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Investment trust ideas for 2013 stocks and shares Isas

With savings rates at rock bottom and offering little protection against inflation, many Isa savers might be looking to use at least part of their Isa allowance this year for investing.

Deterred by the difficulties of picking individual stocks and wanting a greater spread of risk, many small investors look to funds. But they then get a shock when they realise that their investments have to earn 2-3 per cent annual returns before they pay the fees of the manager who runs them.

Investment trusts are a popular choice among savvy investors - there is no initial charge and smaller annual fees mean they eat up much less of your returns than funds. And they often outperform their fund counterparts, while carrying a slightly higher degree of risk and volatility.

Defensive asset: Invest in property freeholds which charge ground rent to leaseholders

New and first-time investors should always consider their overall financial situation and make a careful judgement about how much of their savings they can afford to put into an investment that could rapidly fall if world markets take a sudden turn for the worse.

 

But that aside, which look the most promising investment trusts to generate good returns right now?

We asked eight top money experts to tip their favourite trusts for small investors, especially those looking for last-minute Isa options or ideas for when they open their 2013-14 wrapper.

For the uninitiated, we've also included some explanation of the investment trust benefits and jargon.

1. HG Capital: Undervalued private equity trust grooming firms for sale

Dennis Hall, managing director of Yellowtail Financial Planning, tips:

HG Capital: A trust that invests in private equity firms, with the aim of capital appreciation that beats the FTSE All-Share index.

'It's probably undervalued. It's got a lot of companies within its portfolio it's grooming for sale.' says Hall.

Trading at 5.99 per cent discount to net asset value or NAV. Share price and charts.

Dennis also likes:

Murray Income: Trading at 0.91 per cent premium to NAV. Share price and charts.

Aberdeen New Thai: Trading at 0.10 per cent premium to NAV. Share price and charts.

  More... The best investment trusts for long-term investors: From income to emerging markets How to invest in funds, investment trusts and ETFs - and save money as a DIY investor Guide to investment trusts: Find out how they work and why they're cheaper than funds Five big investment stories for the next 20 years - and how you can take advantage DIY share dealing: cheap flat fee service for £12.50 Fund supermarket: pay 0% initial commission on all funds and Isas bought online Get a free guide to investing Isas from Hargreaves Lansdown

2. Personal Assets: Conserves wealth and holds cash when necessary

Roddy Kohn, owner of Kohn Cougar, tips:

Personal Assets: 'One of its aims is to conserve wealth. When markets crash, like in 2008-2009, you will take less of a loss than with other trusts and funds,' says Kohn.

'It can hold cash when need be. The manager is not under pressure to stay fully invested in difficult market conditions. About half the money is in equities and rest held across gold, cash and bonds.'

Trading at 1.35 per cent premium to NAV. Share price and charts.

Roddy also likes:

Standard Life UK Smaller Companies: Trading at 0.46 per cent discount to NAV. Share price and charts.

Schroder Japan Growth: Trading at 9.06 per cent discount to NAV. Share price and charts.

WHAT ARE INVESTMENT TRUSTS?

Investment trusts are listed companies with shares that trade on the stock market.

They invest in the shares of other companies and are known as closed end, meaning the number of shares or units the trust's portfolio is divided into is limited - unlike unit trusts or open-ended investment companies (OEICs) where investors' money is pooled to invest in shares, bonds or other funds.

In an investment trust, investors can buy or sell shares to join or leave the fund, but new money outside this pool cannot be raised without formally issuing new shares.

Investment trusts can be riskier than unit trusts/OEICs because their shares can trade at a premium or discount to the value of the assets they hold, known as the net asset value.

For example, a trust's price can fall below the total value of its holdings if it is unpopular and people do not want to invest but do want to sell. This pushes down demand and drives up the supply of its units for sale.

This gives new investors the opportunity to buy in at a discount, but means existing investors' holdings are worth less than they should be.

Investment trusts tend to be a lower-cost option than funds, with no initial charge and lower annual fees. However, buying them incurs share-dealing charges. A good DIY investment platform will cut these.

3. Ground Rents Income: Put your money in freehold property

Jon Gumpel, director of Brooks Macdonald, tips:

Ground Rents Income: This trust invests in property freeholds which charge ground rent to leaseholders, explains Gumpel.

The trust is run by Braemar Estates, which is a subsidiary of his firm Brooks Macdonald. But Gumpel believes it is worth bringing to investors' notice because ground rents of residential, retail and commercial properties are an attractive asset.

'It's very defensive, and inflation linked,' he says. 'You get yield plus a defensive asset plus inflation protection. It makes a very strong combination.'

First net asset value due to be announced at end of March. Share price and charts.

Jon also likes:

Monks: Trading at 14.43 per cent discount to NAV. Share price and charts.

Henderson Opportunities: Trading at 19.45 per cent discount to NAV. Share price and charts.

4. Henderson Asian Growth: New Schroder management taking over

Jason Hollands, managing director of financial adviser Bestinvest, tips:

Henderson Asian Growth: 'We like Asia as a region but there is an additional angle around this trust,' says Hollands. 'On 15 March it will vote to move its management to Robin Parbrook and Lee King of Schroders.

'Their Schroders Asian Absolute Return fund has delivered stellar returns and we are confident they can do the same for this trust.'

Enlarge   Big theme investment: An ageing global population means biotechnology and healthcare funds should perform strongly

Trading at 3.19 per cent discount to NAV. Share price and charts.

Jason also likes:

Herald: Trading at 15.43 per cent discount to NAV. Share price and charts.

Templeton Emerging Markets: Trading at 8.04 per cent discount to to NAV. Share price and charts.

5. Alliance Trust: Global trust with a pedigree

Philippa Gee of Philippa Gee Wealth Management, tips:

Alliance Trust: 'This is a global trust, with a decent discount at present and a pedigree to back it up,' says Gee.

'It has a very flexible approach to asset allocation and therefore may be hard to fit in to a portfolio with other holdings if you are very precise about the allocation to each region, but otherwise could be one to consider.'

Trading at 13.54 per cent discount to NAV. Share price and charts.

Philippa also likes:

F&C Managed Portfolio Income: Trading at 0.91 per cent discount to NAV. Share price and charts.

Witan: Trading at 12.35 per cent discount to NAV. Share price and charts.

6. Templeton Emerging Markets: High conviction approach to stock-picking

Gavin Haynes, managing director of Whitechurch Securities, tips:

Templeton Emerging Markets: 'This is a well-established emerging markets investment trust, under the highly experienced Mark Mobius, who has been managing the trust since launch in 1989, so has a wealth of experience,' says Haynes.

'This trust is managed with a high conviction approach based upon which markets and sectors Mobius’s team see the best stock-picking opportunities. Currently over 50 per cent of the trust is invested in China, Brazil and Thailand, where he sees compelling value.

'Whilst if investing in emerging markets you have to have an above average tolerance for risk I believe that this trust to provide core actively managed global emerging market exposure over the longer term.'

Trading at 8.04 per cent discount to to NAV. Share price and charts.

Gavin also likes:

Scottish Mortgage: Trading at 6.87 per cent discount to NAV. Share price and charts.

Edinburgh: Trading at 0.84 per cent premium to NAV. Share price and charts.

WHAT IS  NAV?

Net asset value, or NAV, is essentially the value of an investment trust's holdings.

It is calculated by dividing the total value of assets (what it owns) minus liabilities (what it owes) by the amount of shares existing.

This is separate to a trust's share price, which is what it would cost an investor to buy in.

An investment trust trading at a discount to NAV may be regarded as cheap because the shares cost less than its overall value - although there might be good reasons why, such as investors being justifiably pessimistic about its prospects.

When a trust trades at a premium to NAV it is more expensive than its net worth.

7. Biotech Growth: Volatile sector but aging population promises growth

Martin Bamford, managing director of Informed Choice, tips:

Biotech Growth: 'An ageing global population means biotechnology and healthcare funds should perform strongly over the next decade,' says Bamford.

'This fund mainly invests in emerging biotech companies, regularly outperforming its benchmark index. With no gearing [borrowing], this fund does not add any unnecessary additional risk to what can already be quite a volatile sector.'

Trading at 1.33 per cent premium to NAV. Share price and charts.

Martin also likes:

Aberdeen Asian Smaller Companies: Trading at 4.88 per cent premium to NAV. Share price and charts.

Jupiter Green: Trading at 8.15 per cent discount to NAV. Share price and charts.

8. Pacific Assets: Cautious approach to building portfolio

Tim Cockerill, head of investing at Rowan Dartington, tips:

Pacific Assets: Managed by First State, this trust attempts to achieve long-term capital growth by investing in firms based in the Asia Pacific and Indian sub-continent - but excluding Japan, Australia and New Zealand. Its largest regional holding is in Singapore.

'They are taking a cautious approach, looking for companies with solid balance sheets, high quality management and above average profits for the foreseeable future,' says Cockerill.

'When the market takes off it will get left behind. but this strategy has paid off handsomely.'

Trading at 9.20 per cent discount to NAV. Share price and charts.

Tim also likes:

Schroder UK Mid Cap: Trading at 15.07 per cent discount to NAV. Share price and charts.

Impax Environmental Markets: Trading at 17.37 per cent discount to NAV. Share price and charts.

Look east: Pacific Assets trust has its largest regional holding in Singapore



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