

“These seem like good defensive holdings. The student population seems relatively stable and there is demand for good quality rental accommodation here.” Jenkins says both deliver steady income, which he reinvests.

Witan and Scottish Mortgage as Core Holdings

Elsewhere, he has a number of core investment trust holdings.

“I hold a couple of the larger global generalist trusts, such as Witan (WTAN),” he says. 

This trust has a Silver Rating from Morningstar, as well as a four star rating. The trust now operates on a multi-manager basis and is described by Morningstar analysts as a “solid choice” for investors.

Jenkins also has a holding in Scottish Mortgage (SMT), which has a Gold Rating and five-star Rating from Morningstar.

Morningstar points out that this trust focuses on high growth companies and tends to hold them for the long term to gain the benefit of compounded growth.

These companies will often have been new entrants or disruptors into a region or industry. This means there can be a bias towards information technology, healthcare and consumer cyclical stocks.

Morningstar analyst David Holder says: “This isn’t a fund for the risk-averse but does have considerable merit for long-term investors seeking exposure to the potential winners of tomorrow within a broadly spread portfolio.”

Jenkins, who is in his late 50s, says: “I am hoping these will continue to be solid holdings that will continue to deliver over the long term.

“I do buy and sell holdings but prefer to buy and hold where possible as this reduces costs considerably. I guess my ultimate view is to build a portfolio of holdings that will deliver an income when I retire, but I can leave the capital largely untouched - but I am not sure how realistic this is.

“For now I am just trying to invest in companies that look like interesting opportunities. Some have delivered excellent growth and others will hopefully deliver reliable income over the longer term.”

 

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
Empiric Student Property PLC90.80 GBX0.78
NextEnergy Solar Ord120.50 GBX0.84
Polar Capital Technology Ord1,390.00 GBX1.16
Primary Health Properties PLC131.00 GBX1.24
Scottish Mortgage Ord519.50 GBX2.57
Witan Ord211.00 GBX1.20

About Author

Emma Simon

Emma Simon  is a financial journalist, specialising in investment and consumer issues, writing for Morningstar.co.uk

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