3 Trusts to Consider in 2015

ASK THE EXPERT: These closed-end funds are highly rated by analysts but have underperformed expectations in recent years, could 2015 be the year they rebound?

Emma Wall 8 January, 2015 | 11:55AM
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This article is part of Morningstar’s Guide to Investing Ideas for 2015, our comprehensive round-up of where the most promising stocks, funds and markets can be found this year.



Emma Wall: Hello and welcome to the Morningstar series, 'Ask the Expert.' I'm Emma Wall and here with me today is Szymon Idzikowski, Morningstar closed end fund analyst.

Hello Szymon.

Szymon Idzikowski: Hi Emma.

Wall: So, I thought today we could highlight three investment trusts to watch in 2015. What's your first investment trust?

Idzikowski: Well, the first investment trust I think is worth watching is Montanaro European Smaller Companies Fund (MTE). It's a fund we rate Silver. It's a fund with a very strong long-term track record but one that struggled a little bit over the last couple of years and actually both in 2013 and in 2014 actually the reasons have been quite similar. We saw a number of rotations. We saw companies with emerging market exposure underperforming domestic players. We saw growth underperforming value, quality underperforming low quality. So, these were some of the features that potentially held the fund back.

But looking at the history, these things happened before. This rotation has happened before and subsequently each time the fund bounced back proving that the process has merit and indeed it's a process that keep in high regards. It's tried and tested. It's an experienced team. It's a well-resourced team. And the fund currently trades at a discount – which is why there – than its long-term average, which provides an attractive entry point.

Wall: On Europe, of course, there is a lot of political clout behind the region making sure that they really come out of this recovery which of course will support stock market.

Idzikowski: Exactly. We saw a recovery in U.S. We saw a recovery to some extent in U.K. Europe is lagging somewhat, but I'm sure that's going to be the next market.

Wall: What's the second fund today?

Idzikowski: So, another fund I think is worth watching is Temple Bar (TMPL). It's a Gold-rated fund run by Alastair Mundy. He predominantly invests in U.K. large cap names and he looks for cheap companies that are out of favor but that have good a balance sheet that allows them to go through those difficult times. So, it's a contrarian long-term approach and again, one that likely to beat last year. The fund holds some (gold). There were some names such as Tesco that didn't work out last year but these are the names we would actually expect a value investor to hold.

And again, if you are an U.K. investor or if you're an investor who keep doing for U.K. exposure given this year there will be an election in the U.K., potentially the government will have minority, there will be some political uncertainty, I think the benefit of this fund is that historically it proved it can actually protect on the downside, so potentially one to hold in a more choppy market.

Wall: Considering even in a plateauing market like we've had over the last 12 months, as you say, looking for that type of investor who really is thorough and goes underneath to look for contrarian bets, they are going to do better than someone who just matches the market?

Idzikowski: Yes, exactly.

Wall: What's the third fund?

Idzikowski: So, the third one is Murray International (MYI). It's a fund run by Aberdeen's global equity team. It is a fund that does invest actually in a global equity, large cap names and again, one with a great long track record that last year – actually last two years it's struggled a little bit and again, similar story where quality names underperformed low quality. But we've got again a very experienced team behind it and a strong track record. Actually, another maybe point about this fund, another thing that held it back is its structural underweight to the U.S. and to Japan and overweight to emerging markets which all three were again held it back. But given potentially how far the U.S. valuations went, how stretched they are, again…

Wall: This is the year to be underweight in the U.S.?

Idzikowski: It could be the one, yes.

Wall: Thank you very much, Szymon.

Idzikowski: Thank you.

Wall: This is Emma Wall for Morningstar. Thank you for watching.

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.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Montanaro European Smaller Ord185.11 GBX0.60Rating
Murray International Ord1,169.20 GBX-0.58Rating
Temple Bar Ord1,238.00 GBX-0.48Rating

About Author

Emma Wall  is former Senior International Editor for Morningstar