Sunniva Kolostyak: Welcome to Morningstar. Today I'm joined by Peter Hewitt, the manager of the CT Global Managed Portfolio Trust, which is a trust with two portfolios.
Peter, thank you very much for being here today. You do something you call cradle-to-grave investing. Would you like to tell me what that entails?
Peter Hewitt: Well, cradle-to-grave investing is a grand title, but really, we have two portfolios, a growth and an income. And for the growth portfolio, that probably is ideal for younger investors. So, it can be parents investing for children, younger adults, typically who are focused on longer-term growth, and let's hope big capital returns, principally capital returns, over the long run.
As you get older – and there's no one age for any individual, it can vary. But as you get older, you tend to have more of a preference for current income and that's where the income portfolio comes in. So actually, you can be investing in the managed portfolio growth shares for a long time. And then when you decide it's time for some more income and maybe a bit less risk, then it's time to move into the income portfolio and we've got a conversion facility that you can do that once a year, pretty costlessly actually. So that's cradle-to-grave investing for when you're younger to when you're much older and your requirements are different.
SK: So, what goes into the different portfolios? What makes them different?
PH: Well, in the case of the growth portfolio, it is focused on capital growth. And so, I'm looking for investment companies that will hopefully deliver big capital growth over the long run and I do invest on a long-term basis. So, for example, I've got three key themes at the moment that's reflected in the portfolio. The first one is I am quite optimistic for what I call secular growth investment companies, companies that specialise in technology companies, biotechnology, healthcare and you're seeing big growth there at the moment, artificial intelligence being one. And so, I think it's important for a growth portfolio to have a core in that area because you can get multiple times your money from that. I also like private equity trusts which tend to be invested mainly in private growth companies. They're selling on very wide discounts just now and I think offer great value and good potential for capital returns over the longer run.
SK: Yeah, and I know you've just added to your growth fund.
PH: Yes, I have. I mean, I've just come from a meeting with Augmentum Fintech (AUGM) which is a classic example. It specialises in new companies in financial technology, mainly in the UK but also Europe and I think it's got big potential for capital returns. The shares are selling at a 35-plus discount to the asset value which I think will grow quite well over the next two or three years. So, in my view, that's a big opportunity and there's a number of other companies in the private equity sphere like that. Pantheon (PIN), HgCapital (HGT) is my biggest holding. That specialises in software companies, but similarly, it's had great returns. So, I think that's an interesting theme.
And the last one actually is UK equities. I think the UK market is unloved. It has great value. It's very inexpensive in comparison even to Europe and certainly to America and actually there are some great growth companies. So, I like UK trusts with a bias to mid and small cap UK companies which are cheap and unloved but some of them have got great growth potential. So actually, all of these themes are reflected in my big holdings like in the case of the UK Trust, I've got Fidelity Special Values (FSV), Aberforth Smaller Companies (ASL), there's a couple for you, Aurora Trust (ARR), that's another good UK trust. Private equity we've touched on, HgCapital, Pantheon, Oakley Capital (OCI), Augmentum Fintech. And then the secular growth, I would say, Polar Cap Technology (PCT), Allianz Technology Trust (ATT), Worldwide Healthcare (WWH), Biotech Growth (BIOG), that is what I want to have a holding for the long term.
Now, for the income portfolio, I do try and reflect some of these themes, but almost all the trusts I mentioned there don't pay dividends. So, the income portfolio currently has a yield of over 6%. So, we've kind of got to look at companies that have decent dividends, but similarly, UK equity trusts has a lot of them that do. So, Law Debenture (LWDB), Lowland (LWI), Mercantile (MRC) is one I've been buying a lot of, that specialises in mid-cap companies. I've got some private equity trusts in there, NB Private Equity (NBPE) and Apax Global Alpha (APAX) would be two, and even one or two secular growth trusts that pay dividends, and I would highlight International Biotech (IBT) as one I've been buying.
So, mainly, there are two or three trusts that are in both portfolios, but ideally, they both have about 35 to 40 holdings, and yep, there's different objectives, one is income with some capital growth, and the other is all out capital growth. So, there you are.
SK: So, another thing I want to talk about is the end of the tax year, and we have kind of ISA season, as we'd like to call it, coming up. I guess my question to you is, how should investors who often tend to talk about stocks and shares ISA as a vehicle for equities. Is there any way that they should think about this in terms of trusts and funds?
PH: I think actually trusts and funds investment companies really should be the kind of prime way that an individual investor certainly initially gets exposed to the stock market. If you buy the Managed Portfolio Trust, actually, you're buying one share, but you're really buying holdings in 40 underlying companies. So, there's a level of diversification there that means even if you buy one big company, something unexpected can still happen to it and be reflected in a horrible share price performance. Tends not to be the case with investment companies. So, it's a good first step into the stock market. It's holding a well-run investment company, hopefully, which specialises in whatever you want, capital growth or income, and I think that's a good route for people to get their initial exposure into the stock market.
SK: You mentioned UK stocks being unloved. What are your thoughts on the potential UK ISA? Do you think that would move the needle?
PH: I mean, that's a difficult one. I think, at the moment, it's still not very clear exactly what the characteristics or rules are that would qualify companies for a UK ISA. If it's just being listed on the London Stock Exchange, you could buy an investment company which wholly invests in US stocks. So, you're not really benefiting the UK there. I mean, in theory, the idea is quite good. I think how it works out in practice might be something different. So, I think the rules have to be clear. If they are, it could be an additional benefit, but I don't think it's going to transform overnight the companies that are listed on the London Stock Exchange, which I think are undervalued and suddenly result in them getting proper valuations. But I think it's maybe a small step in the right direction.
SK: Peter, thank you very much for joining me today.
PH: Thank you.
SK: For Morningstar, I'm Sunniva Kolostyak.
