The last turkey in the shop Analysts’ investment trust picks

Going their separate ways The outlook for every major region in 2022
Issue 79 / December 2021 A hard act to follow Rounding up the year in investment trusts

2021 IN REVIEW
Fund, Pension, Trust Sector Profile Stockpicker What I Bought Last
 Editor’s letter
As usual for the December edition of Trustnet Magazine, we look back at the events
that have shaped the past 12 months and ask the experts what next year will hold.

Starting with this month’s cover feature, Danielle Levy rounds up markets in 2021, while Cherry Reynard
focuses specifically on the investment trust universe.

Turning the focus from the past to the future, I ask the experts for their investment trust picks for the year
ahead, while Hannah Smith examines the prospects for every major region in 2022.

In our regular columns, Jonathan Brown and Robin West of Invesco Perpetual UK Smaller Companies
name three companies that are returning to normal after taking a hit during the pandemic, while Wise’s
Philip Matthews reveals an investment trust he thinks is well placed to benefit from the next stage
of the global economic recovery.

You may notice there is no column from John Blowers in this edition, after he wrote about undergoing
major heart surgery last month. I would like to put your minds at rest: John is recovering after his
operation and should be back in January.

From everyone at Trustnet Magazine, have a great Christmas and we hope to see you next year.

Enjoy reading,

Anthony Luzio
Editor

Contacts: Editorial: Abraham Darwyne Sales: Constance Candler

Anthony Luzio Gary Jackson Senior reporter Richard Fletcher Account manager

Editor Head of editorial (FE fundinfo) abraham.darwyne@fefundinfo.com Head of publishing sales T: 0207 534 7668

anthony.luzio@fefundinfo.com gary.jackson@fefundinfo.com Eve Maddock-Jones T: 0207 534 7662

Javier Otero Jonathan Jones Reporter Richard Casemore

Art direction & design Editor (Trustnet) eve.maddock-jones@fefundinfo.com Account manager Photos supplied by iStock

j.crowfeeder@gmail.com jonathan.jones@fefundinfo.com T: 0207 534 7669 Cover illustration: Javier Otero

Issue 79 / December 2021
Running on empty?
Danielle Levy finds it difficult
to square another strong year
for markets with a growing
number of headwinds as she
rounds up 2021
P. 6-17
Japan’s changed
landscape
The Baillie Gifford Japan Trust’s
Matthew Brett discusses
what’s next for Japan after four
decades of change
P. 18-23
A hard act to follow
It was another strong year for
the investment trust universe
– but 2022 could be a different
story, writes Cherry Reynard
P. 24-33
The last turkey
in the shop
Analysts from three of the UK’s
largest investment platforms
tell Anthony Luzio which trusts
they are backing for the year
ahead
P. 34-40
Fund, pension, trust
Jupiter Merlin Growth Portfolio,
TB Chawton Global Equity
Income and Weiss Korea
24
Opportunity find themselves
under the spotlight this month
P. 42-47
Going their
separate ways
A polarisation of valuations
means individual markets could
have very different experiences
in 2022, writes Hannah Smith
in her outlook for next year
P. 48-59
Back up to speed
Jonathan Brown and Robin
West of Invesco Perpetual UK
Smaller Companies name three
businesses that are slowly
returning to normal
P. 60-61
What I bought last
Wise’s Philip Matthews says
Polar Capital Global Financials
is well placed to benefit from
the next stage of the economic
recovery
P. 62-63
COVER STORY 2021 in review Issue 79 / December 2021

By Danielle Levy

Running
on empty?
Trustnet Magazine’s roundup of 2021 finds it
difficult to square another strong year for markets
with a growing number of headwinds

trustnet.com
COVER STORY
Running
on empty?
This year has proved to be
one of two halves, marked
by hope and fear.
During the first six months, a strong
global economic rebound powered a
rally in value stocks (which tend to
have greater economic sensitivity).
As vaccination programmes were
rolled out across the world, markets
generally shrugged off news of fresh
Covid-19 waves and variants.
However, by the second half of
2021, this hope began to give way
to fear. The value rally stalled as
inflation figures ticked up across
emerging and developed markets,
driven in part by supply chain
disruptions. Meanwhile, China,
the second-largest economy in the
world, started to slow down.
All of this took place against a
backdrop of ultra-low interest rates
/8/
2021 in review trustnet.com
“2021 was the year when central banks
tried to redefine the word ‘transitory’
in relation to inflation to mean
anything other than what most people
understand by the term”
Andrew Wilson
Chief investment officer at Lockhart
and continued monetary and fiscal Battling inflation “2021 was the year when central
stimulus across developed markets. In the UK, inflation currently stands at banks tried to redefine the word
“It would be fair to argue that 4.2%, while interest rates remain at an ‘transitory’ in relation to inflation to
a few years ago, if you were told all-time low of 0.1%. mean anything other than what most
that US inflation at the end of 2022 Over the course of the year, UK people understand by the term,” says
would be over 6% but interest rates government bonds experienced a Andrew Wilson, chief investment
would be at 0 to 0.25%, the 10-year rollercoaster ride: the 10-year gilt yield officer at Lockhart.
Treasury yield would be 1.4% and the started off at 0.2% and reached 1.2% in As we look ahead to 2022, investors
Federal Reserve would be running October, as investors retreated on the must consider whether higher
quantitative easing (QE) at $105bn a back of inflation concerns and what inflation is likely to prove persistent.
month, you would likely have been proved to be misleading cues from Bank While some aspects of inflation
very surprised,” says Anthony Willis, of England governor Andrew Bailey that may be transitory, Willis says it is
a multi-manager at BMO. an interest rate rise was imminent. By becoming clear that the cost of living
“Yet that is where we are, and the US early December, the 10-year gilt yield
is not alone with such distortions.” had fallen back to 0.8%.
/9/
COVER STORY 2021 in review

Performance of indices in 2021

We strive
S&P 500 (26.8%) FTSE All Share (13%) MSCI ACWI (17.8%)

30%

to discover
25%

20%

more.
15%

10%

5%

0%

-5%
abrdn’s Asian
Investment Trusts
1

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Source: FE Analytics
has increased for consumers, and
this is likely to feed through to wage
pressures next year.
“In 2022, we could see the credibility
of the central banks tested if their
‘transitory’ narrative weakens and it
becomes clear that developed markets
have a more entrenched inflation
problem,” he explains.
“Annus horribilis”
“If this is the case, then there is likely
to be fallout across financial assets, as
equities and bonds reprice for interest
rates rising sooner, and faster, than
expected.”
outlook for markets in 2022 is clouded
by the increased risk of policy error
from central banks. Tightening cycles
end in hard landings more often than
not, and the economic environment has
rarely been as unusual and opaque.”
Against this backdrop, he says it is
no coincidence that 2021 proved to be
an “annus horribilis” for fixed income
investments, as inflation figures ticked
upwards. As the name suggests, bonds
deliver a fixed income – and this is
eroded by inflation over time.
Wilson suspects some investors could
find they are incorrectly positioned
When you invest halfway around the world, it’s good
to know someone is there aiming to locate what they
believe to be the best investments.
At abrdn we get to know companies first hand. From
Thailand to Singapore, from China to India to Japan,
we’re constantly analysing and talking to companies
to understand their future.
To steer your portfolio in the right direction, be with the
fund manager who aims to discover more in Asia.
Please remember, the value of shares and the income
from them can go down as well as up and you may get
back less than the amount invested. Asian funds invest
in emerging markets which may carry more risk than
developed markets.
Request a brochure: 0808 500 4000
invtrusts.co.uk/asia Issued by Aberdeen Asset Managers Limited, registered in Scotland (SC108419) at 10 Queen’s Terrace,
Aberdeen, AB10 1XL, authorised and regulated in the UK by the Financial Conduct Authority. Please quote 2697.

Wilson echoes these concerns: “The

/ 10 /
COVER STORY 2021 in review

44.8%
– expected increase in global
dividends this year
if inflation proves persistent. In this
scenario, a major shift into real assets
– such as property and infrastructure,
which provide returns in line with or
above inflation – may be necessary.
Even if inflation stabilises, Willis
suspects the monetary policy
environment, which has been
supportive of bonds over the past
decade, is unlikely to be as favourable
BAILLIE
GIFFORD
JAPAN
TRUST
Dividend recovery
This year has certainly been a brighter one for
dividends in the UK and across the world.
During the last four
decades Japan’s
The global figure jumped by a record 22%
to $403.5bn (£304.4bn) during the third
quarter, according to Janus Henderson.
potential has been
UK investors in particular benefited from a
lost in translation.
profound dividend recovery over this time,
But not by us.
with payments up 89.2% compared with
Q3 2020, according to Link’s UK Dividend
Monitor. This was largely driven by a boom in
mining dividends, which quadrupled year-on-
Listed in 1981 ours is the longest established existing Japanese investment trust. And
year to £12.8bn. Link expects overall payouts whilst others have come and gone, we still understand how to seek out great growth
will finish 2021 44.8% higher than in 2020. opportunities in Japan. Growth may come from innovative business models, disrupting
traditional Japanese practices, or market opportunities, such as trading with neighbours.
It’s a strategy we believe will continue to translate into positive returns for our clients.
Over the last five years the Japan Trust has delivered a total return of 90.7% compared
However, few businesses were able to restore
to 50.2% for the index*.
their payouts in the travel, leisure or
Standardised past performance to 30 September* 2017 2018 2019 2020 2021
hospitality sectors. JAPAN INVESTMENT TRUST 34.0% 18.8% -3.3% 6.6% 16.3%

over the coming years. TOPIX 12.6% 13.0% -0.3% 2.4% 15.6%

“Our view is there is little risk/reward
[in bonds] at these levels,” he adds.
When up means down
Persistent inflation also poses a risk
to certain parts of the equity market
in 2022, according to Matthew Page,
manager of the Guinness Global
Equity Income fund.
“If inflationary pressures persist
through 2022, then companies may
/ 12 /
“One would have expected a better performance
from transport and leisure companies by the
second half of 2021, whether it be hotels
or bus companies,” says Sid Chand Lall,
manager of IFSL Marlborough Multi Cap
Income.
Looking ahead to 2022, the manager expects to
see steady growth in ordinary dividends,
notwithstanding any further lockdowns
caused by new Covid variants, but
anticipates fewer special dividends.
Past performance is not a guide to future returns. Please remember that changing stock
market conditions and currency exchange rates will affect the value of the investment in
the fund and any income from it. Investors may not get back the amount invested.
Find out more by visiting our website bailliegifford.com
A Key Information Document is available. Call 0800 917 2112.
Actual Investors
*Source: Morningstar, Tokyo Stock Exchange, total return in sterling as at 30.09.21. TOPIX index value and TOPIX marks are subject to the proprietary
rights owned by Tokyo Stock Exchange. Your call may be recorded for training or monitoring purposes. Issued and approved by Baillie Gifford & Co
Limited, whose registered address is at Calton Square, 1 Greenside Row, Edinburgh, EH1 3AN, United Kingdom. Baillie Gifford & Co Limited is the
authorised Alternative Investment Fund Manager and Company Secretary of the Trust. Baillie Gifford & Co Limited is authorised and regulated by the
Financial Conduct Authority (FCA). The investment trusts managed by Baillie Gifford & Co Limited are listed UK companies and are not authorised and
regulated by the Financial Conduct Authority.
COVER STORY 2021 in review Issue 79 / December 2021

find it harder to continue to pass on Equity outlook

increasing costs by this time next
year,” he says.
Page advises investors to focus on
companies that are best placed to
deal with inflationary pressures,
whether because they have pricing
power, the ability to adapt their
supply chains, or can quickly pass
on costs. He believes dividends paid
by technology and consumer staples
companies look attractive against
this backdrop.
Equity markets have delivered
healthy gains this year. The FTSE All
Share index has made 13%, while the
MSCI AC World index, which includes
emerging and developed markets, is
up 17.8%. The US saw even stronger
gains during Joe Biden’s first year as
president, with the S&P 500 up 26.8%.
Companies around the world
benefited from the rollout of

Performance of indices in 2021

MSCI Emerging Markets (-1.2%) MSCI China (-16.5%)
20%

15%

10%

5%

0%

-5%

-10%

-15%

-20%
1

eb

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Source: FE Analytics

/ 14 / / 15 /
COVER STORY 2021 in review Issue 79 / December 2021

vaccination programmes and “With a myriad of counter-cyclical

policy tools at China’s disposal, we
the reopening of economies, but
the question remains: can this
momentum continue into 2022?
Willis is not convinced: “The
strongest market performance tends expect a material turnaround in
sentiment and real economic activity,
to be when economic and earnings
growth are strongest, and we are likely
to have already seen this. So, the
outlook may be more subdued.”
It also remains to be seen whether which should have a positive effect
on the rest of Asia”
value stocks will shine again. The
value rally started last November
on positive vaccine news. However,
it had petered out by late spring as
concerns grew about the strength of
Teresa Kong
the recovery and higher inflation. Portfolio manager at Matthews Asia
Since then, investors have piled back
into quality growth companies.
Willis suspects value stocks could bad to worse when Evergrande, one of turn their attention to the real estate rises and the withdrawal of QE, are
perform well in 2022 if investors China’s largest property developers, sector and continue to inject liquidity likely to feature on investors’ agendas.
become more confident in economic teetered on the brink of collapse in into the market via the People’s Bank Willis notes the pandemic has extended
growth and interest rates rise gently. September – a process that has yet to of China’s open-market operations. a period of ultra-loose monetary policy,
be resolved. The MSCI China index “With a myriad of counter-cyclical which has created market distortions
Chinese slowdown has fallen 16.5% this year as concerns policy tools at China’s disposal, we that have come to feel normal
Another question mark continues of an economic slowdown have taken expect a material turnaround in over the past decade. However, he
to hover over the Chinese equity root. sentiment and real economic activity, questions whether these distortions
market, after a regulatory crackdown Teresa Kong, a portfolio manager at which should have a positive effect on can continue in a period of higher
across the technology, gaming and Matthews Asia, believes China will the rest of Asia,” she concludes. inflation and rising rates.
private education sectors hit investor respond by loosening policy. She Looking ahead to 2022, high inflation, We are likely to find out the answer
sentiment. Things then went from anticipates that policymakers will as well as the prospect of interest rate to this in 2022.
/ 16 / / 17 /
ADVERTORIAL FEATURE Baillie Gifford Issue 79 / December 2021

Japan’s
changed
landscape
Over four decades Japan has seen 21 prime
ministers come and go. Exporters such as Toyota
and Toshiba have flourished, but the country has
also struggled with debt and deflation. Matthew
Brett, manager of The Baillie Gifford Japan Trust,
discusses what’s next

trustnet.com
ADVERTORIAL FEATURE
Japan’s
changed
landscape
The value of your investment and any
income from it can go down as well as
up and as a result your capital may
be at risk.
For a growth investor such as
Matthew Brett, Japan is a “much
more interesting place” than at any
time in his career. As the Japan Trust
marks its 40th anniversary, Brett’s
eyes are not on its past successes
in good times and bad, but on the
opportunities now opening up.
Japan’s rollercoaster ride over those
decades have, Brett says, made it
“Marmite” for international investors:
provoking strongly negative as well
as positive sentiment. Himself a
convinced optimist on the country, he
/ 20 /
Baillie Gifford
sees the years ahead presenting the
£1.1bn trust with “a bigger opportunity
set of exciting businesses” in which to
invest.
Brett, who has headed the trust since
2018, notes the striking differences
between Japan now and Japan in its
long post-bubble phase when he joined
Baillie Gifford.
“If we go back to the late 1980s, a bit
before my time, Japan was dominated
by the big banks, and clearly that
didn’t deliver a great return for the
next 15 years or whatever. When I
started looking at Japan back in 2005,
a mixture of three things were the big
parts of Japan.
“We still had the remainder of
the big banks. We also had the car
companies, and we had some of the big
manufacturing conglomerates.
“But as we look at Japan today,
it’s fascinating how the index has
changed. The top part is dominated
by a mixture of technology companies
and internet-related businesses.
We’ve seen a proliferation of both
growth and disruption, offering more
opportunities.”
One obvious shift has been the rise of
internet and ecommerce which “allow
people to do things cheaper, more
efficiently, and better than offline in
“In many parts of the world,
increasing manufacturing
prowess means buying in
Japanese technology”
Matthew Brett
Manager of The Baillie Gifford Japan Trust
many cases. That gives opportunities
across retail, across financial services
and many other areas”.
Meanwhile some traditional areas
of Japanese strength have endured:
for example, automation and robotics
companies.
“I think Japan has a huge amount
to offer the world here,” Brett says.
“There are two handfuls of those
companies globally, and one of
those hands is in Japan. The quality
[of the] materials and the precision
engineering are very good. Their
standards of quality are immensely
high.
“In many parts of the world,
increasing manufacturing prowess
trustnet.com
means buying in Japanese technology:
robots and computerised numerical
controllers from Fanuc and robots
from the likes of Yaskawa and machine
tools from DMG Mori. Japan is
providing the picks and shovels of the
modern era.”
Another traditional area of Japanese
strength where he sees growing
momentum is cosmetics.
“This is a different type of
opportunity for us, where we can see
the increasing wealth in the rest of
Asia, and Asian skin care [consumers]
look at the Japanese brands very
favourably. That could be an
/ 21 /
ADVERTORIAL FEATURE Baillie Gifford Issue 79 / December 2021

“We’ve seen a resilient

from many people’s perception of the converge over time, and what seemed
Japanese market.” odd [about Japan] maybe 10 or 15 years
For Brett, the fascination of ago, now actually seems much more

approach to dividends, Japan comes from its high level of

development and divergence from the
internationally comparable.”
After 40 years it seems Japan’s

backed by the large amounts Anglo-Saxon world. These demand

that we don’t look at the country
through our own cultural prism. He
differences with the rest of the world
are becoming less marked. It follows
that the ‘Marmite’ gap between bullish

of cash that many Japanese points out how the 40-year lifetime
of the trust has seen Japan become
and cautious views of the world’s third
largest economy is also likely to narrow.

companies still have” more shareholder-focused, as per the

western corporate tradition, while the
west has meanwhile moved towards
Matthew Brett more Japanese-style concern for
companies’ role in wider society.
Manager of The Baillie Gifford Japan Trust “It is curious how these things can
If you’d like to hear more of Matthew
Brett’s views on how investing in Japan
has changed over the decades, listen to
our podcast, Short Briefings on Long
Term Thinking. You can find the podcast
at bailliegifford.com/podcasts

interesting way for us to play the rising
wealth trends continuing across Asia.”
If the company opportunity set
has changed, so too has corporate
behaviour. When Brett joined the
Japanese equities team, dividends
were virtually non-existent in Japan.
Now many more Japanese companies
are paying them.
“If you go back 15-odd years,
the dividend was very much an
afterthought,” Brett says. “Some
companies in that stage were actually
paying a fixed dividend, and you’d ask
them, why is the dividend ¥50? They’d
say, well, it just is ¥50. There was no
/ 22 /
relation whatsoever with the profits of
the company.
“During the Covid crisis you’ve seen
quite a different situation, where
companies have been much more
reluctant to cut dividends. We’ve seen
a resilient approach to dividends,
backed by the large amounts of cash
that many Japanese companies still
have.
“I think we’re probably around
halfway through this trend. The scope
to continue to grow dividends ahead
of earnings in Japan is probably far
better than in many parts of the world.
That excitement is quite different
The Baillie Gifford Japan Trust invests in overseas securities. Changes in the rates
of exchange may also cause the value of your investment to go down or up. The
Trust’s exposure to a single market and currency may increase risk.
This article does not constitute, and is not subject to the protections afforded
to, independent research. Baillie Gifford and its staff may have dealt in the
investments concerned. The views expressed are not statements of fact and
should not be considered as advice or a recommendation to buy, sell or hold a
particular investment. Data as at 30 September 2021, unless otherwise stated.
Baillie Gifford & Co and Baillie Gifford & Co Limited is authorised and regulated by
the Financial Conduct Authority (FCA). The investments trusts managed by Baillie
Gifford & Co Limited are listed UK companies and are not authorised and regulated
by the Financial Conduct Authority.
A Key Information Document is available at bailliegifford.com
/ 23 /
YOUR PORTFOLIO Investment trusts Issue 79 / December 2021

By Cherry Reynard

A hard act
to follow
It was another strong year for the investment
trust universe – but 2022 could be a different story

trustnet.com
YOUR PORTFOLIO
A hard act
to follow
After the dramas of 2020,
2021 was a quieter year for
the investment trust sector,
but a successful one nonetheless.
With a handful of exceptions –
China/Greater China, Property
Rest of World, Latin America and
a couple of others – investors
made money in almost every
trust in almost every sector. Value
recovered, but growth continued
to do well. There was a catch-up in
unloved areas such as UK and equity
income, but investors continued to
be drawn to the US. This year may
prove a hard act to follow.
The average investment trust is
up 12.7% this year to the end of
November. In terms of sectors, IT
Private Equity has done the best,
up 40.6%, while IT Growth Capital,
/ 26 /
Investment trusts trustnet.com
“Just when we thought it which invests in later-stage venture
capital, is in third place with 32.9%.
was a value market, Tesla
Despite their strong performance
this year, private assets still generally
look less expensive than those in
became a top performer public markets. Yet Peter von Lehe,
manager of the NB Private Equity
again. It has been difficult to Partners trust, warns this doesn’t
necessarily mean they are cheap.
“Generating private equity return
categorise the year in terms opportunities requires earnings
growth,” he says. “[This] generally
of value or growth” requires not just investment
selection, but also an execution
plan to improve the trajectory of a
Nick Greenwood company’s earnings.”
For mainstream equity trusts, Nick
Manager of Miton Global Opportunities Greenwood, manager of Miton Global
Opportunities, says the year hasn’t
necessarily had a ‘theme’: “Just when
Best-performing IT sectors in 2021 we thought it was a value market,
Tesla became a top performer again.
Sector Performance in 2021 (%) It has been difficult to categorise the
year in terms of value or growth.”
IT Private Equity 40.6
Peter Walls, manager of the Unicorn
IT Property UK Logistics 35.5 Mastertrust, says this has meant both
IT Growth Capital 32.9
value and growth managers have
done well over the year, albeit at
IT Commodities & Natural Resources 30.7
different times.
IT India 30.5 “Last year, we were all asking whether
Baillie Gifford could have another
Source: FE Analytics
/ 27 /
YOUR PORTFOLIO
£13bn
– funds raised by investment
trusts this year
great year,” he says. “As it turned out,
Scottish Mortgage was pretty solid
once again: only AVI Global came close
to challenging it in the Global sector.
That said, Thomas Moore at Aberdeen
Standard Equity Income and Alex
Wright on Fidelity Special Values had a
far better year of it.”
It was also a good year for RIT
Capital Partners, says Walls.
Caledonia benefited from numerous
realisations in its unquoted portfolio,
which boosted its share price. Mobius
Investment Trust was the standout
performer in emerging markets.
Overall, a number of pre-IPO trusts,
such as Chrysalis and Schiehallion,
also did well. The least inspiring
/ 28 /
Investment trusts
Janus Henderson Investment Trusts, managed by
Janus Henderson
exists to help you
achieve your long-term Every farmer knows one of the keys to a
good crop is finding the right soil.
financial goals.
At Janus Henderson we believe in the same
principle; that to reap the benefits of a
successful investment, you must carefully
REAP THE
consider where you invest.
Fundraising Our history dates back to 1934, but today we
manage 12 investment trusts across
a wide range of sectors, geographies,
BENEFITS
The investment trust sector raised the most
regions and markets.
funds in its history in 2021, at more than
Your capital is at risk.
£13bn. This compares with a previous high of
To see our range of investment trusts visit
just over £10bn in 2014. Annabel Brodie-Smith,
www.janushendersoninvestmenttrusts.com
communications director at the AIC, notes this
year also saw the largest amount raised by
Find us on Facebook
existing trusts, at more than £10bn.
@JHiTrustsUK
“Two out of the three sectors which raised the
most money didn’t even exist 10 years ago –
Renewable Energy Infrastructure and Growth
Capital,” she says.
“These assets are often hard to buy, sell and
value, meaning that closed-ended investment
companies are better suited to holding them
than daily-dealing open-ended funds.”
Greenwood agrees the investment trust sector is
now truly a home for alternatives: “We have
space, nitrogen, hydrogen and houses for the
homeless. These are all strategies that couldn’t
be run in an open-ended structure.”
He admits it has created more work for investors,
however: “The analysis is not necessarily
difficult, but they are all different. Analysing
For promotional purposes
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isn’t necessarily going to help with analysis Issued in the UK by Janus Henderson Investors. Janus Henderson Investors is the name under which investment products and services are provided by Janus Capital International Limited (reg no. 3594615), Henderson
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anywhere else.” England and Wales at 201 Bishopsgate, London EC2M 3AE and regulated by the Financial Conduct Authority) and Henderson Management S.A. (reg no. B22848 at 2 Rue de Bitbourg, L-1273, Luxembourg and regulated
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H040233/0319
YOUR PORTFOLIO
spot was Asia Pacific, where a
combination of slowing growth,
renewed lockdowns and the Chinese
government’s crackdown on certain
industries saw trusts sell off.
Corporate activity
Boards have continued to be more
active over the year, with six trusts
changing their management
teams. These included Keystone
moving to Baillie Gifford and
becoming Keystone Positive Change,
and Genesis Emerging Markets
moving to Fidelity and becoming
Fidelity Emerging Markets. Five
mergers were completed and a sixth
was proposed, between Scottish
Worst-performing IT sectors in 2021
Sector
IT Biotechnology & Healthcare
IT VCT Specialist: Technology
IT Latin America
IT Property Rest of World
IT China/Greater China
Source: FE Analytics
/ 30 /
Investment trusts
Investment Trust and JPMorgan
Global Growth & Income. The drive
Invest
to create bigger, more liquid and
cost-effective investment companies
seems inexorable and is likely to be
in good
welcomed by shareholders.
The trend of fee reductions has
also continued, with 37 investment
company
companies announcing fee changes
to benefit shareholders so far this
year.
The road ahead
After spectacular performance
over the past 18 months, there will
abrdn
be few bargains for investors to Investment Trusts
find in 2022. There has been far
We believe there’s no substitute for getting to know your
less discount volatility, which is investments first hand. That’s why we look to analyse and
speak to companies intensively before we invest in their
shares and while we hold them.
Focusing on first-hand company research requires a lot of
time and resources. But it’s just one of the ways we aim to
seek out the best investment opportunities on your behalf.
Performance in 2021 (%)
Please remember, the value of shares and the income
-4.7
from them can go down as well as up and you may get
-8.6 back less than the amount invested.
-18.6 Request a brochure: 0808 500 4000
-20.1
-22.2
invtrusts.co.uk Issued by Aberdeen Asset Managers Limited, registered in Scotland (SC108419) at 10 Queen’s Terrace,
Aberdeen, AB10 1XL, authorised and regulated in the UK by the Financial Conduct Authority. Please quote 2711.
YOUR PORTFOLIO
There will be few bargains
for investors to find in 2022.
There has been far less
discount volatility, which is
generally good for investors,
but this also means there
aren’t wide discounts to
capitalise on
generally good for investors, but
this also means there aren’t wide
discounts to capitalise on. “There
are a few trusts on wider discounts,
but nothing is outstanding value,”
says Walls.
From here, Greenwood says, the
opportunities are varied. “It is
possible to find nuggets all over the
place, even if the tide is running
against us a little bit. It is very
stock-specific – Strategic Equity
/ 32 /
Investment trusts trustnet.com
Capital and Georgia Capital, for
example. There are interesting trusts
looking at Vietnam and uranium.
Nothing connects them, but they are
individually interesting.”
Overall, 2021 has been a strong
year for the investment trust
universe, and it may be difficult
for it to repeat its performance in
2022. Nevertheless, it continues
to diversify, presenting an ever-
increasing choice for investors.
/ 33 /
YOUR PORTFOLIO Trust picks Issue 79 / December 2021

By Anthony Luzio

The last
turkey in
the shop
Analysts from three of the UK’s largest investment
platforms unearth the final pockets of value left in
the market as they name their trust picks for the
year ahead

trustnet.com
YOUR PORTFOLIO
The last
turkey in
the shop
Some people find it difficult
not to get carried away with
the spirit of Christmas at this
point in December, but this didn’t
appear to be a problem for the three
analysts overleaf when they were
asked to name their trust picks for
the year ahead – the overarching
message seems to be that investors
should expect little more than a
metaphorical lump of coal in 2022.
Nevertheless, despite the overall
pessimism, they did manage to spot
the odd pocket of value going into
the new year. See over the page for
their choices.
/ 36 /
Trust picks trustnet.com
Rob Morgan
Charles Stanley Direct
“The investment
“It seems likely that the easy profits of the past
couple of years, when pretty much everything
landscape will change,
went up as money was printed, will at some point
markets will become
ebb away,” says Rob Morgan, investment analyst at
Charles Stanley Direct.
“The investment landscape will change, markets more volatile and it
will become more volatile and it will just get more
difficult.”
He adds that anyone taking on too many risks in
will just get more
the same direction could be in for a tough time, and
if any central bank has the “nerve” to raise interest
rates, it will cause major problems for investors with
difficult”
the classic 60:40 portfolio.
“Higher inflation and interest rates are a potential
headwind to both bonds and equities and many
investors have limited experience of dealing with
more inflationary periods,” says Morgan.
As a result, the analyst’s pick for next year is a
defensive trust whose managers have proved adept
at protecting capital through both conventional and
unconventional means.
“Ruffer Investment Company is designed to be an
all-weather vehicle for managers Hamish Baillie
and Duncan MacInnes to dynamically express their
views through a wide range of tools – global equities,
bonds, currencies and gold, alongside the use of
protection options and an allocation to an internal
illiquid strategies fund,” he says.
“The trust is positioned for a pickup in inflation,
so it could be an important diversification tool for
many investors’ growth-biased equity allocations.”
/ 37 /
YOUR PORTFOLIO
Tracy Zhao
interactive investor
Senior fund analyst at interactive
investor Tracy Zhao also names high
valuations and inflation as causes for
concern going into 2022. However,
instead of opting for an absolute
return trust to protect against these
headwinds, she believes a better bet
would be an income-paying value fund.
With this in mind, she recommends
the Diverse Income Trust, run by
Gervais Williams and Martin Turner,
which aims to pay an attractive and
growing dividend along with a strong
total return.
“The trust adopts a multi-cap
approach, investing across the universe
of UK-quoted companies, regardless of
size – but they must have the ability to
generate a sustainable, long-term and
growing income,” says Zhao.
“Since launch, it has grown its
dividend payout on a year-on-year
basis. Despite dividend cuts by
underlying businesses in 2020, the
trust deployed its reserve to maintain
its dividend-paying objective.”
The trust currently has 130 holdings
spread across the market-cap
spectrum, with 36% in the FTSE AIM
and 23% in the FTSE 100. Aside from
the diversification benefits offered by
/ 38 /
Trust picks
BAILLIE
GIFFORD
JAPAN
TRUST
this long list of stocks, Zhao says its
broad sector allocation provides extra
portfolio liquidity, less correlation to
During the last four
mainstream indices and diversified
sources of income.
decades Japan’s
Meanwhile, further protection potential has been
comes in the form of FTSE 100 index
put options with an expiry date of lost in translation.
December 2022 and an exercise price of
6,200. These make up 1.3% of the trust.
“The put options tend to appreciate
when markets suffer a major setback,
But not by us.
not only providing downside
protection but also additional cash Listed in 1981 ours is the longest established existing Japanese investment trust. And
to take advantage in the event of a whilst others have come and gone, we still understand how to seek out great growth
opportunities in Japan. Growth may come from innovative business models, disrupting
market sell-off,” Zhao adds. traditional Japanese practices, or market opportunities, such as trading with neighbours.
It’s a strategy we believe will continue to translate into positive returns for our clients.
Over the last five years the Japan Trust has delivered a total return of 90.7% compared
to 50.2% for the index*.
Standardised past performance to 30 September* 2017 2018 2019 2020 2021
JAPAN INVESTMENT TRUST 34.0% 18.8% -3.3% 6.6% 16.3%
TOPIX 12.6% 13.0% -0.3% 2.4% 15.6%
Past performance is not a guide to future returns. Please remember that changing stock
market conditions and currency exchange rates will affect the value of the investment in
the fund and any income from it. Investors may not get back the amount invested.
Find out more by visiting our website bailliegifford.com
A Key Information Document is available. Call 0800 917 2112.
Actual Investors
*Source: Morningstar, Tokyo Stock Exchange, total return in sterling as at 30.09.21. TOPIX index value and TOPIX marks are subject to the proprietary
rights owned by Tokyo Stock Exchange. Your call may be recorded for training or monitoring purposes. Issued and approved by Baillie Gifford & Co
Limited, whose registered address is at Calton Square, 1 Greenside Row, Edinburgh, EH1 3AN, United Kingdom. Baillie Gifford & Co Limited is the
authorised Alternative Investment Fund Manager and Company Secretary of the Trust. Baillie Gifford & Co Limited is authorised and regulated by the
Financial Conduct Authority (FCA). The investment trusts managed by Baillie Gifford & Co Limited are listed UK companies and are not authorised and
regulated by the Financial Conduct Authority.
YOUR PORTFOLIO
Ryan Hughes
AJ Bell
The Worldwide Healthcare Trust
sounds like it should have been an
obvious beneficiary of a year in which
the coronavirus has continued to rear
its head. However, an underweight to
the major Covid vaccine pharma stocks
and an overweight to life sciences,
biotech and China have caused it
to trail its MSCI World/Health Care
benchmark by about 20 percentage
points in 2021.
Despite its short-term
underperformance, AJ Bell’s head of
investment research Ryan Hughes
remains optimistic.
“The bigger picture away from the
immediate Covid winners story is
how the rapid drug development of
the last 18 months translates into
revolutionary new treatments in
the future, and as a result, the trust
currently has around 30% invested in
biotechnology companies,” he says.
Hughes adds that the trust’s 15%
exposure to China looks promising,
with the market’s well-publicised
headwinds meaning it now contains
many high-quality companies that
trade on attractive valuations.
The head of research is also intrigued
by the trust’s ability to invest in private
/ 40 /
Trust picks
markets: it currently has a weighting
of about 7% to unlisted companies.
“With the long-term drivers behind
healthcare well established, and
continued government investment set
to continue, it makes for an exciting
future ahead for drug development,”
Hughes adds.
“As a result, this broad, diversified
play on healthcare, managed by a
team of highly experienced experts,
looks attractive after a period of
significant underperformance.”
Trust TV: Is the UK still cheap?
After a challenging 2020, the UK equity market has staged a strong rebound. The reopening of the UK
economy following the successful rollout of Covid-19 vaccines and the subsequent release of pent-up
consumer demand have led to increased optimism about the prospects of the UK economy.
The most compelling case for UK equities, however, is current valuations. With the clouds of Brexit-led
uncertainty now cleared, combined with the more cyclical, value orientated composition of the UK market,
investors are beginning to re-engage with the market.
Is the long-awaited recovery for UK equities finally here?
Go to our Insights Hub for more insights, research and commentary on Investment Trusts.
Disclaimer
For promotional purposes. Not for onward distribution. Before investing in an investment trust referred to in this document, you should satisfy yourself
as to its suitability and the risks involved, you may wish to consult a financial adviser. Past performance is not a guide to future performance. The value
of an investment and the income from it can fall as well as rise and you may not get back the amount originally invested. Tax assumptions and reliefs
depend upon an investor’s particular circumstances and may change if those circumstances or the law change. Nothing in this document is intended
to or should be construed as advice. This document is not a recommendation to sell or purchase any investment. It does not form part of any contract
for the sale or purchase of any investment. [We may record telephone calls for our mutual protection, to improve customer service and for regulatory
record keeping purposes.]
Issued in the UK by Janus Henderson Investors. Janus Henderson Investors is the name under which investment products and services are provided
by Janus Capital International Limited (reg no. 3594615), Henderson Global Investors Limited (reg. no. 906355), Henderson Investment Funds Limited
(reg. no. 2678531), Henderson Equity Partners Limited (reg. no.2606646), (each registered in England and Wales at 201 Bishopsgate, London EC2M
3AE and regulated by the Financial Conduct Authority) and Henderson Management S.A. (reg no. B22848 at 2 Rue de Bitbourg, L-1273, Luxembourg
and regulated by the Commission de Surveillance du Secteur Financier).
Janus Henderson, Janus, Henderson, Intech, VelocityShares, Knowledge Shared, Knowledge. Shared and Knowledge Labs are trademarks of Janus
Henderson Group plc or one of its subsidiaries. © Janus Henderson Group plc.
IN FOCUS Fund Issue 79 / December 2021

FACT BOX

Jupiter Merlin MANAGERS: John Chatfeild-Roberts, Amanda Sillars, David Lewis & George Fox / LAUNCHED: 14/09/1992 /
FUND SIZE: £1.7bn / OCF: 1.72%

Growth Portfolio CROWN RATING

but the team remains confident its “Broadly speaking, all of the earnings
cyclical nature, coupled with the relief growth of the S&P 500 over the past
associated with the end of the Brexit five years has come from technology-
While this fund of funds has an impressive record compared with saga, should benefit investors. orientated companies, and the rest
its sector, it has trailed far behind the global market The managers have also recently have gone nowhere,” said Lewis.
over the past decade started to buy dedicated technology “More companies are having to
funds, adding two new holdings in invest in technology to stay relevant
the past year. Lewis said that the team and compete, so we feel we are in the
The team behind the Jupiter IA Flexible Investment sector. The hoped to continue exploiting this area middle of a technology transition that
Merlin range has a lengthy track strategy has also worked over longer in the future. has many years to run.”
record of selecting funds for investors periods, with the fund up 160.1% over
who don’t have the time to do it the past 10 years, compared with Performance of fund vs sector and index over 10yrs
themselves. 119.4% from its peers.
IA Flexible Investment Jupiter Merlin Growth MSCI World
Jupiter Merlin Growth Portfolio is However, the cost of the fund is
(119.4%) Portfolio (160.1%) (276.6%)
perhaps the pick of the bunch. Its high at 1.72%, and although the
managers can invest in any asset outperformance of its sector is net of 300%
they want, but currently have around fees, this has come at a time when the
250%
97% exposure to equities, with the MSCI World index is up 276.6%.
200%
remainder in gold, which they add to In terms of positioning, the fund
in choppy markets. holds a natural resources strategy 150%

They upped their weighting to the with a high exposure to mining stocks, 100%
precious metal during the March 2020 which the managers believe could
50%
falls and slowly reduced the position benefit from the shift towards a more
0%
in favour of cyclical stocks following sustainable future.
the vaccine rollout. Another interesting call is the 26.3% -50%

This increase in risk exposure has allocation to the UK. Co-manager

1

0
1

2
ec

ec

ec

ec

ec

ec

ec

ec

ec

ec
helped the fund during 2021, and it is David Lewis said the domestic market
D

D
up 15.2%, a top-quartile figure in the has been “significantly unloved”, Source: FE Analytics

/ 42 / / 43 /
IN FOCUS Pension trustnet.com

TB Chawton FACT BOX

MANAGER: Michael Crawford / LAUNCHED: 21/05/2019 / FUND SIZE: £14.7m / OCF: 1.18%

Global Equity Income CROWN RATING N/A

him taking profits too early on a stock have to sell a subscription to virtually
perceived as expensive. Yet he said this the whole world to justify its share
doesn’t mean he ignores valuations, price, yet it only operated in the UK.
This global income fund has managed to keep pace with the MSCI pointing to his experience with BSkyB We sold at that point.”
World index since launch in the late 1990s. TB Chawton Global Equity Income
“My claim to fame came in the tech has made 45.3% since launch in May
bubble, which Sky got caught up in,” 2019, compared with 47.9% from the
Investors looking for income “There is a Charlie Munger comment he explained. “I can’t remember what MSCI World index and 27.2% from its
in the run-up to retirement that particularly resonates with me,” said the market cap was, but we reverse IA Global Equity Income sector. It has
often focus on the stocks or funds Crawford, “which is, if a business earns engineered it and worked out it would ongoing charges of 1.18%.
with the highest yields. However, with 18% on capital over 20 or 30 years, even if
increasing life expectancies meaning you pay an expensive price, you’ll end up Performance of fund vs sector and index since launch
pension pots will need to last for with one hell of a result.”
IA Global Equity TB Chawton Global MSCI World
longer, growth in dividends is just as Capital allocation is just as important.
Income (27.2%) Equity Income (45.3%) (47.9%)
important as a high starting figure. The manager pointed out that even if
With this in mind, investors may you start with two companies that both 60%

want to consider a fund such as TB deliver a high return on capital, you 50%

Chawton Global Equity Income.
While its starting yield is just 1.9%,
manager Michael Crawford plans to
increase this figure as the underlying
businesses compound their earnings.
This should help to deliver capital
growth, too.
can end up with very different results 40%
depending on how they invest any spare 30%
cash into their business. Finally, he 20%
prefers to invest in businesses that are
10%
going to be around for decades.
0%
“Sustainability is vital,” he continued.
“We look at this in terms of whether -10%

These businesses must fit in with the they are borrowing from future earnings -20%
three tenets of his philosophy, the first to support current earnings.”
9

ep

ec

ep

ec

ep

ec
Ju

Ju
1

2
D

D
S

S
n

ar

ar
Ju

of which is generating a high return on The manager spends 80% of his time
M

M
invested capital. looking at current holdings, which stops Source: FE Analytics
/ 44 / / 45 /
IN FOCUS
Weiss Korea
Opportunity
This trust has been able to exploit an economic anomaly
for the past eight years
Standard economic theory
suggests anomalies in the
market shouldn’t persist beyond short
periods of time, as they will quickly
be spotted and eliminated by other
participants.
However, there is a trust that has
been exploiting one such anomaly in
South Korea for the past eight years,
enabling it to almost double the
returns of the MSCI Korea index since
inception.
The Weiss Korea Opportunity
trust, managed by Weiss Asset
Management, invests exclusively
in South Korean preference shares.
These are essentially the same as
common shares, except they do not
have voting rights. They often trade at
deep discounts to the common stock,
even though they are exposed to the
/ 46 /
Trust Issue 79 / December 2021
FACT BOX
MANAGER: Weiss Asset Management / LAUNCHED: 14/05/2013 / DISCOUNT/PREMIUM: +6.3% / OCF: 1.81%
CROWN RATING
N/A
governance issues five or 10 years index ranked it first last year, and it
ago, and so from a price-to-earnings is regularly in the top three or five
perspective, Korea is at a 25 to 30% countries on the list.
discount to some of its peers.” Weiss Korea Opportunity has made
Despite this discount, Hsiao claimed 166.3% since launch in May 2013,
South Korea is one of the most compared with 85.3% from the MSCI
innovative countries in the world – Korea index. However, it is on a
same fundamentals and yield an extra and this is backed up by facts. For premium of 6.3% and has ongoing
nominal dividend payment. example, the Bloomberg Innovation charges of 1.81%.
Most of the trust’s outperformance
has come from a narrowing of the Performance of trust vs index since launch
discount between preference and Weiss Korea Opportunity MSCI Korea
common shares, but it has also been (166.3%) (85.3%)
boosted by the extra dividend yield 250%
paid by the former asset class.
Jack Hsiao, a managing director at 200%
Weiss, said: “These non-voting shares
150%
are trading at irrational discounts.
They’re just way too big. It’s a big 100%
economic anomaly.
50%
“We’re able to purchase some of
these large-cap stocks like Hyundai at 0%
more than half off, so effectively our
portfolio receives double the yield of -50%
voting shares.”
3
1
1
2
n
n
Ju
Ju
Ju
Ju
Ju
Ju
Ju
Ju
Ju
He added: “There’s this notion of
a Korea discount, maybe because
of geopolitical risks, or corporate Source: FE Analytics
/ 47 /
SECTOR PROFILE 2022 outlook Issue 79 / December 2021

By Hannah Smith

Going their separate ways

Global equities had another strong year in 2021,
but a polarisation of valuations means individual
markets could have very different experiences
from one another in 2022

trustnet.com
SECTOR PROFILE 2022 outlook trustnet.com

Going their With most markets regaining lost ground,

separate investors who were able to hold their nerve
ways in challenging periods have been rewarded –
but has everyone else missed their chance?
Vaccine hopes, hybrid
working, scientific innovation
and supply chain disruption are
just some of the major themes that have
characterised 2021. But as investors
began looking forward to “the great
reopening” of the global economy, the
arrival of a new coronavirus variant
reminded us that the pandemic isn’t
over yet.
Volatile equity markets are still tuned
into the ongoing health crisis of Covid-
19 as we try to figure out how to live
with and manage the virus long term.
With most markets regaining lost
ground, investors who were able to hold
their nerve in challenging periods have
been rewarded – but has everyone else
missed their chance? Here is what the
experts think.
/ 50 / / 51 /
SECTOR PROFILE
United Kingdom
The FTSE All Share has staged a
reassuring rebound of 55.3% from its
March 2020 low, and is up 13% year to
date, according to FE Analytics. While
the Brexit saga has put international
investors off the UK, its unloved
stocks are now “looking cheap on
almost any international comparison”,
says Andrew McHattie, editor of the
Investment Trust Newsletter.
Looking forward to 2022, energy
prices are likely to climb even higher,
driving up inflation and eventually
interest rates, which investors will
need to factor in to their decision-
making.
Yet while this backdrop should
be generally unfavourable for
equities, there are still potential
opportunities. Charlotte Cuthbertson,
deputy manager of the Premier
Miton Worldwide Opportunities
fund, is excited about small and
micro caps, saying there are “really
fantastic companies trading at very
large discounts” in this sector. She
has exposure to this “vibrant” area
through the River & Mercantile UK
Micro Cap trust.
/ 52 /
2022 outlook Issue 79 / December 2021
James Johnsen, head of private
clients at Church House Investments,
agrees the UK is “where the best value Trust pick
is to be found at the moment, and the Johnsen suggests
best prospects”. Merchants Trust as a
“For an investor with a three- to five-
year outlook, if you can look through
all the noise of the current markets,
BREXIT solid, reliable equity
income fund with a
yield of just under
then I think the UK is not going to be a 5%. It is managed
bad place to be,” he adds. by Allianz’s Simon
Gergel, a “safe pair
of hands” who has
delivered steady
performance and
a reliable source of
income, aided by the
use of cash reserves to
smooth distributions. While
Merchants looks like an ordinary
equity income fund full of the
usual dividend-paying stalwarts,
it is actually an all-cap fund and
has a range of more interesting
holdings beneath the surface,
says McHattie. However, its
significant exposure to tobacco
and oil stocks will make it
unappealing to more sustainably
minded investors.
/ 53 /
SECTOR PROFILE
United States
While the beleaguered UK looks cheap,
American stocks stand out as “the most
expensive of all major equity markets”,
McHattie notes, after the healthcare
and tech sectors surged during the
pandemic. The S&P 500 didn’t stop
there, however, and is up 26.8%
year to date.
“Valuations have been driven
higher by growth stocks that
have powered ahead, and it is a
tricky task to determine whether
that trend might continue for a
while longer,” McHattie adds.
Just as in the UK, interest rate rises
and inflation will likely dominate
investor thinking in 2022, with
annual CPI already running at
6.2% as of September 2021
and the Federal Reserve
preparing for its next rate-
hiking cycle.
/ 54 /
2022 outlook trustnet.com
Trust pick
McHattie says that one way
to buy into the expensive US
market at a sensible price
is through Pershing Square
Holdings, which was a top
performer during the Covid
crisis. “Run by the well-known
New York manager Bill Ackman,
Pershing Square owns a mix of
US brands like Domino’s Pizza
and Hilton, plus a large stake
in Universal Music Group,” he
says. “The trust has attracted
controversy through its activities
with special purpose acquisition
companies (SPACs), and is more
complex than average, but the
risks look well priced in with a
thumping discount of 28%.”
/ 55 /
SECTOR PROFILE 2022 outlook
Europe
Europe hasn’t been the most exciting
investment destination in recent years,
but stocks have rallied 57.1% since the
lows of March 2020, according to FE
Analytics, and are up 12.7% so far in
2021. While economic momentum is
accelerating, Bank of America says it
expects 2022 to be “a year of payback”
as the European Central Bank begins
to withdraw monetary stimulus and
growth slows back towards trend. Yet
even if the economic outlook is muted,
there are some robust and reliable
companies in the region that still have a
role to play in portfolios.
“Europe is out of favour at the moment,
but there are some very good companies
there that are going to do well,” says
Johnsen. Among these are innovators well
placed to ride the green technology wave.
Corporate profits are tipped to rise by 50%
year on year for 2021, with 8 to 9% growth
expected for 2022.
/ 56 /
Issue 79 / December 2021
Trust pick
Johnsen’s pick for European
exposure is Henderson
EuroTrust. Tim Stevenson
retired in 2019 after a lengthy
period at the helm, but his
longstanding team and new
manager Jamie Ross have
successfully maintained his
strong record since then.
Henderson EuroTrust is trading
on a discount of about 8%, which
could be an attractive entry
point for investors who want to
benefit from Europe’s recovery.
However, Cuthbertson says a
more offbeat idea for adventurous
investors willing to look at the
frontier of Europe is Georgia
Capital. It has a mixed portfolio of
private equity and listed stocks in
the eastern European nation, and
currently trades on a hefty 55%
discount to NAV.
/ 57 /
SECTOR PROFILE
Asia & emerging markets
S&P predicts emerging markets
could be set for above-trend
economic growth next year, but a lot
is riding on Covid infection rates and
the impact of soaring energy prices.
Market performance as a whole has
been underwhelming this year, with
both the MSCI Asia Pacific ex Japan
and MSCI Emerging Markets indices
dipping into negative territory.
Asia and especially China have
struggled with supply bottlenecks
as pandemic-related upheaval
continues – 2022 may bring
headwinds for the
world’s second-
largest economy
in the form
of a slowing
property
sector and
higher
energy
prices. India
was a standout
performer
/ 58 /
2022 outlook
among Asian markets in 2021, as its
economy rebounded in the third
quarter following spring lockdowns.
This may continue into next year.
Johnsen says Japan could also be
one to watch in 2022, with a market
as undervalued as the UK. Tailwinds
include profitable companies, low
Covid rates, a reopening economy and
a new government stimulus package.
Schroders’ Asian equities team says
south-east Asian stock markets are
“hard to get excited about” as good
companies are scarce, and therefore
expensive. But Cuthbertson says
Vietnam represents a bright spot:
“It had low infection rates in 2020
and had a positive GDP number
that year. It was a beneficiary of
Covid.” She adds that after years
of trade wars, tariffs and
more recent supply
chain disruption,
companies
are wary of
basing their
manufacturing
in China, and
Vietnam offers
a cheaper
alternative.
Issue 79 / December 2021
Trust pick
Cuthbertson’s trust pick
is Vietnam Enterprise
Investments, run by Dragon
Capital. It is the largest of three
listed investment trusts focused
on the country, at almost £2bn.
With more than 40% of the
portfolio in the financial services
sector, it could benefit from
urbanisation and the growing
middle class – Vietnam’s
consumer income is expected to
more than double by 2040.
Its managers claim that
regulation and governance have
improved in Vietnam, which
McHattie says make this market
“less of a wild card than it used
to be”. Vietnam Enterprise
Investments has delivered a five-
year return of 159.5% and trades
on a 17% discount to NAV. This
trust could be an interesting
option for investors looking for
strong growth potential as it
becomes difficult to find in the
usual places.
/ 59 /
IN THE BACK
Back up to
speed
Jonathan Brown and Robin West
of Invesco Perpetual UK Smaller
Companies name three businesses
that are returning to normal after
taking a hit during the pandemic
We look for companies
with sustainable growth
characteristics that can become
significantly larger in the medium
term. We also seek those that can
increase profits independently of the
wider economy, while companies with
pricing power are becoming more
desirable as input costs rise.
Business confidence is improving and
companies are more willing to invest.
Consumer balance sheets are also
strong. These themes will continue to
support the UK economy and we are
particularly excited about the prospects
of the following three stocks.
/ 60 /
Stockpicker Issue 79 / December 2021
the hospitality sector real estate. Strong cost Its all-day trading
recovers, it should controls and government concept is popular
Linen-hire business continue taking market support in the form of with customers, and
Johnson Service Group, share, and takeover furlough schemes, local the business has
which is focused on targets could emerge. grants and business historically delivered
the workwear and rates relief allowed it industry-leading sales
hospitality sector, took a to reduce the impact growth. Trading has
hit from the lockdowns, of the pandemic. It has recovered strongly post-
but has emerged from seen a strong recovery in lockdowns. Loungers has
the crisis in a stronger Many gym businesses membership numbers recommenced its site
position than when it that closed during the and plans to open 40 rollout with 16 new sites
went in. Labour and lockdowns were too new sites before 2023. so far this year, and it has
energy prices are rising, indebted to open again. a strong pipeline for the
but its laundries have This allowed the Gym future. It has managed
the advantage of scale, Group to accelerate its cost pressures well
while network density acquisition of new sites Loungers is a café, bar and recently improved
benefits in its delivery after raising funds mid- and restaurant business margins, despite
and collection operation year via a placing, aided with two brands: Lounge inflationary pressure,
give it a cost edge. As by the falling cost of and Cosy Club. due to growing scale.
/ 61 /
IN THE BACK
Polar Capital Global
Financials is the only
UK-listed equity investment
trust focused solely on
financials. We were attracted to
the global, diversified mandate of the
portfolio and the managers’ active
approach, which allows them to tilt
the portfolio towards the geographic
regions they believe are most exciting.
They also have the flexibility to
dial up or down exposure between
banks, insurance, speciality financials
and fintech. We have known the
trust’s managers, John Yakas, George
Barrow and Nick Brind, for many
years, having previously held the
fund in 2016.
Loan survivors
We added the trust to both the TB
Wise Multi-Asset Growth and TB
Wise Multi-Asset Income portfolios
in September 2020, when its value
was depressed given the uncertainty
surrounding Covid.
Bank valuations in particular were
extremely cheap despite low levels of
loan growth entering the pandemic,
much stronger levels of capital
than during the financial crisis, and
conservative provisioning. When
/ 62 /
What I Bought Last
Polar Capital
Global Financials
Wise’s Philip Matthews says this investment trust is well placed to
benefit from the next stage of the economic recovery
we invested, the trust was trading
at a discount of more than 10%,
representing a second valuation
cushion beyond the one expressed in
its underlying holdings.
We hold some direct equities
in TB Wise Multi-Asset Income,
including banks and speciality
lending companies, such as Paragon,
Standard Chartered, NatWest,
Provident Financial and Morses Club.
Given the fact that Polar Capital
Global Financials typically invests
90% of its portfolio outside the UK,
we believe the trust complements
these direct holdings.
The investment trust structure also
allowed us to supplement the income
on the fund last year, despite the
Issue 79 / December 2021
With its high exposure to banks,
Polar Capital Global Financials should
perform well in this environment.
Despite its strong performance over
the past 12 months, we have recently
added to our holding given our belief
in the strong prospects for the sector.
backdrop of dividend cuts across our
direct equity holdings – Polar Capital
Global Financials used revenue
reserves to maintain its payout.
By selling some of our direct
holdings and reinvesting into the
trust, we maintained the significant
capital upside opportunity, enjoyed
a 4% dividend yield and accessed
similar exposure at a 10% discount.
Second wind
We continue to believe financials
is one of the sectors best placed to
benefit from the continuing post-
Covid global economic recovery, and
any increase in inflation that causes Philip Matthews is a portfolio
interest rates to rise should prove to manager at Wise Funds
be a powerful tailwind for earnings.
/ 63 /
 Trustnet Magazine is
published by the team
behind Trustnet in Soho,
London

www.trustnet.com
editorial@fefundinfo.com