Emma Wall: Hello and welcome to the Morningstar series, "Ask the Expert." I'm Emma Wall and I'm joined today by Morningstar's Senior Fund Analyst, David Holder.
Hi, David.
David Holder: Hello, Emma.
Wall: So, we're here today to talk about the top three investment trusts as voted for with clicks by Morningstar readers and one name that keeps coming out again and again in the 10 most popular pages on our website throughout the year is Scottish Mortgage (SMT). Have people been right to be clicking?
Holder: Yes, I think they probably have. Scottish Mortgage is a unique trust. The name belies exactly where it invests. It sounds quite straight and quite boring, but actually it's at the very forefront of technology, the internet, how the internet disrupts and destroys, if you like, traditional business models. So, it's a really interesting trust. It's very large, it's very liquid. It's managed by the very experienced James Anderson.
And I like what he said recently is that he has called it growth on reasonable price in terms of the process. So, I think really what you're getting here is exposure to particularly sort of Chinese type of stocks more at the consumer sort of level rather than the infrastructure level. So, it's evolving over time. It is a very interesting portfolio. One that is quite high risk in terms of sort of volatility, it's also geared as well. So, that increases the levels of volatility.
Wall: So, a long-term hold then?
Holder: Very much so. It plays into the good strong thematic trends in the emerging world, but not necessarily through emerging companies, mostly actually through developed markets such as the U.S. and Europe as well. It's a very interesting play.
Wall: And another thing that has proved popular with Morningstar readers this year is in fact biotech. It proved popular with them last year as well. Were they right to carry on clicking?
Holder: I think they were overall. In common with Scottish Mortgage Trust, which has a biotech theme through it, biotech and healthcare has been a strong place to be invested. It has been volatile as you'd expect with these types of investments. It's really susceptible to being a political football at times, particularly in the U.S. and we saw that in September stocks sold off very aggressively through comments from Hillary Clinton. So, it's not without risk. There's clinical risk; there's political risk.
Wall: And a niche player in a portfolio. I mean, this is not a broad-based equity fund. This is very much a play for people who feel very positive about a particular sector?
Holder: Indeed it is. Although I think we're seeing some advancements, very quick, very rapid advancements in the technology in this area and it's an area that actually has to succeed for the benefit of the U.S. healthcare regime.
So, there's some quite positive sort of tailwinds behind this with the FDA being a little bit more upbeat and a bit more accommodative on getting drugs through, but it's not without its risks and I would highlight probably political risks at the top-line level and then at the stock-specific level there is the execution risk of the clinical trials and how they turn out for some of these companies.
Wall: And then finally, we can't have a year-round roundup of what investors have been interesting in this year, specifically our readers, without mentioning Woodford Patient Capital (WPCT). Ever since its launch earlier this year it has topped our 10 most popular by clicks trusts. Of course, we don't rate this fund. It's a particular niche player. How is it doing?
Holder: It's doing okay. It was an enormous new issue. It's very innovative I suppose from a number of different perspectives, not least the fee structure. It doesn't charge a management fee. It only charges when it's actually performing well for investors which we like. It aligns interest nicely there between shareholders and the management as well. So, we think that's good.
It's not for the faint-hearted. It's sort of unadulterated Woodford, if you like. It's giving you exposure to areas of risk in terms of biotech and healthcare in particular, smaller companies, unquoted as well. So, it's an interesting portfolio. We don't rate it currently as you mentioned. However, it's one that we're very keen to keep a close eye on.
Wall: I suppose it was worth saying that that perhaps is a little unfair to see how it's done with the short amount of time because Woodford themselves have said they're closing the title. This is one for the very long-term holding.
Holder: Yes. And the type of companies the early-stage growth companies that it is investing into do require patience exactly as you say.
Wall: David, thank you very much.
Holder: Thank you, Emma.
Wall: This is Emma Wall for Morningstar. Thank you for watching.
