UK Edition
Questor: if your portfolio lacks a ‘value’ fund, buy Keystone at a discount of 13.4pc
Two weeks ago we stressed the importance to private investors of ensuring that their portfolios had “diversification of investment styles” and in particular some exposure to the “value” approach.
We did so in connection with our advice that any existing holder of Scottish Investment Trust, a “value”-style fund, should retain their stake despite its pedestrian performance relative to several more growth-orientated trusts that we had picked at about the same time.
Investors who want to add a “value” fund to their portfolio could of course choose Scottish. But there are alternatives available that trade at wider discounts.
One is Keystone, which has been managed by James Goldstone of Invesco Perpetual since April last year. Its discount is currently 13.4pc, about half as much again as Scottish’s 8.1pc.
“Keystone is one of a couple of value funds that I have been adding to my portfolio recently,” said Peter Walls, manager of the Unicorn Mastertrust. “The elastic between value and growth has been stretched too far.”
He said Keystone was “managed very actively on a contrarian basis” and described it as a relatively concentrated portfolio of the manager’s “best ideas”. Thirty-two per cent of the fund’s money is in its top 10 holdings, with just under 40pc allocated to stocks in the FTSE 100. International exposure is about 4pc.
“Its holdings include Shire, Next, Coats and BP [all tipped by Questor], which are the kind of stocks we like at the moment,” Walls said. “We feel that holding some of these recovering companies is not a bad way to get exposure to the UK stock market.”
- Read Questor’s rules of investment before you follow our tips. See Questor's tips every day at twitter.com/DTquestor
Goldstone also manages the Invesco UK Equity Pension fund, which has strongly outperformed rivals since he took over in 2014. “I draw comfort from his record in charge of that fund,” Walls said.
He added that Keystone’s current discount probably reflected sentiment towards its previous manager, Mark Barnett. Although Barnett has a strong long-term record, his style, which is also value-driven, has caused some investors to lose faith recently and “Keystone has been slightly tarred with the same brush”, the Unicorn manager said.
The fund’s basic cost, an “ongoing charge figure” of 0.69pc, is reasonable, although a performance fee is also payable if certain targets are met.
The yield, currently 3.3pc, is also high enough to be of interest to some income investors.
Questor says: buy
Ticker: KIT
Share price at close: £16.60
Updates: Standard Life Private Equity, Aberforth Smaller Companies
Questor also took the opportunity to ask Walls about two trusts we have discussed with him in the past, Standard Life Private Equity and Aberforth Smaller Companies, another “value” fund. He said both remained in his portfolio.
“I have added to my holding in Aberforth. It offers good fundamental value; there is no change in the investment case,” Walls said. The shares are virtually unmoved from when we tipped them in January and we may have to wait for value investing to come back into fashion before there is much improvement. Hold.
Standard Life Private Equity has fared better: the shares have risen by 9.8pc since our tip in April 2017. The discount is virtually unmoved at 14.6pc.
Again Walls said the investment case was unchanged. “The underlying holdings should attract decent valuations when they come to be sold; redeploying the money may be more of a challenge and there could be further returns of capital to investors via buybacks, for example.” Hold.
- Questor archive: telegraph.co.uk/questor
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