Inspired no2

ISSUE 2 ❙ SUMMER 2014

YOUR GUIDE TO INVESTING IN STOCKS AND SHARES—JAPAN LATIN FEVER IS NOT FOR THE FAINT-HEARTED

TOP FUNDS AND TRUSTS NISAS—A BRAVE NEW WORLD FOR SAVERS STARTS HERE HER NAME IS RIO…

THE NEW LANDSCAPE FOR UK INVESTORS

We steer carefully.

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We meet companies ourselves, we interrogate management about future profits and cash flow. Then we only invest in their shares when we like what we see.

The result - a portfolio that steers you towards the most promising income and growth opportunities we can find.

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. No recommendation is made, positive or otherwise, regarding the ISA and Share Plan.

The value of tax benefits depends on individual circumstances and the favourable tax treatment for ISAs may not be maintained. We recommend you seek financial advice prior to making an investment decision.

Request a brochure: 0500 00 40 00 northamericanincome.co.uk

Issued by Aberdeen Asset Managers Limited, 10 Queen’s Terrace, Aberdeen AB10 1YG, which is authorised and regulated by the Financial Conduct Authority in the UK. Telephone calls may be recorded. aberdeen-asset.co.uk

Please quote NAIT IM 01

CONTENTS From 1 July, the limit on how much you can invest in an ISA, tax-free, rose to £15,000. From now on you can use all the allowance for cash or equities and switch without restriction between the two.

Issue 2 Summer 2014 PUBLISHER:

Jeremy King

This removes one of the very few negatives associated with ISA ownership, the freedom to switch from equities to cash is a measure that should be available to all investors and completes the development of the Isa as a truly flexible tax efficient product for savers and investors. If you pay tax and are in a position to increase your Isa contribution then why wouldn’t you?

INVESTMENT EDITOR:

Andrew Pitts CONTRIBUTORS:

Richard Beddard, Rob Griffen, Rebecca Jones, Harriet Mann, Cherry Reynard, Lindsay Vincent DESIGN:

Mike Kenny SALES:

In this the second edition of Inspired, we look at many of the international options available to you, to take advantage of your new ISA freedom. Inspired reviews the markets, funds and trusts that have been attracting attention. We also look at the opportunities to generate dividend income.

Iain Adams PUBLISHED BY:

Moneywise Publishing Limited 2014 Interactive Investor plc, registered number: 5034730

In Connoisseur we feature the new Spyker Bond, a unique opportunity to invest in a Supercar brand, bring you the intriguing story of Eilean- the ketch made famous in Duran Duran’s Rio video and gives you a taster of some of the remarkable Champagnes and Sparkling Wines available for those Summertime parties.

FEATURES

You should remember that the value of shares can fall as well as rise. The information contained in Inspired is not intended to be a personal recommendation and you should always speak to your financial adviser before investing

CONNOISSEUR 18 TEMPLETON EMERGING MARKETS INVESTMENT TRUSTS The flagship fund has an impressive track record, returning 377% over the past 10 years

20 BEST GLOBAL TRUST Portfolio manager James Henderson has delivered exceptionally strong returns

4

A BRAVE NEW WORLD FOR SAVERS STARTS HERE The raised annual allowance and the new ability to shift between cash and stocks and shares are a boon for Isa savers

36 CARS The Dutch supercar company Spyker Cars has created an unprecedented opportunity for discerning investors.

10 JUNE’S 10 MOST BOUGHT TRUSTS 13 JUNE’S 10 MOST BOUGHT FUNDS

22 GLOBAL DIVIDEND INCOME Companies in regions where dividends have been a rarity are now taking a more enlightened view

26 BRITISH EMPIRE MANAGER HERALDS RETURN OF VALUE After an extremely disappointing 2013, the value-oriented British Empire Securities and General Trust is enjoying a change in fortune

27 YOUR GUIDE TO INVESTING IN JAPAN 16 LATIN FEVER IS NOT FOR THE FAINT-HEARTED JPMorgan Brazil’s investment manager is refreshingly candid about the challenges facing investors in the country’s World Cup year and beyond

This mesmerising blend of old and new makes it an intriguing area for would-be investors

30 THE GROWMONEY PORTFOLIO 32 MONEY OBSERVER’S 2014 RATED FUNDS

40 YATCHS Duran Duran’s anthemic track ‘Rio’, was accompanied by a standout video featuring the group sailing the Caribbean sea on a beautiful yacht, the Eilean

46 WINE Fizz for summer

inspired

❘ Summer 2014 3

New ISA Freedom

A BRAVE NEW WORLD FOR SAVERS STARTS HERE The raised annual allowance and the new ability to shift between cash and stocks and shares are a boon for Isa savers, writes Cherry Reynard

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T

he government confirmed itself as a fan of the Isa concept in the 2014 Budget, by increasing the amount of money that can be diverted into individual savings account wrappers and opening up the ways money can be invested.

Many have labelled it a revolution for Isas – but for those investors who have been dutifully squirreling away their savings for years, the new powers may not appear immediately groundbreaking. Nevertheless, the new Isa freedoms do amount to a notable expansion to an investor’s tool kit.

The changes are both in the structure of Isas and in the investment options. The structural changes are small, but

New ISA Freedom

important. From 1 July 2014 all Isas become New Isas (or ‘Nisas’, in a nod to the headline writers). Not only is the Nisa more generous, with investors able to shelter up to £15,000, but it also does away with the historic distinction between cash and stocks and shares, granting investors full flexibility to switch between the two. Under the new rules, investors can also transfer previous years’ Isa savings freely between cash, and stocks and shares.

This means that investors can now invest everything in cash, rather than using just half the allowance. This isn’t selfevidently appealing – the top rate of interest on an instant access cash Isa remains at just 2 per cent (from Coventry BS, according to Moneyfacts) – but the flexibility is important. It means that investors can put cash in an Isa and then invest it gradually in the stock market as opportunities arise, or take money out of the market without complex Isa transfers or the loss of their allowances if times get tough. The current climate, in which developed stock markets may be drawing to the end of a lengthy bull run, could be one occasion when this flexibility is useful.

“IF INTEREST RATES RISE, WE MAY FIND PEOPLE GOING BACK TO CASH ISAS” MARK STONE

Mark Stone, client services director at Whitechurch Securities, says that this new cash to stocks and shares flexibility is likely to have most use for those investors who have been dragged into higher-risk assets by lower interest rates, but will want to revert to cash when interest rates rise: ‘If interest rates get to a level where they can generate the income they need while having little risk to capital, we may find people go back the other way.’

However, investors do need to be aware that not all providers will offer this flexibility instantly. (We will look in more detail at how this is likely to be handled in the August issue). For example, Justin Urquhart Stewart, marketing director of 7IM, says: ‘Historically, cash Isas have been run by banks and building societies, and stocks and shares Isas have been run by investment groups, and neither had to think particularly hard about the other. Now these need to be patched together. The stocks and shares providers have had to handle cash anyway, so it should be straightforward for them, but many of the cash Isa providers may not be geared up to handle investments. I would caution any investor to check what a provider can offer in advance.’

Retirement options The extension of the allowances makes Isas more valuable as a financial planning tool and brings them near to pensions in importance. An investor who put £1,250 into an Isa every month (amounting to £15,000 a year) for 20

ISAS IN NUMBERS Number of adult Isa accounts:

14.6 million (2011/12 – 14 million)

Number of child Isa accounts:

295,000

Cash Isa proportion:

80 per cent

Amount subscribed:

£57 billion

Average invested annually per Isa:

£3,904

Total Isa savings per investor (average):

£15,830

Proportion of investors who saved the maximum in an Isa:

8 per cent

Proportion of investors with an income of more than £100,000 who saved the maximum in an Isa:

43 per cent

Source: HM Revenue & Customs, tax year 2012/13

years, compounding at 5 per cent (including charges), could expect to generate a pot of around £514,000.

Invested in a standard equity income fund paying 4.5 per cent, this could generate a tax-free income of £23,130.

That’s a valuable option for everything from school fees to retirement.

As Petronella West, investment director at Investment Quorum, observes: ‘Isas have always been a valuable tool for financial planning, but having a limit of £15,000 gives a lot more scope to use them as a retirement savings vehicle.

Although investors will pay in from taxed income, they can generate a tax-free income stream to give a healthy return alongside pension income.’ Stone adds that a married couple can now get £30,000 into an Isa each year. This is less than for a pension, but it is equalised across both spouses, rather than lower (because the rate of tax relief is less) for one lower- or non-earning spouse, as is the case with pensions.

“THE £15,000 LIMIT GIVES ISAS MORE SCOPE AS RETIREMENT VEHICLES” PETRONELLA WEST

Stone says he recommends for most clients that their basic lifestyle needs are met by their pension income, with the income from an Isa paying for the ‘nice-to-haves’ such as holidays. He adds that using Isas can also help investors manage the traditional ‘U-shaped’ needs in retirement: people usually have greater income requirements at the beginning of their retirement, when they are more active, and at the end, when they may have care home costs. Isa income can be taken initially, then rolled up for a number of years, and then used again at the end.

It is earlier in life when the flexibility of the Isa is most important, says Urquhart Stewart:‘A pension is still a locked box. An investor can’t do anything until drawdown. They have more flexibility after the Budget changes, but they are inspired

❘ Summer 2014 5

New ISA Freedom

still limited. With Isas, investors can take an income, or roll it up, or take cash out, or even borrow against it.’ Moreover, they can do any of these things at any time, while pension planning options only start at 55.

“THERE IS MORE FLEXBILITY AFTER THE BUDGET, BUT PENSIONS ARE STILL LIMITED”

IHT planning

JUSTIN URQUHART STEWART”

Isas can now also offer some tax planning options around inheritance tax, primarily via the extension of the investing rules to Alternative Investment Market (Aim) stocks. In normal circumstances, Isas (including cash Isas) will be subject to 40 per cent inheritance tax (IHT) when the saver dies.

Mark Williams, business line manager for IHT at Octopus Investments, says: ‘The exception to that has been available since August last year, when the government changed the Isa rules to allow direct holdings of Aim shares in Isas for the first time. Shares in certain Aim companies will qualify for full relief from inheritance tax once they’ve been held for two years, if they’re still held when the saver dies.’

Octopus launched an Aim Inheritance Tax Isa in September last year and a number of other groups, including Stellar and Killik & Co, offer a similar managed portfolio of Aim shares. Williams says: ‘We’re expecting that there will be a good proportion of elderly investors who choose to use the increased Isa allowance to invest in Aim, both to benefit from the growth potential of smaller companies, and so they can pass on as much of their savings as possible to their loved ones when they die.’

Of course, this comes with certain caveats. The Aim market largely focuses on smaller, higher-growth companies that do not want the administrative burden of a full stock market listing. This includes some well-recognised companies such as ASOS or Majestic Wine, but they are generally niche businesses. The risks are therefore higher.

‘Investors need to proceed with some caution,’ says West.

‘Aim stocks, for example, are highly illiquid. For wealthier

investors they can shelter a lot of capital gains, but Aim is not for everyone. It is a good option for those looking for high capital growth. It may be right for someone young, who can take a lot of risk. Equally, there are a number of good managed options.’ However, she cautions that in markets such as those seen in 2008, liquidity can dry up completely and costs can be high on some managed Aim portfolios.

There are other changes to the Isa structure that may also allow more financial planning options. For example, the introduction of peer-to-peer (P2P) lending as an investment option in the last Budget could provide a new income or growth option, depending on how the scheme is structured. There are a number of P2P lending sites emerging: some offer equity in a company in exchange for investment, while others use more conventional loan arrangements.

P2P lending appeal P2P lending has the appeal of supporting smaller companies that have suffered as the banks have withdrawn from riskier lending. Karteek Patel, director of alternative funding at advisers Nineyards Capital, says some estimates suggest lending to small to medium enterprises has fallen by up to 30 per cent and this area could really benefit from the extension of Isa freedoms.

Invest and Fund is part of the new breed of P2P lending groups that may become allowable under the new Isa rules.

The site (www.investandfund.com) allows investors to build

SCHOOL FEES—Planning One key beneficiary of the increase in Isa limits is the parent or grandparent saving for school fees, says Matt Pitcher, senior client partner at Towry. ‘The 2014 annual census from the Independent Schools Council suggests that

average term fees are £4,998 and that fees have risen 3.9 per cent in the last year.

This shows how large an accrued fund is needed to pay for school fees, and also how quickly the fund has to grow to stay ahead of fee increases.

‘The Nisa limits mean that a couple can now between them save the annual cost of two children’s private education in a taxefficient environment.

‘Clearly the earlier they start the better, but for these individuals every little helps.’

“A COUPLE CAN NOW SAVE THE ANNUAL COST OF PRIVATE EDUCATION FOR TWO” MATT PITCHER 6

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JPMorgan European Investment Trust – Income Shares

A departure from the everyday – 150 European income stars.

Looking for a core European investment opportunity that offers high income and capital growth? The JPMorgan European Investment Trust (Income Shares) goes further than many of its peers, by seeking out at least 150 of what we believe to be the best of Continental Europe’s highest yielding stocks. Our disciplined investment process rigorously analyses the 1,200 strong universe of dividend paying stocks, avoiding companies that don’t have a high and sustainable yield. The portfolio is constructed with broadly equally weighted active stock positions. It’s an approach that works, with the trust delivering a consistent yield premium to the benchmark over five years as shown in the table below.

Past performance is not a guide to the future. Please remember that the value of your investments and the income from them may fall as well as rise and you may not get back the original amount invested.

Trust Yield vs Benchmark Yield 12 month period ending 31/03/10 31/03/11 31/03/12 31/03/13 31/03/14

Trust Yield (%) 4.23 4.11 4.86 4.26 3.86

Benchmark Yield (%) 3.21 3.30 3.99 3.60 3.11

Source: J.P. Morgan Asset Management (JPM European IT annual report, calculated by dividing total gross dividend for relevant year by year end share price. Please note 2014 share price figure is as per the NAV announcement made on 1st April.) The yield, as it is based on past information, is provided as a guide and should not be taken for granted as a guaranteed yield. The affect of charges will reduce the amounts shown. Investment charges are taken from income and capital. This may increase the amount of income available for distribution but will reduce the potential for capital growth. It may also erode capital if investment growth does not compensate the charges. Benchmark source: 1/4/09 – 31/3/13 MSCI Europe cum UK and 1/4/13 – 31/3/14 MSCI Europe ex UK; calculated in the same manner as JPMorgan European IT yield. All data as at 31.03.14.

Exchange rate changes may cause the value of underlying overseas investments to be volatile. Investment trusts may borrow to finance further investment (gearing). The use of gearing will increase the volatility of movements in the Net Asset Value (NAV) per share. This means that a relatively small change, down or up, in the value of a trust’s assets will result in a magnified fall or rise, in the same direction, of the investment trust’s NAV per share.

Make www.jpmorgan.co.uk/Europeanincome your destination.

This material should not be considered as a recommendation relating to the acquisition or disposal of investments. Investment is subject to documentation which is comprised of the Investment Trust Profiles and Key Features and Terms and Conditions, copies of which can be obtained free of charge from J.P. Morgan Asset Management Marketing Limited. Issued by J.P. Morgan Asset Management Marketing Limited which is authorised and regulated in the UK by the Financial Conduct Authority. Registered in England No. 288553. Registered address: 25 Bank St, Canary Wharf, London E14 5JP.

New ISA Freedom

a portfolio of investment opportunities in small businesses, with a starting level of £25. The attraction is that it is possible to direct money to local businesses that have been denied funding as mainstream banks have moved away from lending to this type of enterprise.

Chief executive David Turner says:‘We see it as an industrial revolution for the banking industry, bringing lending into the 21st century. Perhaps most importantly, it is about supporting the local economy and local businesses.’

“WITH MORE CHOICE COMES MORE SCOPE FOR PEOPLE TO TAKE BIGGER RISKS” PATRICK CONNOLLY

The technology allows investors to select the parameters of their return. Investors can decide whether they want to take higher risk, or only invest in certain industries. They can even decide to invest only in certain postcodes. Certainly the idea of ‘disintermediating’ banks – and doing away with the costs they impose – can be appealing, as is the idea of a more ‘personalised’ investment.

However, while P2P brings a new source of diversification and, potentially, income to an Isa portfolio, Danny Cox, head of advice at Hargreaves Lansdown, advises caution: ‘The rules might be in place for P2P lending, but I’m not aware of any products that are ready yet, or will be by 1 July when the new rules come in. The challenges the P2P lenders face to make them Isa-able are around valuation and transferability. P2P lending must not be seen as an alternative to a savings account, as there is a risk of capital loss; it is more akin to a high-yield corporate bond in terms of risk.’

Patrick Connolly, chartered financial planner at Chase de Vere, agrees. ‘Investors need to be aware that P2P carries additional default risks, and investments are also not

protected by the Financial Services Compensation Scheme,’ he says. West says she is monitoring a number of schemes and believes there will be opportunities in the market, but has not yet recommended it to clients:‘P2P lending can produce significant capital gains, but just because investors can do it, doesn’t mean they always should.’

Retail bonds The other area of interest for investors is in retail bonds. In the Autumn Statement last year, the government said it was considering allowing retail bonds with a maturity term of less than five years to be held in Isas. Patel says: ‘The government has changed the terms of the bonds in which people can invest. This additional freedom could open up quite a big market in the retail bond space. At the end of 2013, around 80 per cent of the money going into Isas went into cash Isas. Most people use Isas as [a way to provide] access to cash, but if the government reduces the term of the debt securities, we might see investors switching cash holdings for shorter-term debt paper. The fuzzy line between cash and stocks and shares disappears.’

For many investors this type of investment may have more appeal than traditional stock market investment.

Stock market investment can be faceless and the thought of supporting local businesses may be more engaging, argues Patel. ‘Investors have become more educated, more empowered, and these types of product have an emotional catch for them,’ he says.

Connolly concludes: ‘While greater flexibility is welcomed, with more choice comes more scope for people to take bigger risks and potentially to make the wrong decisions. For most people the starting point for any investment strategy should be asset allocation,which will usually involve a combination of cash, equities, fixed interest and property.’

The new freedoms expand an investor’s toolkit and improve the financial planning options available to ordinary individuals, but many may not find the changes immediately transformative for their portfolios.

“INVESTORS NEED TO BE AWARE THAT P2P CARRIES ADDITIONAL DEFAULT RISKS, AND INVESTMENTS ARE ALSO NOT PROTECTED BY THE FINANCIAL SERVICES COMPENSATION SCHEME.” PATRICK CONNOLLY

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ARE OPPORTUNITIES

EMERGING WITHOUT YOU?

T E MI T

25 YEARS ce

8 1 2 Ju n e 1 9

9

S

in

Growth in Emerging Markets GDP, 2000–20181

Capitalise on States of Emergence with Templeton Emerging Markets Investment Trust (TEMIT) Emerging markets are developing at a rapid pace. This growth offers great opportunity, but navigating the complexities of these markets takes true expertise.

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Past performance is not a guide to future performance.Overseas investments are subject to currency fluctuations and emerging markets may be more volatile than established markets. The value of your investment and the income from it can go down as well as up and you may get back less than you originally invested.

Available in ISAs and our Regular Savings Plan For more information visit www.franklintempleton.co.uk/temit or call for a free information pack on 0800 305 306 1. International Monetary Fund: World Economic Outlook Database (April 2013). 2. TEMIT is the largest trust in the AIC Investment Trust - Global Emerging Markets sector, source: The Association of Investment Companies (AIC), as at 31/05/14. An investment in TEMIT entails risks which are described in the Templeton Investment Plan Key Features and Terms & Conditions. Issued by Franklin Templeton Investment Management Limited, authorised and regulated by the Financial Conduct Authority.

Subscriptions can only be made on the basis of the most recent Key Features and Terms & Conditions, which are available from Franklin Templeton Investments, The Adelphi, 1-11 John Adam Street, London WC2N 6HT.

Trusts

JUNE’S 10 MOSTBOUGHT TRUSTS

By Harriet Mann In a month where closed-ended funds outperformed the UK stockmarket, income remained a priority for Interactive Investor users, although the diversified global Scottish Mortgage Investment Trust (SMT) held onto its most-bought crown for the fifth consecutive month with ease.

Popularity for Scottish Mortgage continued to steam ahead with more than double the buy orders compared to the fund ranked second: BlackRock World Mining (BRWM). And no wonder – with it posting returns of 28% over one year and 49% over three, it beat both the global sector average and FTSE All Share index.

At 7 July it was trading at a 1.4% discount to its net asset value (NAV), compared to its 52-week average of -3.3% and sector average of -5.6%, according to analysts at stockbroker Winterflood data.

Fund manager James Anderson invests largely in North America and the trust’s largest holdings include Amazon.com (AMZN), Baidu (BIDU) and Illumina (ILMN).

Income The investment company sector outperformed the FTSE All Share Index’s growth of 1.6% last month and was up 2.6%, say Winterflood.

Four of the 10 most-bought trusts sport a strong income slant. One of these closed-ended funds is the Acorn Income (AIF), ranked 10th, which is now managed by Simon Moon and Fraser Mackersie after John McClure,who was involved in the management of the portfolio since its launch, passed away in June.

“AIF has seen its discount widen following the announcement of John McClure’s death,” says Winterflood research analyst Simon Elliott.

“He was a well-respected fund manager and it is a sad loss to Unicorn Asset Management. However, Simon Moon and Fraser Mackersie worked with John for a number of years and clearly share his approach to investing. As a result we would not expect any significant changes in the short term.With a yield of 3.7%, we believe that the current discount presents an attractive entry point to AIF.” Holding around 40 companies in its portfolio, the trust now looks to invest in firms poised to benefit from domestic recovery.

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Rank

Investment Trust

Sector

1

Scottish Mortgage

IT Global

2

BlackRock World Mining

IT Commodities & Nat Resources

3

Witan Investment Trust

IT Global

4

Templeton Emerging Markets

IT Global Emerging Markets Equities

5

Finsbury Growth and Income Trust

IT UK Equity Income

In fifth place, Finsbury Growth 6 City of London Investment Trust IT UK Equity Income 7 Biotech Growth Trust IT Biotechnology & Healthcare and Income (FGT) was the only 8 Temple Bar Investment Trust IT UK Equity Income most-bought UK Equity Income 9 Aberdeen Asian Smaller Companies IT Asia Pacific excluding Japan Equities investment trust to beat the sector 10 Acorn Income Fund IT UK Equity & Bond Income average return in June, but its threeyear return of 61% compares well against the sector and industry assets being at an all-time high down average of 50%. to good long-term performance,demand for income City of London (CTY), sixth, and Temple Bar and the ramifications of Retail Distribution Review (TMPL), eighth, both underperformed the UK (RDR), which has encouraged more financial advisEquity Income sector and their shares are trading ers to recommend trusts to their clients. at 1.8% and 2.4% premiums to underlying NAV “It’s also encouraging to see the scale and pace of respectively. change we have seen when it comes to investment The majority of City of London’s investments companies reducing their fees and remaining comcome from the financial and consumer goods secpetitive in a post-RDR world,” he adds. tors, with manager Job Curtis’s largest investments Specialist trusts BlackRock World Mining and include Royal Dutch Shell (RDSB), British Biotech Growth (BIOG) stayed in the most-bought American Tobacco (BATS) and HSBC Holdings trusts last month, with popularity for both increasing (HSBA). With a market capitalisation of £1.1 billion, among retail investors.

City of London has the largest market value of those Despite bumping up from fourth most bought in the 10 most bought from the sector. to second in June, BlackRock’s 15% returns over the Temple Bar’s largest holdings are similar to City’s, last year have not been enough to offset the 30% loss with manager Alastair Mundy favouring HSBC suffered by investors who bought three years ago.

Holdings, Royal Dutch Shell and GlaxoSmithKline Manager Evy Hambro’s largest holdings include (GSK).

Rio Tinto (RIO), BHP Billiton (BLT) and Glencore Although income trusts have retained their pop(GLEN). ularity, Interactive Investor’s head of investment Biotech Growth rose from eighth to seventh mostRebecca O’Keeffe warns that risks with the investbought closed-ended fund in the period and at 7 July ment strategy are increasing. was trading on a 6.4% discount to the trust’s NAV. “Income stocks and trusts have typically been Emerging markets considered defensive options, but in the current low interest rate environment, they have been increasIn another sector to post disappointing ingly popular as smart investors recognised their returns, Templeton Emerging Markets (TEM) attraction not just for their income, but for the capiunderperformed the emerging market average of tal appreciation their popularity has delivered.

6% over one year and 8% over three, with returns of “However, with income stocks now at premium 2% and losses of 12% respectively. Despite this, the prices, there is a risk that if the economic envitrust is now Winterflood’s favoured emerging marronment changes, they will fall from current high kets pick. The trust is currently trading at a 9.3% valuation levels.” discount to NAV. Lead manager Dr Mark Mobius recently says Fundsmith’s IPO success the sector is for the long-term investor as it requires Although not making it into this list, it is “patience, long-term perspective, and selective worth noting that Fundsmith Emerging Equities stock-picking”.

Trust (FEET), which made its market debut on 25 “We believe emerging markets overall are now June, was the 11th most-bought trust last month. in what could be classified as a ‘recovery phase’ after In the year to date, the closed-ended fund sector 2013’s underperformance, barring no further unexhas raised £1.9 billion through nine initial pubpected shocks,” he says. lic offerings (IPOs), double the amount raised for Bargain-hunting investors also turned to the out the whole of 2011 and 2012 combined, says the of favour Aberdeen Asian Smaller Companies Association of Investment Companies (AIC). trust (AAS), nabbing the ninth spot. Despite losses Raising £193 million last month, Terry Smith’s of 11% over one year it has a very strong longer-term Feet is the largest “equity only” new issue since the record, topping the sector with a seven-year return of launch of Fidelity China Special Situations in April more than 20%.

2010.

Witan Investment Trust (WTAN) came in O’Keeffe says: “As the amazing popularity of as third most popular after BlackRock and Scottish Neil Woodford confirmed, investors who find a Mortgage, posting similar results to the latter. fund manager they like and trust will support new The global multi-manager trust is trading at a launches, and Terry Smith has certainly delivered on 1.7% discount to NAV and saw sector and FTSE All his open-ended Fundsmith Equity fund, so invesShare index-beating returns of 20% and 47% over tors are keen to see if he can replicate his successful one and three years. The trust, which Winterflood model in developing countries.” analysts recently replaced as its favoured global trust Noting the growing strength of the investment on “valuation grounds”, takes advantage of strong company sector, AIC director general Ian Sayers put economic growth in the UK and invests in Reed the strong IPO market, historically low discounts Elsevier (REL), Diageo (DGE) and BP (BP.).

SCOTTISH MORTGAGE INVESTMENT TRUST

SCOTTISH MORTGAGE WAS ORIGINALLY LAUNCHED TO PROVIDE LOANS TO RUBBER GROWERS IN MALAYSIA IN THE EARLY 20TH CENTURY.

While others stick to the indices, we are free to choose.

Scottish Mortgage Investment Trust has its own way of doing things. So it’s hardly surprising that the Trust’s portfolio looks nothing like the index, after all, we are active rather than passive investors and we firmly believe that the index is an illustration of ‘past glories’ rather than future prospects. In fact, our abiding principle has always been to invest in tomorrow’s companies today.

We give ourselves time to add value by being patient investors in an impatient world. But don’t just take our word for it, over the last five years Scottish Mortgage has delivered a total return of 192.2%* compared to 92.5%* for the index.

And Scottish Mortgage is low-cost with an ongoing charges figure of just 0.50%†.

Standardised past performance to 30 June each year**: 2009-2010 2010-2011 2011-2012 2012-2013 2013-2014 Scottish Mortgage

44.4%

39.0%

-11.0%

26.9%

28.9%

FTSE All-World Index

23.8%

21.7%

-4.1%

21.4%

9.6%

Past performance is not a guide to future performance.

Scottish Mortgage Investment Trust is managed by Baillie Gifford and is available through our Share Plan and ISA. Please remember that changing stock market conditions and currency exchange rates will affect the value of your investment in the fund and any income from it. You may not get back the amount invested.

Open a Share Plan and receive a £10 Amazon gift card***.

GLOBAL GROWTH Scottish Mortgage Investment Trust

For a free-thinking investment approach call 0800 917 2112 or visit www.scottishmortgageit.com

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Funds

JUNE’S 10 MOSTBOUGHT FUNDS

By Rebecca Jones (Money Observer)

UK equities remain the most popular area for fund buyers as Unicorn UK Income and CF Woodford Equity Income takes podium positions and investors keep their faith in Invesco Perpetual’s Mark Barnett.

Of the 10 most-bought funds on Interactive Investor in June, six are UK equity focused with the UK equity income sector remaining the most popular.

Top spot Leading the pack is Money Observer Rated Fund Unicorn UK Income, which was the mostbought fund overall in June despite lead manager John McClure’s death, which was announced on 9 June. This sees the fund regain the top spot for the second month this year after falling out of the table entirely in May. The result is a heartening vote of confidence in the fund and joint co-managers Fraser Mackersie and Simon Moon, who worked closely with McClure on Unicorn UK Income. It also goes against recent poor performance which has seen the fund shed 3.31% over the past three months.

Record breaker Neil Woodford’s newly launched fund, CF Woodford Equity Income, was the second most popular UK equity income fund and the third most-bought fund overall. The fund raised a record breaking £1.6 billion during the initial offer period, which ran from 2 – 19 June, making it the largest UK investment launch on record.

However, despite ranking behind Unicorn UK Income in sales, CF Woodford Equity Income took 12 times more in terms of total value than the former. According to Rebecca O’Keefe, head of investment at Interactive Investor, this underlines the power of “brand Woodford”.

“The sheer force of the Woodford brand and the considerable PR machine that went into operation in advance of his new fund launch guaranteed that thousands of investors switched money to be in at the start,” she says.

However, the presence of both of Woodford’s former funds, Money Observer Rated Fund Invesco Perpetual Income and Invesco Perpetual High Income, suggests that a number of investors are sticking with new manager Mark Barnett.

Having fallen out of the table in May, IP Income was the fourth most-bought fund overall in June while IP High Income was the eighth most bought, although this is down from second place in May. However both funds have now being relegated to the UK all companies sector for failing to meet the IMA’s three-year yield requirement following IP Income’s rejection on 27 June. Morningstar has also downgraded both funds to a ‘neutral’ rating, citing concerns over further staff losses at Invesco as well as Barnett’s ability to handle his new £20 billion mandate.

A new entry for 2014, Money Observer Rated Fund JOHCM UK Equity Income, was the sixth most-bought fund overall. Managed by James Lowen and Clive Beagles, the £2.7 billion fund is a top quartile performer over one, three and five years, returning 140% compared to 100% from the UK equity income sector during the latter

funds, O’Keefe says:“The strength of sterling remains a compelling reason for investors to prefer UK funds over international alternatives, with sterling hitting multi-year highs against many currencies.

“In addition, as global equity markets continue to hit new highs there is a natural tendency for investors to reduce their interests overseas and increase their exposure to domestic markets, which is why we’re seeing considerable demand for UK equities,” she says.

Global picks

Away from the UK, Money Observer Rated Fund Newton Asian Income was the second bestselling fund overall, making it into the top 10 for the first time since April. Following a poor 2013, the fund has recently enjoyed a change in fortune, delivering a top quartile 6.2% year-to-date compared to 4.1% from its sector, IMA Asia Pacific excluding Japan.

Fixed income also enjoyed a resurgence, with two bond funds featuring in the top ten for the first time this year: Money Observer Rated Funds M&G Optimal Income – another new entrant for 2014 – and Invesco Perpetual Monthly Income Plus, Interactive Investor’s 10 most-bought funds in June which were the fifth and eighth most-bought funds Rank Fund IMA Sector 1 Unicorn UK Income UK Equity Income respectively.

2 Newton Asian Income Asia Pacific excluding Japan Over the past 12 months, 3 CF Woodford Equity Income UK Equity Income M&G Optimal Income and 4 Invesco Perpetual Income UK All Companies IP Monthly Income Plus have 5 M&G Optimal Income Sterling Strategic Bond returned 8.25% and 8.8% 6 JOHCM UK Equity Income UK Equity Income respectively compared to a 7 Newton Global Higher Income Global Equity Income return of 7.4% from their 8 Invesco Perpetual Monthly Income Plus Sterling Strategic Bond sector, IMA sterling strategic 9 Invesco Perpetual High Income UK All Companies 10 Malborough UK Micro Cap Growth UK Smaller Companies bond. However, year-to-date both funds have underperFund Data Name CF Woodford Eq Inc Invesco Perp High Income Invesco Perp Income Invesco Perp Mthly Inc Plus JOHCM UK Equity Income M&G Optimal Income Marlborough UK Micro Cap Gwth Newton Asian Income Newton Gbl Higher Inc Unicorn UK Income

1 Year (%) 13.14 13.06 8.55

3 Years (%) 46.62 46.41 26.81

5 Years (%) 103.10 101.55 82.23

✰✰✰✰✰ ✰✰✰✰✰ ✰✰✰✰✰

16.76 9.07 35.00 -0.98 5.58 19.94

50.82 28.61 68.86 22.90 28.44 58.77

142.27 63.28 211.13 122.37 88.39 208.37

✰✰✰✰✰ ✰✰✰✰✰ ✰✰✰✰✰ ✰✰✰✰✰ ✰✰✰✰✰ ✰✰✰✰✰

period. Although the management group had previously stated a desire to stem infows into the fund, no specific barriers have been erected to discourage new investors.

Giles Hargreaves’ Marlborough UK Micro Cap Growth – another Money Observer Rated Fund – was the only representative of the UK smaller companies sector. The fund was the 10th most bought overall in June, following third place in both May and April.

Commenting on the dominance of UK equity

Rating

formed the sector by an average of 0.6%.

Another new entry for 2014, Money Observer Rated Fund Newton Global Higher Income, was the only global equity fund in the top 10. The seventh most-bought fund overall, the fund has underperformed the IMA global equity income sector over one, three and five years.

However, the fund tends to out-perform in down markets, such as in 2008 and 2011 when it beat both the sector and its benchmark, the FTSE World index.

inspired

❘ Summer 2014 13

PROMOTIONAL FEATURE

Henderson Far East Income Ltd June 2014 Goodbye QE, hello growth.

For Asia Pacific, we’re feeling positive for the rest of this year and into 2015.

With growth stabilising the world over, our belief is that its shares look very attractive relative to alternatives in the developed world.

The quantitative easing (QE)-led recovery from the global financial crisis in 2008 has in our opinion done Asia, and emerging markets in general, no favours at all. Asian equity markets have performed well but lagged those in the US, Europe and the UK. This low interest rate environment and excess liquidity have distorted normal perceptions of investment. Earnings in the US have been boosted by share repurchases funded by cheap borrowing, while lower interest rates in Europe have kept alive governments and companies that clearly would have struggled in a normal interest rate environment. QE has done its job and provided the healing environment required, but the next stage to normalisation will require more than this to return economic growth to pre-global financial crisis levels.

Corporate spending is low in most western countries despite the availability of cash. This suggests a lack of management confidence regarding the sustainability of the recovery.

Throughout the period of recovery, growth has been notably absent and broadly ignored by investors. With the US Federal Reserve committed to tapering QE and the Bank of England talking about the possibility of interest rates rises, investors will need to re-focus on growth to drive investment returns, in our opinion. It is this dynamic that we think will persuade investors to look again at emerging markets, and Asia in particular, as an area where an attractive level of growth is available.

Why Asia?

It helps, of course, that valuations in Asia are attractive. The share prices for companies in Asia ex-Japan are broadly in line with historical averages but at a significant discount to the US, in particular.

Asian companies have all the same attributes as their western peers, with healthy finances and cash available to spend. The growth of earnings per share (EPS) – the profit of a company divided by the number of its shares - is expected to be good in 2014, with this year seeing a more robust set of profit estimate revisions by many companies compared to last.

Asia also has another distinct advantage – the potential for strong dividend growth. Although Asian EPS have reached pre-global financial crisis levels, the dividend per share (DPS) is still some way below. The chart shows the divergence of EPS and DPS since 2009, following a period of running in

PROMOTIONAL FEATURE

lock-step, resulting in Asia’s dividend payout ratio falling to less than 30% record low levels.

MSCI Asia Pacific ex-Japan Index

Source: Bloomberg, monthly data to 31May 2014, rebased to 100.

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.

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.

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.

Issued in the UK by Henderson Global Investors.

Henderson Global Investors is the name under which Henderson Global Investors Limited (reg. no.

906355), Henderson Fund Management Limited (reg. no. 2607112), Henderson Investment Funds Limited (reg. no. 2678531), Henderson Investment Management Limited (reg. no. 1795354), Henderson Alternative Investment Advisor Limited (reg. no. 962757), Henderson Equity Partners Limited (reg. no.2606646), Gartmore Investment Limited (reg. no. 1508030), (each incorporated and registered in England and Wales with registered office at 201 Bishopsgate, London EC2M 3AE) are authorised and regulated by the Financial Conduct Authority to provide investment products and services.

Henderson Far East Income Limited is a Jersey fund, registered at LibertĂŠ, 19-23 La Motte Street, St Helier, Jersey JE2 4SY and is regulated by the Jersey Financial Services Commission

This phenomenon is reflective of how early we are in the development of a dividend culture in Asia. Given the global financial crisis and its aftermath, the political and economic problems in Europe and various disputes in the Middle East, the last six years have not provided the benign global environment required for payout ratios to rise. The second half of 2013 saw tentative signs of greater commitment, with an increase in special dividends, the repurchasing of company shares, and a reduction in the level of debt. We expect this trend to continue and forecast that dividend growth will outstrip earnings growth in Asia over the next five years. This may equate to strong dividend growth over this period, which we believe is particularly attractive relative to other equity income strategies.

The value of an investment and the income from it can rise as well as fall as a result of market and currency fluctuations, and you may not get back the amount originally invested. qAsian focused portfolios are exposed to Emerging Markets which tend to be less stable than more established markets and can be affected by local political and economic conditions, reliability of trading systems, buying and selling practices and financial reporting standards.

Mike Kerley, fund manager of Far East Income Ltd

Focus on a specialist

LATIN FEVER IS NOT FOR THE FAINT-HEARTED JPMorgan Brazil’s investment manager is refreshingly candid about the challenges facing investors in the country’s World Cup year and beyond, finds Lindsay Vincent

F

ear and loathing on the streets, tear gas used to quell widespread protest riots, outbreaks of dengue fever and the whiff of cordite in the slums – plus anxiety that Olympics building works might not be completed on time. These and other concerns, exaggerated and realistic, have marked the barbed build-up to one of the greatest shows on earth: the World Cup. Brazil has the world’s sixth largest economy, but the country remains firmly rooted among the ranks of emerging nations.

Those currently invested in Brazil’s equity markets will take little comfort from the views of Sophie Bosch du Hood, a key figure in JPMorgan Asset Management’s Latin America operation, the lead player in its Brazilian funds team and manager of the £40 million JPMorgan Brazil Investment Trust.

Would she advise, say, a 20-year-old THOSE CURRENTLY INVESTED IN BRAZIL’S niece to invest in a Brazil fund or a more EQUITY MARKETS diverse Latin America offering, instead? She WILL TAKE LITTLE replies, with refreshing frankness and withCOMFORT FROM THE VIEWS OF SOPHIE out hesitation: ‘Latin America at this point.’

BOSCH DU HOOD The comfort blanket for her investment

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trust is her selection of 35 enterprises. ‘Top-notch companies,’ she says. The portfolio, consisting of small- and mid-cap companies, has a bias toward the industrial sector.

The trust was launched in 2010. Original subscribers who did not head for the exit have lost nearly a third of their capital. For them, the long term has become the only term in town.

The fund management industry and socialism are rarely compatible. However, the previous Brazilian president, Luiz Inácio Lula da Silva, seemed to find a way to make them so. He championed the emergence of a middle class and presided over an economy that transformed the lives of millions and won near-universal approval from leaders of the developed world at the time.

Firm hand Dilma Rousseff, his successor, is no soul sister to western fund managers, however. Formerly da Silva’s chief of staff and his chosen successor, Rousseff is more aligned than he was with the red flag of her PPE political party.‘Lula surrounded himself with smart people and delegated decision-making,’ says Bosch du Hood. ‘She [Rousseff] surrounds herself with soldiers.’ By this she means obedient people who carry out given orders, not lieutenants. ‘She doesn’t like people who have minds of their own,’ Bosch du Hood adds.

Focus on a specialist

THE ECONOMY CAN’T CONTINUE LIKE THIS WITHOUT THE RIGHT ACTION TO TAKE IT FORWARD

Rousseff, daughter of a Bulgarian entrepreneur, has carried on da Silva’s social programme, says Bosch du Hood, one that saw 30 million people progress from lower- to middle-class status. Some believe her policies have squandered the benefits of the good years, when Bric countries (Brazil, Russia, India and China) were acclaimed as the brightest prospects on the path to prosperity.

However, Brazil’s export markets, notably the iron ore trade to China, have now come off the boil. Rousseff’s reforms have come at a time when the World Cup – estimated to cost £6.5 billion and probably much more – has stimulated demand. Yet the economy this year is likely to grow by little more than 1.6 per cent, against 2.3 per cent in 2013. Despite inflation near the official ceiling of 6.5 per cent, the government has stopped raising interest rates, the standard weapon to cope with inflation. Moreover, Bosch du Hood queries the accuracy of the official inflation figures. ‘Service inflation is higher,’ she says.

The key central bank rate is now 11 per cent, and were it not for the softening economy – GDP growth was just 0.2 per cent in the first quarter of 2014 – rates would be higher still, economists say. This anaemic growth caused the ratings agency Standard & Poor’s to downgrade the country’s debt to BBB- in March, which places it on the margin of speculative territory.

‘But there is still a flurry of [foreign] money coming in,’ says Bosch du Hood. The magnet for this ‘carry trade’ (where investors borrow at low rates and invest in the hope of a higher return) is the 11 per cent central bank rate. Long term, the currency is overvalued, says Bosch du Hood. ‘Fair value is 2.45 [to the US dollar]. Now, it is 2.22.’

Rousseff, who will seek a second term in office in

Brazil’s national election this October, introduced a range of tax cuts and social spending measures that many saw as early electioneering. Some proposed tax increases have been postponed – on beer, for example. Government-controlled banks have been required to make 10-year loans available on used cars.

Moment of truth Despite all this, Rousseff’s approval ratings have fallen from 80 per cent to nearer 50 per cent. This, Bosch du Hood points out, was greeted warmly by equity markets relieved that they might not have to endure a further four years of her leadership.

It has been Rousseff’s misfortune to face a chronic drought, one that has caused havoc with electricity supplies. Some 80 per cent of the county’s power is hydro. Yet demand has been stimulated by government enforced price cuts: utility companies were threatened with the loss of their contracts unless they complied with demands to shave prices. Moreover, taxes have been taken off white goods.

Brazil’s flagship international company, Petrobas, might be a listed company, but government sway over its management means it resembles a state-owned enterprise. Petrobas has been forced to import natural gas from Bolivia, says Bosch du Hood, and sell into the domestic market at a price almost a third below what it pays for it.

‘The economy can’t continue like this without the right action to take it forward,’ says Bosch du Hood. It is an economy with many moving parts, and one that ‘can work on its own’. Close the borders and the country would be self-sufficient.

On the bright side, corporate profits are still growing and the market sells on a collective price/earnings ratio of 12.

Bosch du Hood believes: ‘2015 will be a year of fiscal adjustment,’ a year that should eventually lead to a ‘rosier picture’.

That rosier picture might include Brazil hosting the 2016 Olympics. However, the Olympic committee has recently expressed concern that the infrastructure might not be ready.

More woes, then, to add to the existing heap. inspired

❘ Summer 2014 17

Fund profile

TEMPLETON EMERGING MARKETS INVESTMENT TRUST

By Rebecca Jones (Money Observer) Templeton Emerging Markets Investment Trust (TEM), the flagship fund run by Dr Mark Mobius for Franklin Templeton Investments, has an impressive track record, returning 377% over the past 10 years compared to 243% from its benchmark, MSCI Emerging Markets.

Currently celebrating its 25th anniversary, the Money Observer Rated Fund is the oldest in the Association of Investment Companies’ global emerging markets sector and has been well served

by Mobius’ long-term, value-driven approach, which he has adopted since the trust’s inception.

However, in recent years performance has dwindled and the trust has delivered third-quartile returns over one, three and five years; a fact reflected in its current share price discount to net asset value (NAV) of 8.7%, although this has recently narrowed from 11.3%.

Bullish on china The main driver behind these disappointing returns is Mobius’ overweight to basic materials - currently 21% of the portfolio compared to 9% of the MSCI Emerging Markets index - as the sector has largely underperformed since 2008/09 due to a drop-off in demand, particularly from China.

However,Mobius’sconvictiononbasicmaterials

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remains strong: “The sector has fallen out of favour now and a lot of people ask ‘why are you still in materials, don’t you think it’s out of fashion?’ My answer to that is China; a lot of people talk about a slowing down in the Chinese economy, but they fail to recognise that the base of the economy has expanded dramatically.

“In 2000, 10% growth meant about $800 billion [£470.15 million] expansion in the Chinese economy, while 7% growth now means $900 billion, so the economy is still generating an incredible demand for all sorts of materials,” he says.

As the veteran manager explains, Asia - particularly China, but also Thailand - has been “the big winner” for the trust since its inception in 1989. As the two markets “blossomed” Mobius says he enjoyed significant success in stocks such as China-based BMW manufacturer Brilliance Auto alongside Thailand’s Siam Commercial Bank and Siam Cement.

The trust remains keenly focused on Asia with 68% of the portfolio currently invested in the region, including 29% in China, 13% in Thailand and 12% in India. The remainder of the fund is spread across Latin America, Eastern Europe and Africa.

Investment process Mobius takes a characteristically longterm view in his investment process, considering all of the factors that might affect the future of a company before committing any money.

“We’ll look at the current earnings, then the history; how has this company performed, has it shown growth over the last five years? If they haven’t then we really have to ask what we expect for the future.

“Sometimes there is a turnaround story that might be attractive, but equally if you have a company with a good record of growth you have to ask whether that can carry on, i.e. is there something in the country or the economy that could negatively impact the firm?,” he explains.

Alongside the basic materials story, this process is another factor behind the veteran manager’s bullish stance on China as he believes that the reforms being implemented in the country can only lead to stronger, healthier companies with sustainable growth prospects.

“China is moving to a market-orientated economy where state-owned enterprises are going to have to stand on their own feet. This means you’ll read about bankruptcies, you’ll read about defaults, but in my way of thinking this will be good news as it will mean we are moving towards reform,”he says.

On accessing investment opportunities, Mobius prefers not to use gearing, which he describes as “expensive” and “unreliable” as banks can recall their loans at short notice which could cause disruption to the trust.

Currency movements The manager also prefers not to hedge against currency movements as, he says, by doing so managers can work against the firms they are invested in,which often employ hedges themselves.

Currency movements also provide the occasional boon to the trust, as seen during the recent devaluation of the rupee which added significant value to the Indian stocks in Mobius’s portfolio that are priced in US dollars, but whose fixed costs are in rupees.

Mobius and the board of Templeton Emerging Markets try to keep the ride as smooth as possible for investors by also keeping a close eye on the share price discount to NAV, which the manager says is monitored and managed on a daily basis.

“We’re constantly in the market, no question about that; we don’t want our discount to get out too far so every day I’m getting a report and our traders are looking at the discount and if there is an opportunity to buy in. Investors don’t like to see huge volatility in the discount,” he says.

Commenting on the next 25 years of the Templeton Emerging Market fund, Mobius is unreservedly enthusiastic, predicting a shift in focus towards current frontier markets in Africa and Europe.

“It’s going to be exciting because we’re now in another phase of emerging market where frontier markets become bigger and bigger and the whole field opens up. When we started in 1989 we only had about five markets and now it’s 16; that’s a really significant change and it will only keep growing,” he says.

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Global Trusts Money Observer Investment Trust Awards 2014 Contenders: 43 trusts in the global, global equity income and global smaller companies sectors

BEST GLOBAL TRUST Winner: Law Debenture Given that nearly three quarters of Law Debenture’s investments are currently in UK equities, it might seem an implausible winner of this award.

However, portfolio manager James Henderson is adamant that this is compatible with its classification as a global investment trust.

HENDERSON’S APPROACH HAS DELIVERED EXCEPTIONALLY STRONG RETURNS He says the UK stock market includes a large number of multinational companies and exporters that offer exposure to growth in the global economy over the next 10 years, which is what he seeks to capture.

If he cannot find a UK company that offers the exposure he wants at the right price, he has no hesitation in going overseas for it, via direct investments

in the US and Europe, and collecUK EQUITIES DELIVER GLOBAL GAINS tive investments in Asia. But UK Law Debenture Corp F&C Global Smaler Companies AIC global sector 80 equities frequently offer similar earnings growth prospects 70 to their overseas counterparts, 60 with higher dividends and bet50 ter corporate governance. The 40 latter is critical, as problems with 30 an Indian holding have recently 20 reminded him.

10 Henderson believes it is 0 easier to concentrate on assem- -10 bling a reasonably diverse mix -20 of globally oriented companies 04/2011 10/2011 03/2012 09/2012 03/2013 09/2013 03/2014 Source: Morningstar, as at 1 April 2014 with attractive prospects than to try to allocate assets between regions on a top-down basis. To bolster his arguAlthough Law Debenture offers an abovement, he points out that the FTSE All-Share index average dividend for its sector at just under 3 per has performed closely in line with the FTSE World cent, Henderson is not constrained by a search ex UK index over the past 10 years. for yield. This is because the trust owns a growing His approach has delivered exceptionally independent fiduciary services business that constrong returns since his 2003 promotion to lead tributes a useful and growing portfolio manager. Ten-year net asset value total income. This business is curreturns to the end of March were 243 per cent, rently included in the NAV compared with 129 per cent for the All-Share at cost, but Winterflood index, and the trust has outperformed this benchSecurities reckons valuing it mark and the FTSE World index in each of its past at around nine times earnfive financial years. ings would leave the shares Moderate gearing has helped boost returns trading close to NAV. and stood at 6 per cent at the end March because Henderson is positive about the global economic James Henderson outlook and confident there is still plenty of longKey facts about Law Debenture term value in the stock market.

Henderson believes the US economy is Managed by James Henderson since 2003 strengthening on the back of shale gas exploraSector global tion and reshoring (the opposite of outsourcing or offshoring), and European economies are being 3-year NAV total return 53.3% bolstered by an overdue cycle in capital goods 3-year share price total return 68.6% replacement. This is helping offset the slowdown Premium +10.5% in developing economies. He says a lot of UK 12-month range +10 to +15% companies are in impressive shape, with buoyant Average discount for sector -7.0% cash flow and strong balance sheets, but they are Ongoing charges 0.47% remaining impressively ‘disciplined’ about takeoNote: Figures as at 1 April 2014. vers and capital expenditure. This leaves scope for Website: www.lawdeb.com dividend increases.

HIGHLY COMMENDED F&C GLOBAL SMALLER COMPANIES TRUST Helped by the long-term strength of smaller companies, F&C Global Smaller Companies Trust tops the global sectors in terms of net asset value, and total returns over 10 and five years. It won this award in 2012 and 2013. However, a dullish year to March 2014 means it must be content with the highly commended position this year.

It is the only global smaller companies trust eligible for the award and deserves credit for

20

Summer 2014

❘ inspired

making the most of its opportunities. Its portfolio is managed on a top-down basis, with allocations to the US, the UK, Europe, Japan and ‘the rest of the world‘.

Each regional portfolio has outperformed its relevant benchmark index over three years. Asset allocation has been relatively successful: it has one of the global sector’s highest weightings to the high-return US market.

The trust has been managed

since 2005 by Peter Ewins. F&C’s Sam Cosh has managed the European portfolio since 2011. He did well for two years, but lagged last year because he mistrusted enthusiasm for cyclical companies.

Robert Siddles had done a great job for the US portfolio since 2001, so his early 2014 departure for Jupiter Asset Management is a worry. His assistant Nish Patel has taken over and has been joined

by Gordon Happell, who was

previously a technology analyst at Henderson Global Investors. Ewins says he may give the duo more cash once they have completed their review of the US portfolio.

Ewins says: ‘Most half-decent smaller companies have been rerated in the last couple of years, except in emerging markets and Japan. Price/earnings ratios in the US are now typically in the high teens, and in the mid teens in the UK and Europe.’

ARE YOU A GLOBAL INVESTOR?

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Investment Trusts, managed

by Henderson

Take a global view of investment trusts, expertly managed by Henderson For over 80 years, Henderson Global Investors has been at the forefront of investment trust innovation and development. Now, with a diverse and established range of managed investment trusts and investment companies, Henderson has a global view of the market.

Whether you are retirement planning, investing for your children, looking to take advantage of dynamic global markets or want a cautious investment approach, our managed companies offer a wide range of investment objectives and strategies professionally managed by regional experts.

If your priority is high income, long term capital growth or a mixture of both, Henderson Global Investors has a range of solutions which aims to meet your investment needs.

Please remember that 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 as a result of market and currency fluctuations, and you may not get back the amount originally invested.

Call to receive your Investment Trust brochure or visit www.hendersoninvestmenttrusts.com

0800 856 5656 @HGiTrusts

Issued in the UK by Henderson Global Investors. Henderson Global Investors is the name under which Henderson Global Investors Limited (reg. no. 906355), Henderson Fund Management Limited (reg. no. 2607112), Henderson Investment Funds Limited (reg. no. 2678531), Henderson Investment Management Limited (reg. no. 1795354), Henderson Alternative Investment Advisor Limited (reg. no. 962757), Henderson Equity Partners Limited (reg. no.2606646), Gartmore Investment Limited (reg. no. 1508030), (each incorporated and registered in England and Wales with registered office at 201 Bishopsgate, London EC2M 3AE) are authorised and regulated by the Financial Conduct Authority to provide investment products and services. Telephone calls may be recorded and monitored.

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inspired

â?˜ Summer 2014 21

Global dividend income

DIVIDENDS FLOW FROM

ALL CORNERS OF THE GLOBE Companies in regions where dividends have been a rarity are now taking a more enlightened view, reports Rebecca Jones

G

lobal companies are increasingly paying high dividends, as factors such as favourable tax regimes, increasing pressure from domestic and foreign shareholders and rapid sector privatisation take effect, even in regions where dividend income was previously almost unheard of.

In many of the so-called Anglo-Saxon markets – particularly the UK and Australia – companies have a longstanding history of paying consistent and increasing dividends to shareholders.

UK firms currently pay an average of 52 per cent of their earnings to shareholders, and Australian firms pay more than 70 per cent.

The picture is slightly different in the US, where companies prefer to reward shareholders through price-boosting share buybacks – a practice that shows no sign of abating. The value of buybacks hit $448 billion (£266 billion) among S&P 500 firms in 2013, the highest level since 2008.

However, as Dan Roberts, manager of Fidelity’s Global Enhanced Income and Global Dividend funds, observes, this doesn’t mean there are no income opportunities in the US. He says:‘At the end of October 2013, the 15-year average dividend yield in the US market stood at 1.8 per cent, which is down on 3.4 per cent in the UK and 2.6 per cent globally. ‘However, around 50 per cent of dividend “aristocrats” globally can

Top 5 highest yielding global equity funds and trusts Sector

Yield (%)

UNIT TRUSTS/OEICS UBS Emerging Markets Equity Income

Global emerging markets

4.70

Sarasin Global Higher Dividend

Global equity income

4.53

Liontrust Global Income

Global equity income

4.53

Newton Emerging Income

Global emerging markets

4.43

Old Mutual Global Equity Income

Global equity income

4.39

Majedie Investment Trust

IT global

4.57

British Assets Trust

IT global equity income

4.45

JPMorgan Global Emerging Markets Income Trust

IT Global emerging markets equities

4.25

Scottish American Investment Company

IT global equity income

4.04

Murray International Trust

IT global equity income

4.00

INVESTMENT TRUSTS

ASIAN FIRMS NOW PLACE MORE EMPHASIS ON DIVIDENDS DAN ROBERTS 22

Summer 2014

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Notes: Figures as at 2 June 2014. Source: FE Analytics

Global dividend income

be found in the US market. Companies such as Kimberly-Clark have an excellent track record of returning cash to shareholders.’

European companies have historically been poor dividend payers, with the average firm returning just below 50 per cent of its earnings to shareholders since 2004, although this has improved significantly over the past five years as companies have tried to entice investors with higher dividends.

Looking further afield, Japanese companies have tended to be unattractive for income investors, as they have been inclined to hoard cash rather than pay dividends.

In many emerging markets, particularly in China and South America, dividends were unheard of until quite recently, not least because firms in these regions have tended to be state-owned in the past.

Dividends today However, the global income picture is changing. According to data obtained from Thomson Reuters’ Datastream service, regions that have historically been off the dividend map are now some of the highest-yielding on the globe.

These include China, which is currently paying the second-highest average dividend globally, at 5.1 per cent, and a number of previously nonor low-yielding South American countries such as Columbia, Venezuela and Brazil. The top 20 is also littered with South Asian, Middle Eastern and African frontier markets, including markets in Pakistan, Bahrain, Oman and Morocco, all of which yield more than 4 per cent. Eastern Europe is also prominent.

Much of this can be explained by the economic changes that have taken place in many of these countries over the past 20 to 30 years. Changes in China typify the trend. The country switched from having a closed communist economy to an open semi-capitalist one where vast privatisations were undertaken and floods of foreign investment allowed in.

According to Roberts, many of these markets now pay dividends because economic growth and company expansion has slowed, particularly in Asia.

He says: ‘Ten years ago, it was not unusual for Asian companies to take significant leverage on

Top 20 dividend-paying countries Average dividend yield (%)

Country

TRADING STOCKS INTERNATIONALLY If you want direct access to foreign stocks, Alastair George, investment strategist at Edison, recommends starting with those that have a dual-London listing, such as BHP Billiton or Rio Tinto, which are large components of the Australian market.

Alternatively, investors can go through an online or traditional broker. Most UK brokers give some access to markets in the US and Europe, but for more obscure regions you may need an international broker such as Saxo Bank in the Netherlands or Interactive Brokers in the US. As well as the usual account fees, you may be charged a higher fee to trade international stocks and, often, a foreign exchange fee.

George recommends investors ‘read the fine print to avoid getting hurt’.

Czech Republic

5.99

China

5.11

Malta

5.04

Pakistan

4.84

Oman

4.57

Bahrain

4.55

Colombia

4.46

Morocco

4.37

Norway

4.27

Australia

4.19

Russia

4.13

Venezuela

4.04

Brazil

4.03

Spain

3.95

Nigeria

3.92

Jordan

3.91

Finland

3.77

New Zealand

3.75

Poland

3.62

Romania

3.61

Source: Lipper via Thomson Reuters Datastream

their balance sheets to fuel growth. In recent years, firms have placed more emphasis on dividend payments, as returns on equity have expanded and the need for capital expenditure has fallen.’

However, according to Matthew Beesley, head of global equities at Henderson, in some cases headline yields can be misleading, particularly in small markets where one or two companies can skew the average. He claims that this is almost certainly the case in the highest-yielding region, the Czech Republic. There the 6 per cent average yield is almost entirely due to utilities company Cez’s 7 per cent yield, as the company accounts for 22 per cent of the Czech market.

Of course, many of these regions will also be

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Global dividend income

yielding more due to their risky or stagnant economies; arguably, risk accounts for much of the yield in regions such as Russia and Nigeria, where political and economic uncertainty is rife and underlying share prices are depressed.

However, high yields can also reflect a strong dividend-paying culture as seen, for example, in much of the Middle East. James Davidson, manager of JPMorgan’s Global Equity Income fund, observes that sometimes a large yield ‘can be a genuine undiscovered opportunity’.

Accessing global dividends If you would like to access a high-yielding foreign market, a global equity income fund offers diversified access to different markets and opportunities for both income and capital growth.

For those wanting to merely dip their toe abroad, Liontrust Global Income may be suitable. Over the past 12 months, managers James Inglis-Jones and Samantha Gleave have significantly increased their global exposure – although 58 per cent of the fund remains invested in the UK. The fund’s second-largest weighting is in Europe, at 23 per cent. The remainder is allocated to the US, Asia Pacific and South Africa. The fund yields an impressive 4.5 per cent – the highest in its sector.

Artemis Global Income is a particularly good option for those interested in Europe, as 46 per cent of the portfolio is allocated there. In part, this reflects manager Jacob de Tusch-Lec’s tendency to evaluate dividends based on a region’s government bond yield – known as the risk-free rate – and only invest when equities are better value. However, de Tusch-Lec is quite sceptical about emerging

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markets. He claims company valuations are not yet ‘humiliated enough’ to compensate investors for the risk they are taking in these markets.

If you want more exposure to the US, Fidelity Global Dividend and JPMorgan Global Equity Income have the bulk of their portfolios invested there. Meanwhile, within M&G Global Dividend, run by Stuart Rhodes, Australia is overweight against the benchmark average.

For the more adventurous investor, an emerging market income fund such as UBS Emerging Markets Equity Income, which has more than 50 per cent invested in Asia and is currently yielding 4.7 per cent, or JPMorgan Global Emerging Markets Income Trust on a yield of 4.2 per cent, could be attractive.

A few dividend-paying funds and investment trusts invest in a single country – Legg Mason Japan, managed by the highly experienced Hideo Shiozumi, being one example.

Alternatively, a global exchange traded fund – essentially a listed index tracker – is a cheap way to gain exposure to foreign markets and indices, with annual charges averaging around 0.30 per cent. Income-orientated ETFs available to UK investors include the Vanguard All-World High Dividend Yield UCITS ETF, which invests in more than 1,000 different stocks worldwide, and the iShares Asia/Pacific Select Dividend 30 ETF, which invests in the 30 highest dividend-paying stocks in the Asia Pacific region. Both yield more than 4 per cent.

Global or regional funds, which are usually diversified and run by experienced managers, do reduce the risks associated with less mature economies. However, as Beesley observes, moving outside the UK will almost always carry extra risk, if only in terms of currency.

…A GLOBAL EXCHANGE TRADED FUND – ESSENTIALLY A LISTED INDEX TRACKER – IS A CHEAP WAY TO GAIN EXPOSURE TO FOREIGN MARKETS AND INDICES, WITH ANNUAL CHARGES AVERAGING AROUND 0.30 PER CENT.

OPENING THE DOOR TO CHINA’S DOMESTIC EQUITY MARKETS ETFS-E Fund MSCI China A GO UCITS ETF (CASH) is Europe‘s first physically replicated UCITS exchange traded fund tracking the MSCI China A Index. CASH offers investors a unique, simple and easy access to investing in Asia’s fastest growing economy.

Be part of the China growth story today.

For further information please call +44 (0)20 7448 4330 or visit etfsecurities.com

ETF SECURITIES

EMPOWERING INVESTMENT IDEAS etfsecurities.com | +44 (0)20 7448 4330

This communication has been issued and approved for the purpose of section 21 of the Financial Services and Markets Act 2000 by ETF Securities (UK) Limited which is authorised and regulated by the United Kingdom Financial Conduct Authority (538634). ETFS UK is required by the FCA to clarify that it is not acting for you in any way in relation to the investment or investment activity to which this communication relates. In particular, ETFS UK will not provide any investment services to you and or advise you on the merits of, or make any recommendation to you in relation to, the terms of any transaction. No representative of ETFS UK is authorised to behave in any way which would lead you to believe otherwise. ETFS UK is not, therefore, responsible for providing you with the protections afforded to its clients and you should seek your own independent legal, investment and tax or other advice as you see fit. Investments may go up or down in value and you may lose some or all of the amount invested.

The information contained in this communication is neither an offer for sale nor a solicitation of an offer to buy securities nor shall any securities be offered or sold to any person in any jurisdiction in which an offer, solicitation, purchaser or sale would be unlawful under the securities law of such jurisdiction. This communication should not be used as the basis for any investment decision.

The fund referred to herein is not sponsored, endorsed, or promoted by MSCI, and MSCI bears no liability with respect to such fund or any index on which such Fund is based. The fund-specific supplement to the prospectus contains a more detailed description of the limited relationship MSCI has with GO UCITS ETF Solutions Plc and the fund.

British Empire manager heralds return of value Rebecca Jones

“…WE HAVE A DISCIPLINED PROCESS OF INVESTING IN STOCKS THAT ARE LESS EXPENSIVE THAN THE INDEX AND WE BELIEVE THAT IS A GOOD PREDICTOR OF LONGERTERM RETURNS.” JOHN PENNINK

After an extremely disappointing 2013, the valueoriented British Empire Securities and General Trust is enjoying a change in fortune, outperforming both its sector and benchmark year to date.

Since 1 January, the £755 million trust has returned 1.32 per cent, compared to a loss of 1.31 per cent from its sector, IT global, and a modest gain of 0.56 per cent from its benchmark, MSCI World.

This positive performance follows a disastrous period for the 125-year-old fund. In 2013 British Empire returned only 5 per cent, compared to a gain of 21 per cent from both its sector and benchmark, topping off a disappointing five-year slump during which the fund has returned half that of the sector. This led to the trust being dropped from Money Observer’s Rated Funds list last month.

Same investment approach Commenting on the fund’s positive return year to date, manager John Pennink says: ‘Recent returns since 1 October have been ahead of the benchmarks which is gratifying, but we haven’t changed our approach.

‘Value as a theme is starting to perform better on a relative basis as large-cap growth is perceived to be expensive.’

As well as the fund’s overarching value style, which has been largely out of favour in recent times, analysts also pinpoint the fund’s lack of exposure to the US and high cash levels as reasons for recent underperformance.

‘British Empire has struggled in what has for them, been almost a perfect storm in recent years.

A focus on high-quality undervalued assets, material underweight of US equities, and a relatively high level of liquidity have caused material headwinds and the manager has struggled to extract value,’ says Alan Brierley, director of investment companies at Canaccord Genuity.

As a result, the trust is currently on a discount of 12.4 per cent, the second widest of its sector,

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which is currently averaging a discount of 5 per cent. However, the estimated weighted average discount, which accounts for the discounts on the investment trusts British Empire holds, is currently around 26 per cent.

Commenting on his fund’s style, Pennink says: ‘We manage the trust without regard to benchmark weightings so it is not surprising that our performance has diverged from the benchmark.

‘However, over time we are confident that the divergence will be a positive one as we have a disciplined process of investing in stocks that are less expensive than the index and we believe that is a good predictor of longer-term returns.’

Corporate activity Pennink adds that he believes the tide is turning for some his holdings as corporate activity picks up.

In particular he pointed to one of his top holdings, French telecommunications firm Vivendi, which he said had recently found a buyer for SFR, Altice as a result of the latter’s $10 billion (£5.95 billion) bond raise.

According to analysts, the fund’s historically wide discount combined with positive recent performance could make British Empire an attractive value opportunity.

‘Recent performance has picked up and if this could be sustained we believe that British Empire could be re-rated. In short, we believe the current discount of 14 per cent provides an attractive entry point to a fund with an experienced management team with a differentiated value approach,’ says Simon Elliott, head of investment trust research at Winterflood Securities.

However, Monica Tepes, investment trust analyst at Cantor Fitzgerald, sounds a note of caution: ‘British Empire has suffered heavily from the risk-off attitude of recent years and its future performance depends on strong markets and sustained corporate activity. Investors that feel less positive about the global story should bear this mind.’

Investing—Japan

Your guide to investing in stocks and shares

Japan

By Rob Griffin

Japan is a fascinating country. As well as having traditions, such as the martial arts, woven into the fabric of its history, it is also a driving force in modern technology. This mesmerising blend of old and new makes it an intriguing area for would-be investors.

U

nfortunately, those brave enough to put their money into Japan have also found it to be fraught with danger. Despite flattering to deceive on many occasions over the past decade, it constantly falls short of expectations, says Martin Bamford, managing director of advisory firm Informed Choice.

“Investors tend to end up in Japan because it’s such a large economy and seen as a key country in that part of the world,” he says. “It’s one of those places that perpetually seems to be in a good position, so people tip it to improve but then it disappoints again and again.”

The work ethic and loyalty of the Japanese is legendary, according to Mark Dampier, head of research at Hargreaves Lansdown, but this hasn’t been enough to prevent its economy spending years in the doldrums, with customers unwilling to spend because of persistent deflation. At the same time, the strong yen made Japanese exports expensive for foreign buyers. This combination

QUICK GUIDE: IS THIS SECTOR RIGHT FOR ME? Consider investing in this sector if… l you think Japan is about to finally ‘turn the corner’ l you want focused exposure to the country l you are looking to diversify your portfolio

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❘ Summer 2014 27

Investing—Japan

Jupiter Japan Income Manager: Simon Somerville Launch date:

15 September 2005

Total fund size:

£472 million

Initial charge:

5.25%

Annual management fee:

1.5%

Minimum initial investment:

£500

Minimum monthly investment:

£50 a month

Performance fee:

None

Contact number for investors:

0844 620 7600

Website:

jupiteronline.com

of factors proved damaging. “This was a difficult environment for many Japanese companies and their share prices suffered as a result,” he recalls.

It’s clear that anyone who shunned Japan will have missed out on last year’s bumper ride when the Nikkei 225 Index shot up 57% to 16291.

However, they will have also avoided the subsequent fall to below 14000, a drop of more than 10%. An analysis of the past 25 years shows this situation isn’t unique. While the index peaked at nearly 39000 at the end of 1989, it has since experienced numerous false dawns. At the time of

However, sentiment towards Japan has improved markedly in recent years, according to Patrick Connolly, a certified financial planner at Chase de Vere. He points out that at the start of the year many commentators were tipping Japanese equities to be among the top performers in 2014.

“Prime Minister Shinzo Abe has ushered in a programme of economic stimulus that has even attracted its own name, ‘Abenomics’,” he explains.

“He has pressured the central bank to ease monetary policy and doubled Japan’s inflation target to 2% in a bid to end the regular periods of deflation.”

Such initiatives devalued the Japanese currency, which has been good news for the country’s exporters, whose products are more competitive, but bad for overseas investors who haven’t been able to fully benefit from market rises after currency fluctuations are taken into account.

Although the reforms have had an impact and provided tangible signs of constructive change in Japan, Connolly points out there’s no guarantee they will prove successful and suggests those committing new money to the region are taking a pretty big leap of faith.

MARKETS ARE BECOMING MORE SCEPTICAL ABOUT THE FUTURE OUTLOOK FOR JAPAN PATRICK CONNOLLY writing, it stands at just over 15000. Its next move, quite frankly, is anyone’s guess.

“Most people go into Japan at the wrong time,” points out Andrew Merricks, head of investments at Skerritt Consultants. “Now you’re seeing a lot of people moving out of Japan, that may be a good sign to invest because no one ever seems to get it right.”

HOW MUCH SHOULD I INVEST IN THIS SECTOR?

0%

LOW-RISK INVESTORS ROB GRIFFIN has written for the Independent, the Sunday Telegraph and the Daily Express

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2%

MEDIUM-RISK INVESTORS

Investing—Japan

“We have recently seen disappointing numbers on exports, trade and economic growth,” he explains. “As a result, markets are becoming more sceptical about the future outlook for Japan.”

However, this must be counterbalanced by the argument that it makes sense to have some exposure to what is one of the world’s largest economies. There’s also the risk that people will miss out should Japan finally turn the corner.

If you want to invest, then there’s plenty of choice with more than 80 funds in the Investment Management Association (IMA) Japan sector and 10 in IMA Japanese Smaller Companies. However, you’ll need to choose carefully as while the best funds in each sector have hit double-digit returns over the past year, the worst have lost money.

An alternative is to consider sectors that are not so closely tied to the prospects for Japan, such as IMA Asia Pacific including Japan.

The Japanese content of funds in this area must account for less than 80% of its assets – that’s enough for you to access potential upside but with the risk diluted by exposure to other countries.

Over the past 10 years, this would have been the better option for as funds in this sector returned, on average, 131.85%, according to Morningstar figures to 4 June 2014. This is considerably more than the 45.3% recorded by IMA Japanese Smaller Companies or the 39% average achieved by IMA Japan.

Whether or not to put money into this area is certainly a tough call from an investor’s standpoint, concedes Connolly, but even those who press ahead would be wise to limit the exposure to 5% of their overall investment portfolio.

“A risk is that those investors who sit on the sidelines may regret not jumping on to the new Japan story,” he says. “Of course, another risk is that those who jump in might again end up battered and bruised and wondering if they will ever learn their lessons over investing in Japan.”

Simon Somerville

FUND TO WATCH:

Jupiter Japan Income The fund aims to achieve long-term capital and income growth from investing in a combination of Japanese equities and convertible bonds, as well as cash, deposits and money market instruments.

The portfolio has been managed since its launch by Simon Somerville. Somerville selects companies that demonstrate strong, sustainable cashflow, as well as being shareholder friendly and offering a strong competitive advantage. Contact is maintained through 300 company meetings every year and several trips to Japan.

The 10 largest holdings account for almost 40% of assets under management, according to the most recent fund fact sheet, `include Toyota Motor, Bridgestone, Mitsubishi UFJ Financial, Sumitomo Mitsui Financial and Sekisui Chemical.

Industrials currently account for the largest allocation of assets in the fund (31%), followed by financials (20.4%), consumer goods (20.2%) and consumer services (10.4%). Other areas, each of which account for less than 10%, include telecommunications, technology, basic materials and healthcare.

5%

HIGH-RISK INVESTORS

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❘ Summer 2014 29

GrowMoney

DELIVERY EXPANSION MAY POST PORTFOLIO GAINS

Our algorithmic trading portfolio has produced flat returns over the past quarter, but new recruits include Royal Mail and profitable exhibition organiser ITE, reports Richard Beddard

O

n the fourth anniversary of the first Nifty Thrifty selection the portfolio is up 59 per cent, but performance has been flat since the last update three months ago. A benchmark investment in an index-tracking fund has made up some ground, rising 3 per cent in value since the last update and 46 per cent since June 2010.

If you had invested £30,000 in the Nifty Thrifty portfolio four years ago, it would now be worth £47,623 with dividends reinvested. The same sum invested in an index-tracking fund on the same basis would be worth £43,933.

The Nifty Thrifty is an algorithmic trading

About GrowMoney portfolios GrowMoney features updates on our investment portfolio ideas. Most are available to view ‘live’ at www.moneyobserver.com/portfolio-ideas.

We publicise changes via our free, twice-weekly e-update (sign up via the website).

Monthly updates: Share Sleuth: A £30,000 stocks-based portfolio comprising up to 30 well-researched and undervalued smaller companies.

Active Income: A multi-asset portfolio designed for investors seeking higher-than-average investment income from a variety of sources.

Tactical Asset Allocator: A balanced portfolio providing weighted asset class exposure on the basis of current macroeconomic trends. A quarterly update also provides suggested weightings for lowerand higher-risk profiles.

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system, rebalanced every quarter, that picks from a list of the biggest, strongest candidates listed on the stock market. Only companies in the FTSE 350 index – the London-listed companies with the highest market capitalisations – are included, and then only if they have F_Scores of 5 out of 9 or more. The F_Score is a measure of financial strength.

The algorithm ranks the candidates according to two factors: return on capital, and earnings yield.

These are proxies for quality and value, identifying statistically good companies at cheap prices. Every quarter we schedule approximately one quarter of the companies – those the algorithm selected a year or more previously – for ejection, and replace Portfolio Choices: Each month we update one of our three notional £100,000 portfolios – growth, balanced and income growth – constructed by respected investment advisers.

Quarterly updates: Money Observer Model Portfolios: Our 12 income and growth portfolios are designed for medium- and higher-risk investors. The six income portfolios focus on immediate, balanced and growing income. The six growth options reference time periods – medium (5-9 years), medium to long-term (10-14 years) and longer term (15 years plus). All can be traded on our sister website, Interactive Investor (www.iii.co.uk).

Nifty Thrifty: A ‘mechanical’ portfolio of 30 FTSE 350 index constituents that must meet pre-determined valuation criteria to justify continued inclusion after one year of ownership.

For DIY investors, our fund and trust comparison tools are available on moneyobserver.com/find-best-funds.

GrowMoney You can follow the progress of the portfolio on our website: www.moneyobserver.com/portfolio-ideas/nifty-thrifty-portfolio HOW THE PORTFOLIO IS PERFORMING CURRENTLY AND HISTORICALLY Price (£)

Cost (£)

Value (£)

Return (%)

457

2.92

1,349

1,668

24

100

17.94

1,813

1,858

2

Dec

1,685

1.07

1,822

1,742

-4

Construction and engineering

March

322

3.68

1,200

1,154

-4

Construction and engineering

June

222

3.85

869

1,591

83

Diversified retail

March

1,551

0.75

1,174

1,178

0

Food and tobacco

March

36

32.11

1,172

1,290

10

June

325

5.26

1,728

1,710

-1

June

1,357

1.26

1,722

1,703

-1

Hotels and entertainment services

Dec

480

3.75

1,821

1,979

9

William Hill

Hotels and entertainment services

June

476

3.58

1,722

1,703

-1

British Sky Broadcasting

Media and publishing

June

184

7.77

1,447

1,618

12

Euromoney Institu.

Investor

Media and publishing

une

141

12.01

1,712

1,693

-1

BHP Billiton

Metals & Mining

March

60

19.05

1,159

1,132

-2

Afren

Oil and gas

Dec

1,041

1.34

1,415

1,617

14

BP

Oil and gas

Sept

299

4.46

1,349

1,510

12

EnQuest

Oil and gas

March

780

1.34

1,058

1,097

4

SOCO International

Oil and gas

Dec

451

3.99

1,819

1,876

3

Homeserve

Personal and household prods. and services

Sept

542

2.46

1,348

1,838

36

Unilever

Personal and household prods. and services

March

48

23.95

1,165

1,286

10

Interserve

Professional and commercial services

March

215

4.90

1,069

1,394

30

ITE

Professional and commercial services

June

731

2.33

1,722

1,703

-1

Reed Elsevier

Professional and commercial services

Sept

166

8.05

1,352

1,581

17

Serco

Professional and commercial services

Dec

406

4.46

1,831

1,518

-17

Anite

Software and IT services

Sept

1,127

1.18

1,350

1,062

-21

Micro Focus International

Software and IT services

Sept

384

3.11

1,208

3,220

167

Sage

Software and IT services

June

412

4.13

1,722

1,703

-1

Halfords

Speciality retailers

Sept

197

4.98

996

975

-2

WH Smith

Speciality retailers

Dec

205

4.80

1,000

2,103

110

KCOM

Telecommunications services

March

1,214

0.95

Name

Industry

Review

Shares

Pace Ultra Electronics

Aerospace and defence

Sept

Aerospace and defence

Dec

Spirent Communications

Communications and networking

Carillion Kentz Debenhams British American Tobacco Royal Mail

Freight and logistics services

888

Hotels and entertainment services

TUI Travel

Total current

1,173

1,117

-5

42,286

47,621

13

30,000

47,623

Cash

2

Since 1 May 2010

59

Notes: New additions are highlighted. Cost includes £10 broker fee and 0.5% stamp duty for each transaction. Cash earns no interest. Dividends and sale proceeds are credited to the cash balance and reinvested. £30,000 invested on 1 June 2010 would now be worth £47,623. £30,000 invested in a FTSE All-Share ETF would now be worth £43,933 (dividends reinvested). Objective: To beat a FTSE All-Share ETF handsomely over any five-year period. Sources: Sharescope and Stockopedia, 2 June 2014

them with the highest ranked companies available, employing simple rules to maintain the number of shares in the portfolio and its diversity.

This time eight shares were due for ejection, but two, Kentz and British Sky Broadcasting, received a reprieve because they are sufficiently highly ranked to be selected again. The six shares no longer ranked highly enough to remain did very well as a group, although Antofagasta, a mining company held for three years, and Ladbrokes, which operates betting shops and websites, disappointed.

Centamin Egypt, which runs a gold mine, made a total return after broker fees and stamp duty of 58 per cent. Train and bus operator Go-Ahead did almost as well and retailer Next returned 42 per cent. Shares in engineering consultancy WS Atkins produced a total return after charges of 103 per cent over two years.

Six new joiners WS Atkins could have remained in the portfolio.

It was ranked number seven – but because ITE, a company in the same industry group, was ranked two places above it, the algorithm selected it

instead. Including both ITE and WS Atkins would have meant the portfolio contained five companies from the same industry, but the maximum allowed is four.

The cash available for investment every month is determined not only by the amount raised when shares are ejected from the portfolio, but also by dividends paid by the companies in the Nifty Thrifty since the last quarterly update. These dividends are reinvested, adding to the portfolio’s return.

After ineligible shares – those already in the portfolio and those from industries already fully

represented – are identified and excluded, the algorithm then selects the highest remaining ranked shares. Apart from the two survivors Kentz and British Sky Broadcasting, six new companies join the portfolio.

Recently listed Royal Mail is the highest ranking. As well as operating the UK’s postal service, it is the country’s leading parcel delivery service. It also operates a parcel service in continental Europe and designs and produces the UK’s stamps.

With a market capitalisation of £440 million, 888 is one of the smallest companies in the portfolio. It operates online poker, casino, bingo and sports betting sites. William Hill, with a capitalisation of £3 billion, is the UK’s largest bookmaker, operating 2,400 betting shops. Similarly to 888, it also has an impressive international online betting operation.

Out-of-favour pick Sage is a software house specialising in software and services for small and medium-sized businesses. It’s most famous for its accountancy and payroll products, but has grown its range to facilitate most business functions.

The algorithm has snared highly profitable international exhibition organiser ITE after a sharp fall in its share price due to the troubles in Ukraine and the wider implications for Russia. The company earns 6 per cent of revenue in Ukraine and 63 per cent of revenue in Russia, where recession exacerbated by conflict, plus sanctions imposed by the EU, the US, and other nations, are already impacting international trade and sales of exhibition space.

Picking out-of-favour stocks such as ITE might seem risky, but the algorithm is just doing what it is designed to do: identify the profitable companies that other investors don’t want to buy. Their unpopularity makes the shares cheap, which is why over the long term the algorithm should produce market-beating returns.

It’s not guaranteed to beat the market every year, though, which is one of the reasons why it works. If there were a foolproof way of beating the market, everybody would follow it and drive up the prices in the very shares we hope to buy cheaply.

Following the Nifty Thrifty’s contrarian strategy requires a stubborn mentality and the strength to buy stocks when instinct may say to avoid them.

SIX SHARES GET THE BOOT Name

Industry Group

Antofagasta*** Centamin* Go-Ahead* Ladbrokes* Next* WS Atkins**

Metals and mining Metals and mining Passenger transportation services Hotels and entertainment services Speciality retailers Professional and commercial services

Cost (£)

Profit/loss (£)

(%)

Dividends (£)

Charges (£)

1,102 1,440 1,434 1,444 1,451 869

-327 829 741 -312 609 897

-30 58 52 -22 42 103

123 0 75 62 159 85

26 27 27 27 27 24

Notes: Charges include broker fees and stamp duty; profit/loss includes dividends and charges. *Held for one year. **Held for two years. ***Held for three years. Sources: Sharescope and Stockopedia, 2 June 2014

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Money Observer’s 2014 Rated Funds Below is the full listing of our rated funds, divided into easily understandable investment sector groupings.

See our website for comparison tools and fact sheets ASIA/EMERGING MARKET EQUITIES

Fundsmith Equity

Global

Ecclesiastical Amity Sterling Bond

Asia-Pacific ex Japan

Monks IT

Global

Fidelity Moneybuilder Income

Advance Frontier Markets IT

Global emrg markets

Old Mutual Global Equity

Global

Fidelity Strategic Bond

£ strategic bond

Fidelity Asian Values IT

Asia-Pacific ex Japan

Pictet Premium Brands

Global

£ strategic bond

Fidelity Emerging Markets

Global emrg markets

Rathbone Global Opportunities

Global

Invesco Perpetual Monthly Income Plus

First State Asia Pacific Leaders

Asia-Pacific ex Japan

Scottish Mortgage IT

Global

Asia-Pacific ex Japan

Witan IT

Global

Legal & General Fixed Interest

Japan

M&G Strategic Corporate Bond

Aberdeen Asian Smaller Companies IT

Invesco Asia IT Invesco Perpetual Pacific Investec Asia ex-Japan JPMorgan Chinese IT

Asia-Pacific incl Japan

JAPANESE EQUITIES

Asia-Pacific ex Japan

Aberdeen Japan Equity

Country spec: Asia Pac

Atlantis Japan Growth IT

Japan smaller cos

JPMorgan Emerging Markets IT

Global emrg markets

Baillie Gifford Japanese

JPMorgan Global Emerging Mkts Inc IT

Global emrg markets

Baillie Gifford Japanese Smaller Cos

Newton Asian Income

Asia-Pacific ex Japan

CF Morant Wright Nippon Yield

Japan

Pacific Assets IT

Asia-Pacific ex Japan

JPMorgan Japanese IT

Japan

Schroder Asian Alpha Plus

Asia-Pacific ex Japan

Legg Mason Japan Equity

Japan

Scottish Oriental Smaller Companies IT

Asia-Pacific ex Japan

MIXED ASSET – HIGHER RISK

Somerset Emerging Markets Dividend Grth

Global emrg markets

Acorn Income IT

Templeton Emerging Markets IT

Global emrg markets

Baillie Gifford Managed

Utilico Emerging Markets IT

Global emrg markets

CF Ruffer Equity & General

Artemis Strategic Assets

COMMODITIES Baring Global Agriculture

Specialist

BlackRock World Mining IT

Commodities & natural res

First State Global Resources

Global

Investec Global Energy

Specialist

EUROPEAN EQUITIES

Japan Japan smaller cos

UK equity & bond inc Flexible investment Mixed inv 40%-85% shares Flexible investment

Jupiter Strategic Bond M&G Optimal Income PFS Twenty Four Dynamic Bond

£ strategic bond £ corporate bond

£ strategic bond £ corporate bond £ strategic bond £ corporate bond £ strategic bond

Rathbone Ethical Bond

£ corporate bond

Royal London Ethical Bond

£ corporate bond

Royal London Sterling Extra Yield

£ strategic bond

UK EQUITY INCOME Artemis Income

UK equity income

Schroder UK Alpha Income

UK equity income

F&C Stewardship Income

UK equity income

Fidelity Moneybuilder Dividend

UK equity income

Finsbury Growth & Income IT

UK equity income

Henderson UK Equity Income & Growth

UK all companies

CIS Sustainable World

Mixed inv 40%-85% shares

Invesco Perpetual Income

UK equity income

Investec Cautious Managed

Mixed inv 20%-60% shares

JOHCM UK Equity Income

UK equity income

Perpetual Income and Growth IT

UK equity income

PFS Chelverton UK Equity Income

UK equity income

Personal Assets IT Practical

Global Mixed inv 40%-85% shares

RIT Capital Partners IT

Global

Rathbone Income

UK equity income

Ruffer Investment IT

Global

Schroder Income Maximiser

UK equity income

Temple Bar IT

UK equity income

Threadneedle UK Equity Income

UK equity income

AXA Framlington European

Europe ex UK

Threadneedle Monthly Extra Income

Baillie Gifford European

Europe ex UK

MIXED ASSET – LOWER RISK

Europe

Aberdeen Managed Distribution

Mixed inv 20%-60% shares

Troy Income & Growth IT

UK equity income

AXA Ethical Distribution

Mixed inv 20%-60% shares

Unicorn UK Income

UK equity income

Fidelity Moneybuilder Balanced

Mixed inv 40%-85% shares

UK GROWTH AXA Framlington UK Select Opportunities

UK all companies

Ecclesiastical UK Equity Growth

UK all companies

Fidelity Special Values IT

UK all companies

Invesco Perpetual Select UK Equity IT

UK all companies

Legal & General UK Alpha

UK all companies

Liontrust Special Situations

UK all companies

Mercantile IT

UK all companies

Neptune UK Mid Cap

UK all companies

Old Mutual UK Alpha

UK all companies

Schroder UK Growth IT

UK all companies UK all companies

BlackRock Greater Europe IT European Assets IT

European smaller cos

GAM Star Continental European Equity Henderson Euro Trust IT

Europe ex UK

UK equity & bond inc

Europe

Henderson Cautious Managed

Mixed inv 20%-60% shares

Henderson European Focus

Europe ex UK

Invesco Perpetual Distribution

Mixed inv 20%-60% shares

Invesco Perpetual European Opportunities

Europe ex UK

JPMorgan Multi Asset Income

Mixed inv 20%-60% shares

JPMorgan European Smaller Companies IT

European smaller cos

Threadneedle European Select

Europe ex UK

GLOBAL BONDS Invesco Perpetual High Yield

£ high yield

Investec Emg Markets Local Currency Debt

Gbl emrg mkt bond

M&G Global Macro Bond

Global bonds

Marlborough Global Bond

Global bonds

Old Mutual Global Strategic Bond

Global bonds

Standard Life Inv Emerging Market Debt Standard Life Inv Global Index Linked Bond

Gbl emrg mkt bond Global bonds

Jupiter Distribution Kames Ethical Cautious Managed Newton Real Return

Mixed inv 0%-35% shares Mixed inv 20%-60% shares Targeted absolute return

Premier Multi Asset Monthly Income

Mixed inv 20%-60% shares

Standard Life Inv Global Absolute Ret Strats

Targeted absolute return

Old Mutual Global Equity Absolute Return

Targeted absolute return

PROPERTY Henderson UK Property

Property

Standard Life Inv UK Equity Unconstrained

Ignis UK Property

Property

Standard Life Inv UK Ethical

UK all companies

Legal & General UK Property

Property

Threadneedle UK Select IT

UK all companies

M&G Global Real Estate Securities

Property

Unicorn Outstanding British Companies

UK all companies

TR Property IT

Property

UK SMALL CAP

SPECIALIST

GLOBAL EQUITY INCOME Aberdeen World Equity Income

Global equity inc

AXA Framlington Biotech

Artemis Global Income

Global equity inc

BH Macro IT

Guinness Global Equity Income

Global equity inc

Electra Private Equity IT

Private equity

Invesco Perpetual Global Equity Income

Global equity inc

Graphite Enterprise IT

Private equity

Liontrust Global Income

Global equity inc

M&G Global Dividend

Guinness Global Money Managers Global

Herald IT Impax Environmental Markets IT

Murray International IT

Global equity inc

Investec Global Gold

Newton Global Higher Income

Global equity inc

Jupiter Green IT

Securities Trust of Scotland IT

Global equity inc

Jupiter International Financials

Threadneedle Global Equity Income

Global equity inc

Pantheon International Participations IT

GLOBAL GROWTH Artemis Global Growth

Global

Bankers IT

Global

Edinburgh Worldwide IT

Global

F&C Global Smaller Companies IT

Global

Fidelity Funds Global Consumer Industries

Global

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Specialist Hedge funds

Global Small media, comms & IT Environmental Specialist Environmental Specialist Private equity

Polar Capital Technology IT

Tech, media & telecom

Schroder Global Healthcare

Global

Worldwide Healthcare IT

Biotechnology & health

UK BONDS

Aberforth Smaller Companies IT

UK smaller cos

Baillie Gifford British Smaller Companies

UK smaller cos

BlackRock Smaller Companies IT

UK smaller cos

BlackRock Throgmorton IT

UK smaller cos

Discretionary

UK smaller cos

Henderson Smaller Companies IT

UK smaller cos

Liontrust UK Smaller Companies

UK smaller cos

Marlborough UK Micro Cap Growth

UK smaller cos

Strategic Equity Capital IT

UK smaller cos

US EQUITIES F&C US Smaller Companies IT

North America

GAM North American Growth

North America

JPMorgan US Equity Income

North America

JPMorgan American IT

North America

North American Income IT

North America

Old Mutual North American Equity

North America North America

Allianz Sterling Total Return

£ strategic bond

VT de Lisle America

Baillie Gifford Corporate Bond

£ strategic bond

Notes: IT denotes investment trust or investment company.

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Spyker cars Venator Bond p36 Panerai’s Classic Yacht p40 Champagne for summer p46

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Connoisseur ❚ CARS

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SPYKER CARS ANNOUNCES INNOVATIVE VENATOR BOND Spyker N.V. (“Spyker”) today announced an innovative corporate financing initiative to support the introduction and production of its Spyker B6 Venator, Spyker’s compact, 2-door mid-engine sports car unveiled a year ago at the 2013 International Geneva Motor Show, and the Spyker B6 Venator Spyder, launched at Pebble Beach, California, in August 2013.

T

he Dutch supercar company has created the Spyker Venator Bond, providing an unprecedented opportunity for discerning investors. The Spyker Venator Bond will offer individual investors three redemption options, including rolling up to one of the first produced Spyker B6 Venators. Never before has an automaker offered an investment bond of this nature.

Spyker is making 100 Spyker Venator Bonds available, at the per-bond subscription of £100,000 (and Euro/US$ equivalent). Each Spyker Venator Bond will be issued with a unique Spyker B6 Venator chassis number, ensuring the bond holder a first-edition car featuring a special exterior / interior colour scheme and badging. Together with a second bond on offer, the Spyker Bond, Spyker intends to raise up to £20 million (circa Euro 25 million) in capital to fund production expansion primarily to meet the unexpectedly high demand for the new Spyker B6 Venator.

The Spyker Venator Bond and Spyker Bond are marketed and distributed by Central Markets Investment Management Limited, part of the Central Markets Group.

Central Markets are a London-based financial services provider with a range of services for high net worth individuals and corporations. From capital raising, investments in alternatives, brokerage and foreign exchange, Central Market aim to offer a discreet selection of services to enable clients to achieve their financial ambitions. Commenting on the Spyker Venator and Spyker Bonds, Peter Shepherd, MD states “When we looked at what Spyker wanted to achieve with their capital raising and what they had on offer, we saw a very unique opportunity to create something out of the ordinary from the typical corporate bond offering. To invest in a growth story, while having the option to be rewarded with a top end sports car, has huge appeal, and one that we believe our investors will jump at.”

The administrator for the bond is Best International Group, a leading corporate finance firm specialising in the development and administration of corporate bonds. “We are delighted to be working with such an iconic brand,” said Best International Group’s Jeff Hankin. “The Spyker Venator Bond will be a real departure from the standard corporate bond instrument, allowing subscribers to opt to inspired

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Connoisseur ❚ CARS

take their returns in either spending power or horsepower.

We anticipate a great deal of interest.”

The Spyker B6 Venator is designed for discerning drivers, by a discerning driver: Victor R. Muller, Chief Executive Officer of Spyker.“I wanted to give like-minded drivers who demand the highest standards a new choice, one that delivers a rare combination of heritage, design, performance and exclusivity. That describes the Spyker B6 Venator perfectly.

Now with the Spyker Venator Bond, like-minded investors can take part in a first-of-its-kind financial opportunity designed for them in the uniquely Spyker vein.”

The Spyker B6 Venator makes a defiantly contemporary statement whilst paying homage to its past, making it instantly recognizable as a Spyker. Highly detailed design, bespoke materials and aviation-inspired elements are a core part of the Spyker DNA. With the announcement of the Spyker Venator Bond, the company once again proves its Latin axiom: “Nulla tenaci invia est via” – “For the tenacious no road is impassable.”

The Spyker B6 Venator Concept will begin production this year for key markets including Europe, the Middle East, Asia Pacific and India, followed by the US in 2015.

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Her name is Rio…

In 1982 Duran Duran, the ‘new romantic’ pop group released their anthemic track ‘Rio’, which was accompanied by a standout video of the time featuring the group sailing the Caribbean sea on a beautiful yacht.

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he yacht, named Eilean, was a 22-metre Bermudian ketch and was the daughter of the Scottish ‘Fife Boatyard’, one of the most legendary names in world boat-building. Fife yachts, with their trademark dragon painted at the bow, had been winning trophies since the time of Dickens. ‘The Shamrock’ sailed by Sir Thomas Lipton in the 1898 America’s Cup was a Fife design. Eilean was one of the last boats he designed before the Fairlie yard was requisitioned by the Admiralty for use in torpedo research.

The war also put an end to the boatyard that had built her.

William Fife & Son had employed most of the able-bodied men in the small fishing village of Fairlie on the Firth of Clyde since 1812. William Fife III died in 1944 aged 87

Connoisseur ❚ YATCHTS

and the dynasty ended.

Following that starring role in that Duran Duran video, Eilean fell into almost terminal disrepair and became an abandoned project, tied to bushes and kept afloat by mooring to an old tug boat ‘repair shop’ in a mangrove off of English Harbour in Antigua. It was there she could have stayed and suffered an ignominious end was it not for the sharp eyes of Angelo Bonati, the CEO of luxury watch maker Officine Panerai who, whilst visiting the Panerai Classic Yachts Challenge in Antigua in 2006, spotted the termite infested shell of this previously heralded classic yacht, recognised her as a Fife and bought her on behalf of Officine Panerai.

Panerai as a brand have a long and distinguished association with the sea and yachting. Since 2005, Officine Panerai has sponsored the Panerai Classic Yachts Challenge, the most prestigious international circuit of regattas for classic and vintage sailing yachts. Panerai have been the official timepiece provider to the Italian Navy since 1916.

In 1936, the year Eilean was built, this Florentine producer of fine watches created the first prototype of an underwater watch for diving missions by the Italian Royal Navy’s Commander Submarine Group One. The new watches featured Radiomir, a new fluorescent coating for the hands and dials to allow greater visibility underwater.

Officine Panerai’s purchase of Eilean and the following three years of painstaking restoration ensured that this queen of the Caribbean is once again presented as one of the worlds finest classic yachts. Restoration has totally transformed Eilean from the deteriorated state she was in when she was found off the Caribbean island of Antigua and brought back to Italy on a cargo ship in February 2007. Eilean underwent complete renovation, which has preserved not only her shape and characteristics, but also most of her original materials too. For over two and a half years, this project kept a team of elite nautical craftsmen tirelessly busy. This is her story.

Eilean, which in Gaelic means “little island”, was built in 1936 in the Scottish Fife boatyard in Fairlie, to a design by the then eighty-year-old William Fife III. Eilean, narrow at the waterline and with her mainsail located far back towards the

stern, featured waterlines inspired by the J-Class yachts that competed in the America’s Cup in the Thirties. The boat’s first owners were brothers James V.and Robert W. Fulton of Greenock, who were members of the Royal Gourock Yacht Club.

Fate decreed that the two Fulton brothers were only to use their boat for a couple of years before they left for war, losing their lives at an early age. From that moment, until halfway through the seventies, little is known about the desYear of design 1936 Year of launch 1937 Design William Fife III Boatyard William Fife & Son – Fairlie (Scotland) Nationality Italian Material Composite (teak planking on steel skeleton) Length sails out 27.70 metres Length overall 22.20 metres Waterline length 15.52 metres Beam 4.65 metres Draught 3.25 metres Displacement 50 tonnes Sail plan Bermudian Ketch Boatyard responsible Cantiere Navale Francesco Del Carlo in Viareggio (Italy) tinations and journeys made by Eilean. All is known is the list of the 5 owners in this time, the most prominent being Lord Shawcross Q.C., who famously lead the prosecution of the Nazis at Nuremburg.

In the seventies, Eilean was bought by John Shearer, an architect who had sailed on her as a child when she was skippered by one of his uncles. The architect set up home on Eilean and transformed her into one of the most popular charter yachts in the Caribbean. She was moored at English Harbour, a bay on the Caribbean island of Antigua.

In 1982, photos of Eilean travelled around the world when she was chartered by the famous English pop group Duran Duran. They shot the video for their single, Rio, which was included on their album of the same name. Rio became one of Duran Duran’s bestselling records. inspired

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Eilean, is a 22-metre Bermudian ketch and was the daughter of the Scottish ‘Fife Boatyard’, one of the most legendary names in world boat-building.

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IT WAS POSSIBLE TO SALVAGE ALMOST ALL THE ORIGINAL 4- CENTIMETRE THICK PLANKING. THE BEAMS, FRAMES AND RIBS WERE HOT RIVETED TOGETHER, USING THE SAME TECHNIQUE AS IN THE THIRTIES. John Shearer made 14 Atlantic crossings on Eilean, between the Caribbean and Europe, many of them single-handed. On one of these trips, which started in Porto Cervo, the boat was damaged by a stricken ferry near the coast of Malaga. Regardless, Eilean managed to reach the Caribbean, but at this point it was obvious major restoration work was needed. John Shearer re-floated an old tugboat that had sunk off the island of Montserrat and took it to Antigua, mooring it alongside Eilean. This tugboat, equipped with welding tools, lathe and cutters, became his new home and personal floating workshop as he started restoration work. In 1993 his work was featured in a French documentary called“Les dernières pirates de la liberté” (the last pirates of freedom).

Work continued sporadically in the years to come and various mishaps threatened Eilean’s safety: she partially sank when a mooring bitt broke and she was infested with termites that attacked the bowsprit and half the mainmast and mizzenmast.

The deck was intact as Termites cannot attack the teak planking due to the oiliness of this particular wood however the sun had taken its toll and the planking had shrunk to such a degree one could see daylight between them.

When she was discovered, Eilean was barely floating, propped up by the tugboat workshop she had spent so many years alongside, with her mooring cables tied to the mangrove bushes. She was stripped of her masts, her gunwale split, toerail dismantled, deck fixtures useless and interior emptied out by her owner, who for twenty years had been attempting to complete his restoration project.

In her unrigged state, it was impossible for Eilean to cross the Atlantic on her own, so in December 2006 she was loaded onto a cargo ship like a huge parcel. She was first towed by sea for about 150 miles, from Antigua to the island of Martinique. As a precautionary measure she had been filled with inflated balloons to ensure a good flotation reserve should there be bad water seepage or, worse still, to prevent sinking. Once she arrived in Martinique, Eilean inspired

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was lifted onto a special yacht carrier and after a journey of around 4,000 miles, she was unloaded in Genoa’sVoltri port in February 2007. Here she was put back in the water and towed to Viareggio, to the Francesco Del Carlo boatyard, which in the meantime had been commissioned to undertake her restoration.

Eilean has a composite hull. Her planking in perfect Burma teak, the “skin” of the boat, is fixed onto a skeleton composed of frames, floor timbers, beams and reinforcements in zinc-plated metal rather than wood. The same construction technique was used during restoration and, despite the precarious conditions of Eilean prior to 2006, it was possible to salvage almost all the original 4- centimetre thick planking. The beams, frames and ribs were hot riveted together, using the same technique as in the thirties.

The boatyard’s symbolic Fife Dragons have once again been carved on both sides of the hull, just like they were originally, with their heads on the bows and their tails on the stern.

Following the layout of the original plans, the teak cockpit was rebuilt in Eilean’s stern and fitted with its original features, such as the wooden steering wheel and the column of the brass compass. The original bronze gear mechanism was also remounted, which, connected to the rudder axle, transmits route variations. Eilean’s original deck-house is a permanent part of the upperworks on deck; it is made entirely from Burma teak and aft of the cockpit, offering shelter from bad weather and giving access below deck. It was dismantled and carefully restored during the renovation, maintaining its original 1936 shape and camber. The four original bronze portholes were also dismantled, reconditioned and remounted, all the windows replaced with 6mm shatterproof glass.

Around 6 cubic metres of African mahogany were used for the interiors of Eilean, characteristically a hard compact wood that ensures greater stability and limited movement of the panelling. Eilean’s two masts, the boom and bowspirit, were totally rebuilt, using 6 cubic metres of spruce wood. All this timber came from just one tree in Alaska and was perfectly seasoned. Spruce is well known for its flexibility, lightness, straight fibres and that fact that it can be cut into very long planks.

On October 22nd 2009, and after almost three years of painstaking restoration work, Eilean was handed over by the FrancescoDelCarloboatbuilderstoOfficinePanerai.Delivery of Eilean, following the technical launch in September and subsequent trials at sea, took place in a ceremony provided by the Italian Navy, in the presence of Vice Admiral Franco Paoli, Commander in Chief of the Tyrrhenian Sea Department of the Italian Navy. In 2010 Eilean made her 37th Trans Atlantic crossing, the first since restoration, to feature as the highlight of the Antigua Classic Yacht Week- a completed journey back from the abyss to her natural home and position as the worlds finest Bermuda Ketch.

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Wine

FIZZ FOR SUMMER EWAN LACEY

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Wine

“Why do I drink Champagne for breakfast? Doesn’t everyone?”

R

efreshing, effervescent, and faintly decadent, there is nothing quite like a glass of fizz on a summer’s day to put us in a good frame of mind and to make some special memories. The increasing popularity of sparkling wine has, however; inevitably lead to a proliferation of choice.

Whilst this may lead to a risk of confusion, it also gives the opportunity to try something new that might just delight.

I took a look at some of the 2014 International Wine and Spirit Competition (IWSC) Gold medal winners to pick out some sparkling wines that show what is current and excellent in the market.

From northern Italy, we have Andreola Prosecco Valdobbiadene Superiore Millesimato 2013. The popularity of Prosecco has soared in recent years and with good reason. Prosecco is made from a white grape variety (Glera) and undergoes its secondary fermentation – the part where it becomes fizzy – in large stainless steel tanks. As a result, the wine is typically fresh, light and young (normally less than two years old.) Its fruit character is more of the orchard – apple, pear, apricot – than of the tropics and its alcohol level a reasonable 11.5%. It’s the perfect poolside tipple or a naughty treat with an alfresco lunch.

For more serious occasions or for splashier events, Champagne still reigns and there are a few important reasons why. Firstly, it is fundamentally a richer wine. It is made from both red (Pinots Noir and Meunier) and white grapes (Chardonnay) it undergoes it secondary

Noel Coward

fermentation in a 75cl bottle over a period of years and will have passed its fourth birthday by the time it finds its way into an ice bucket.

Secondly, the quality level of the wines from the region continues to improve at all price points. Champagne Palmer Brut Réserve NV is a good example. It is what is termed a ‘grower’ champagne. This simply means that the wine maker also farmed the grapes – not always the case in Champagne. From a consumer’s point of view, these wines tend to be a little cheaper too, which is a welcome bonus.

The wine is fresh, delicious and grand enough to celebrate with but not too precious that you couldn’t pop a strawberry into the glass.

By contrast, Charles Heidsieck Blanc des Millenaires Millesime 1995 is a wine for a very special occasion. It’s has depth, it’s delicious, beautifully complex like a mature white burgundy but with the playful spark of great champagne – one for the memory banks.

Crossing the channel, we come to a young contender, Nyetimber Blanc de Blancs 2007. Nytemiber Estate (in West Sussex) first won an IWSC Trophy in 1997. This is the event largely considered the watershed moment in the English wine industry, when the wine world realised that we are capable of producing wines of the highest order. This 2007 vintage bears a familial resemblance to the wines of champagne, but it is English at heart – lots of fun, very drinkable and with class in abundance.

EWAN LACEY is a leading wine expert and general manager of the International Wine and Spirit Competition. He has appeared on BBC television and radio as well as Channel 4, and written for the national press.

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