IT for Growth

[mlc2010]

32 years old

I have started to put money into global IT and equity funds as my core value of portfolio, does anyone have any suggestions for decent IT for growth? I don't need income

atm I have scottish mortgage investment trust, but I'd like to add a secondary holding, I noticed witan investment trust looks decent with no overlapping holdings, I'm all very new to IT

[tjh290633]

The three big ones are Alliance, F&C and Witan, and Alliance has just changed its system to multi-manager, rather like Witan. F&C have quite a lot of private equity on board. You could pick any one of those. Why not compare their performance over the last 20 or more years?

TJH

[Dod1010]

Firstly, a very good idea. You will gain experience from watching how a generalist trust does and go on from there. Adding to Scottish Mortgage (which has a great record) I would certainly endorse tjh's choices. Otherwise, Rothschild IT has been another excellent very broadly spread trust.

Not to say any of these will do well over the next few years but I think I would choose RIT.

Dod

[OZYU]

I would endorse those mentioned so far.

But take a look also at F&C Global Smaller Cos (FCS). In that non HY growth space I have held SMT and FCS for absolute donkeys, my wife has held Witan and RCP for just as long.

A search on the AIC Website database ticking Global and Growth produces a manageable one page of ideas for further research.

Ozyu

[GJHarney]

I hold and like all the ones mentioned so far. I also like the multi-manager regional approach of Witan, not least as it means that Nick Train manages the UK part of its portfolio.

As the OP has Scottish Mortgage which has great performance but can also have some large swings along the way due to the conviction and concentrated nature of its holdings then a larger holdings global 'plodder' would be sensible. Alongside F&C and Witan I would suggest the Scottish Mortgage stablemate Monks that has had a recent change of manager and also a significant improvement in its performance although whether that is directly related to the new manager and his love of complicated graphs and investment jargon is beyond my knowledge (and tolerance of fancy graphs and jargon) but I'm very happy with it currently.

My left field global choices with large discounts to NAV (and so room for future rises) are two family dominated trusts - Caledonia and the far smaller Brunner, who both trade on large discounts currently of around 15-16%. Of the two Caledonia because of its size is probably a safer plodder bet, but I like the approach of the current Brunner manager Lucy MacDonald and also its lower ongoing charge figure of 0.75% compared to Caledonia's too high 1.09% so Brunner would be my choice of the two.

[Lootman]

The three big ones are Alliance, F&C and Witan, and Alliance has just changed its system to multi-manager, rather like Witan. F&C have quite a lot of private equity on board. You could pick any one of those. Why not compare their performance over the last 20 or more years?

I would not describe those ITs as "growth" at all. Rather they are global generalist trusts seeking a blend of growth and income. More like substitutes for index funds than real vehicles for outright growth.

If income is not a requirement and you want ITs capable of index-beating growth (with the understanding that they may under-perform, particularly in weak markets) I think Scottish Mortgage is a good choice. I'd also look for a smaller companies IT, an emerging markets IT and a couple of ITs from high-growth sectors like Technology and Biotech.

In fact, even a US S&P 500 IT or index fund is quite "growthy" by UK standards. The dominant constituents are Apple, MicroSoft, Google, FaceBook. Amazon and Netflix. There are no substitutes for those names, globally, if you are looking for large businesses growing at 10% to 25% annually.

[tjh290633]

The dominant constituents are Apple, MicroSoft, Google, FaceBook. Amazon and Netflix. There are no substitutes for those names, globally, if you are looking for large businesses growing at 10% to 25% annually.

And if you look at the holdings of Witan, for example, you will find Alphabet (nee Google), Microsoft and many others. See https://witan-widgets.huguenots.co.uk/s ... 0-2016.pdf

FRCL's top ten holdings are:

Companies 	%
Amazon            1.3
UnitedHealth      1.2
Alphabet          1.1
Microsoft         1.0
BP                1.1
Facebook          0.7
CRH               0.7
Priceline         0.7
HSBC              0.7
JPMorgan Chase    0.7

See http://www.fandc.com/foreign-and-coloni ... KIGjX8y3cs

So what is your argument against them?

TJH

[Lootman]

The dominant constituents are Apple, MicroSoft, Google, FaceBook. Amazon and Netflix. There are no substitutes for those names, globally, if you are looking for large businesses growing at 10% to 25% annually.

And if you look at the holdings of Witan, for example, you will find Alphabet (nee Google), Microsoft and many others. See https://witan-widgets.huguenots.co.uk/s ... 0-2016.pdf

FRCL's top ten holdings are:

Companies 	%
Amazon            1.3
UnitedHealth      1.2
Alphabet          1.1
Microsoft         1.0
BP                1.1
Facebook          0.7
CRH               0.7
Priceline         0.7
HSBC              0.7
JPMorgan Chase    0.7

See http://www.fandc.com/foreign-and-coloni ... KIGjX8y3cs

So what is your argument against them?

I don't have an argument against them as large, highly diversified growth and income funds. They are the kind of thing that could be a widow or orphan's only holding and they would sleep at night. But the original question was about growth, and not growth-and-income.

Take the shares I listed. You are correct that both your examples hold some of them. But both ITs are so highly diversified that the massive out-performance of those four won't affect the NAV very much. In both cases the sum total of their holdings in Amazon, Google, MicroSoft and FaceBook are about 3.25% of NAV. I didn't see Apple at all, and that alone is 3% of the S%P 500 and is a $700 billion market cap.

And in both cases there are the usual suspect high-yielding UK shares, presumably because of the income mandate.

So if the question here is for a conviction fund yielding little and with holdings that are focused on all-out capital growth, I'd look elsewhere. As an example, the US small cap index is up 40% over the last year. I think that is the kind of return being sought here, along with an acceptance of a higher risk profile.

[mlc2010]

Hi Guys,

sorry for not fleshing out original post

In my isa and sipp I already hold axa framlington biotech
in my isa I hold hsbc american index, threadneedle smaller companies, japanese smaller companies, hsbc ftse 250 tracker, scottish mortgage

I was thinking with my next 20k allowance, to diversify it into another global holding, and the others are sort of satellite funds

[tjh290633]

I don't have an argument against them as large, highly diversified growth and income funds. They are the kind of thing that could be a widow or orphan's only holding and they would sleep at night. But the original question was about growth, and not growth-and-income.

Take the shares I listed. You are correct that both your examples hold some of them. But both ITs are so highly diversified that the massive out-performance of those four won't affect the NAV very much. In both cases the sum total of their holdings in Amazon, Google, MicroSoft and FaceBook are about 3.25% of NAV. I didn't see Apple at all, and that alone is 3% of the S%P 500 and is a $700 billion market cap.

And in both cases there are the usual suspect high-yielding UK shares, presumably because of the income mandate.

So if the question here is for a conviction fund yielding little and with holdings that are focused on all-out capital growth, I'd look elsewhere. As an example, the US small cap index is up 40% over the last year. I think that is the kind of return being sought here, along with an acceptance of a higher risk profile.

So you are basically suggesting that a S&P tracker would be a better bet? Although you didn't see Apple, it is still there, but they only hold £19million worth of them, compared with £45million worth of Amazon, the top weight holding. You will find a PDF file listing all their holdings from a link lower down on the right of that page.

You might also like to look at FRCL's 2015 Annual report, which indicates that they were 33.6% invested in the USA, compared with 7.8% in the UK. It's on page 16. 16.5% in Europe ex UK.

TJH

[Lootman]

So you are basically suggesting that a S&P tracker would be a better bet? Although you didn't see Apple, it is still there, but they only hold £19million worth of them, compared with £45million worth of Amazon, the top weight holding. You will find a PDF file listing all their holdings from a link lower down on the right of that page.

I'd put it this way. The UK market, for all its merits for income and value investors, is not a growth market. Compare the FTSE-100 to where it was in 1999 and it is barely ahead in capital terms. Almost all of the returns have come from dividends.

Compare that to the US market, where the S&P 500 has about doubled during that same time period, also without dividends.

Throw in the fact that the pound is significantly weaker, versus USD, now than then, and we can see that any growth investor who chose the UK market over the US market seriously missed out.

Regarding Apple, it is up 50% in just the last year, gaining a quarter of a trillion dollars in market cap in that time. The tiny allocation to Apple that Witan and FRCL hold will only have captured a small amount of that gain, and they would have had to have done very well elsewhere to make up that under-performance.

You might also like to look at FRCL's 2015 Annual report, which indicates that they were 33.6% invested in the USA, compared with 7.8% in the UK. It's on page 16. 16.5% in Europe ex UK.

I did take a look, and also at the performance numbers from Trustnet. Here are the NAV growth numbers for the last 5 years:

Scottish Mortgage - 141%
Witan - 97%
FRCL - 92%

Scottish Mortgage has over 46% in the US, and just 3.8% in the UK. It has no income requirement and yields less than 1%, so it is less constrained in seeking capital growth.

F&C Global Smaller companies IT, with 45% in the US, which somebody else suggested, also did better with a 118% NAV return. Whilst only the remarkable Lindsell Train, with 167%, did better than Scottish Mortgage. (*)

Of course, past out-performance does not guarantee future out-performance, but it's not nothing either. Other rather bland generalist IT vehicles also had pedestrian growth, at least relative to the growth vehicles. Examples:

Alliance - 77%
Brunner - 85%
Bankers - 86%
SIT - 80%

(*) Countering my own argument, LTI is 70% invested in the UK and just 7% invested in the US. More than half that 70% allocation is in its parent fund management company. It's really its own animal.

[mlc2010]

someone mentioned the F&C global smaller companies trust, however, the spread seems quite large on this, any reason why? I'd expect a spread like this on a penny share, do I wait until it tightens, or that day might never come?

Sell:1,259.00p Buy:1,275.00p

[Lootman]

someone mentioned the F&C global smaller companies trust, however, the spread seems quite large on this, any reason why? I'd expect a spread like this on a penny share, do I wait until it tightens, or that day might never come?

Sell:1,259.00p Buy:1,275.00p

I make that a 1.25% spread, which isn't tiny but also not totally punitive. Throw in stamp duty and some commission, and it's probably a 2% round-trip, which shouldn't matter so much if you intend a long-term hold.

That said, it might be worth watching the spread over a few days, and also at different times of the day. It can vary and you will develop a feel for that over time.

Another idea is to submit a limit order, so that you only buy at a price you are happy with.

[Peter1B1]

I have been pleased with Polar Capital Technology Trust, providing consistent growth from the technology sector. Recent stakes in a Biotech fund - too soon to call.

I agree with earlier Lootman that if you are looking for growth then it is necessary to target sectors (and themes) that you believe will deliver this over the medium and longer term. I am confident that technology will continue to gain ground and I'd be looking for good participation in the emerging robotics market. I'll give biotech the benefit of the doubt for now. And even commodities if you can get the cycle right.

So for the upcoming SIPP year I will be quite angled on growth sectors and increasingly thematic in my new allocation as I leave the pf to run: much is well-diversified core IT holdings rumbling on in a steady way and the new tranche+accumulated dividends can be more targeted bearing in mind the very long term nature of the SIPP.

Peter1B1

[Lootman]

I have been pleased with Polar Capital Technology Trust, providing consistent growth from the technology sector. Recent stakes in a Biotech fund - too soon to call.

I agree with earlier Lootman that if you are looking for growth then it is necessary to target sectors (and themes) that you believe will deliver this over the medium and longer term. I am confident that technology will continue to gain ground and I'd be looking for good participation in the emerging robotics market. I'll give biotech the benefit of the doubt for now.

Three are examples of how Tech companies are not only giving good growth (10% a year or more) but are priced at a good valuation. I also like Intel, Cisco, SalesForce, FaceBook and Amazon but take these three:

1) Google. Forward P/E is about 21 - or average for the US market. $86 billion in cash. Profit and operating margins over 20%. Minimal debt. ROE is 15%.

2) Apple. Forward P/E 13.5, $60 billion in cash. Profit and operating margins over 20%. Dividend yield is 1.7%. ROE is 34% - there is debt.

3) MicroSoft. Forward P/E is 20. $120 billion in cash. Profit and operating margins over 20%. Dividend yield is 2.4%. ROE is 23%.

Maybe there are shares with equivalent numbers in Europe, but I'd be interested to know what they are.

As for BioTech, I think there are two ways to play that. The established large-cap BioTech names trade more like big pharma companies these days. Examples are Amgen, Gilead, Celgene, Biogene. The first two even have a dividend yield of 2% to 3%. The ETF IBB is cap-weighted and so focuses on these.

Then there are the tiddlers where the failure rate is high but if you pick a winner, the sky is the limit. Unless you're an expert in the field, and I'm not, it's best to go with a collective. The ETF ticker XBI equal weights the small and medium size biotech names.

Or one of the activiely-managed investment trusts in this area, of course.

[LooseCannon101]

Total return over an extended period e.g. 10+ years is most people's aim. Terms such as 'growth' and 'income' are used by marketing teams to sell their funds to the retail investor i.e. you and me.

Concentrated equity portfolios containing e.g. small capitalisation, high technology companies, may perform exceptionally well over short periods when those portfolios are in fashion. When not in fashion, these portfolios can drop in value like a stone. Financial history is littered with get rich quick merchants who lure the gullible into thinking they have the magic formula for turning base metal into gold.

If you are looking at an equity holding over 30 years, I would go for one or more global investment trusts with a good long-term record of increasing capital and also dividends through both booms and busts. Boring trusts like Foreign and Colonial Investment Trust (FRCL) are perfect for this role.