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To access funds first-timers can’t usually reach, trust a trust

Matt Hoggarth, chartered financial analyst, Thesis Asset Management.

Each week we ask an expert for tips on how to invest £10,000. This is the final part of our four-week series looking at building your first investment portfolio. It is aimed at those who have some money to spare but do not want it to languish in cash accounts paying pathetic rates of interest.

If you have the money but need it to put down a deposit on your first home in the next few years, the stock market is not for you. You should be able to leave it invested for at least five years.

For our next series, which will start next week, we will ask our experts for tips on setting up an investment portfolio using the growing number of platforms that offer “ready-made” portfolios, based on your goals and how much risk you want to take.

This week, Matt Hoggarth, a chartered financial analyst at Thesis Asset Management, which looks after funds worth about £12.6bn, argues that first-time investors should consider investment trusts. These are basically companies that make investments on shareholders’ behalf.

He said: “First-time investors should not ignore investment trusts. They can provide a cheap way to access fund managers and gain exposure to alternative assets that are otherwise tricky for individuals to access.”

Hoggarth, 36, who lives near Chichester, West Sussex, explains: “An investment trust is essentially a company that manages a portfolio of investments rather than selling particular goods or services. The board of directors acts in the interests of the shareholders [that is, the investors in the trust] and keeps costs under control.”

He said there were distinct advantages to using an investment trust — for example, they can be easier to trade than unit trusts in some circumstances. You buy and sell the stock just as you would any other share via your broker or investment platform.

There are additional considerations, however: “Because the price at which investment trusts trade is set by supply and demand on the stock exchange, they may trade at a premium or discount to the value of their assets. Investors can take advantage by investing when the discount is greater or the premium is lower.”

Here Hoggarth outlines his picks. He would invest £6,400 in the Law Debenture Corporation and £1,200 in each of the three other investment trusts mentioned.

Law Debenture Corporation (up 25% over 12 months)
This would be my core fund for a starter portfolio. The name of the trust may suggest it invests in businesses involved in the world of law. However, it invests in more than 100 different UK and global companies in a wide range of sectors, including healthcare, energy and financial services. The top holding is Royal Dutch Shell.

The manager, James Henderson, takes a “contrarian” approach, which means he seeks undervalued companies ignored by other investment professionals.

The annual charge is 0.45%, which is low by comparison with many actively managed funds. You pay this on top of any platform charge.

The share is currently trading at an 8.8% discount to its “net asset value”, meaning it is cheap in comparison with the assets it holds.

International Public Partnerships(up 10.6% over 12 months)
This trust invests in projects to construct and manage public infrastructure, such as schools, hospitals, energy transmission systems and transport links. The investments are made both in the UK and internationally.

Its focus is on public-private partnership schemes where governments pay investors a return over the life of the project. This provides a steady, reliable source of income that is backed by government.

The company is trading at a 10.7% premium and has an annual charge of 1.2%.

BH Global (flat over 12 months)
This investment trust gives private investors access to hedge funds, which typically require you to invest a large amount — usually £100,000 or more. It also means avoiding tying up your money for years, which you may have to do to access a hedge fund directly. If you don’t like the performance of the trust, you can simply sell your share.

The ongoing charge is relatively high at 2.45%. However, I feel it is worth the premium to access this kind of approach to investing. The share is trading at a 10.8% discount.

TwentyFour Income (up 3.4% over 12 months)
This company invests in debts that are secured against assets, such as property. You may have heard about “mortgage-backed securities”, which have a bad name due to their association with the 2008 financial crisis. In my opinion, however, many such investments are very robust.

This trust is also a hedge — that is, a way of protecting yourself — against rising interest rates, which could be around the corner if inflation continues to rise. Higher interest rates are one “tool” the Bank of England can use to tackle inflation. As the debts held by the trust generally have a “floating interest rate” — one linked to a central bank’s rate — the returns would be expected to go up if interest rates rise.

The share is trading at a 3.3% premium and its annual charge is 0.99%.


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