Winterflood 2024: Top picks among heavily-discounted trusts

Winterflood analysts have removed 12 trusts from their recommendation list this year but added 15 as they hunt for de-rated portfolios with scope to grow.

Last year proved tough for investors, including the Winterflood Securities’ team of investment trust pickers, as just 10 of their 34 closed-ended recommendations outpaced stock markets benchmarks.

This has prompted a rejig of the analysts’ recommendation list for 2024, with Winterflood head of investment companies research Emma Bird and her team removing 12 funds and adding 15 new trusts, offering up a longer list of 37 portfolios across 13 sectors that Bird believes will beat rivals over 18 months to two years.

Global equities

Winterflood has regained faith in Baillie Gifford’s £10.6bn flagship Scottish Mortgage (SMT ) trust after removing it in favour of stablemate Monks (MNKS ) at the beginning of last year.

Monks has now been ditched as the analysts think that its peer, Scottish Mortgage, is a better offer given the 11.5% discount.

Scottish Mortgage’s market cap has shrunk 45% since 2021, but partially re-rated at the end of 2023 as investors sentiment towards growth, and unlisted, stocks improved.

‘We think there is scope for a notable re-rating and significant pick-up in performance in a more stable interest rate environment, especially if sentiment towards private markets improves,’ said Bird. 

JPMorgan Global Growth & Income (JGGI ), a corporate broking client of Winterflood, retains its place thanks to its ‘consistent relative performance’ and ‘style-agnostic, research-driven investment approach’.

On a net asset value (NAV) total return basis, the fund has outperformed the MSCI All Companies World index in each calendar year from 2019 to 2023, offering a ‘commendable’ degree of consistency.

UK equities

Within the UK All Companies sector, Fidelity Special Values (FSV ) – which is a corporate client – kept its place in the pick list, but Mercantile (MRC ), which is also a Winterflood client, was removed after a year of positive performance that narrowed the discount to 11.6%.

The £1.6bn fund is the best performer in its sector, with a NAV return of 6.4% over the past year. Bird said the team removed Mercantile ‘in favour of increased dedicated small-cap exposure’.

Small-cap investor and Winterflood client Odyssean (OIT ) remained on the list and was joined by JPMorgan UK Smaller Companies (JMI ), which offers ‘core, diversified exposure’ that Bird thinks ‘could benefit from a re-rating following the merger with JPMorgan Mid Cap and subsequent introduction of an enhanced dividend policy’.

In UK equity income, the analysts switched from Murray Income (MUT ) to Law Debenture (LWDB ), run by value manager James Henderson of Janus Henderson. Bird noted the ‘unique proposition’ that offers investors access to both an equity portfolio and an independent professional services business.

She also highlighted the trusts ‘strong dividend growth track record and impressive historical relative returns’.

North American equities

The team reduced the number of trusts in the North America allocation from two to one, removing JPMorgan American (JAM ) as ‘investors may well gain better risk-adjusted core US Equity exposure via an S&P tracker’, but retained the holding in Pershing Square (PSH ), the £7.3bn hedge fund run by activist Bill Ackman.

‘We see no good reason why this portfolio of very large and liquid US stocks should trade at a 32% discount. Moreover, neither does the manager,’ said Bird.

‘The fund has announced another $250m buyback programme, and Ackman has publicly stated his intention to evaluate remedies including a US listing’.

European equities

European allocation was also reduced from two trusts to one, with corporate client Fidelity European (FEV ) retained on the list but European Smaller Company (ESCT ), which is also a client, was removed. 

The Winterflood said Fidelity European’s quality companies have provided good dividend growth prospects on attractive valuations. The trust currently trades at a discount of 8% but the board has shown willingness to buy back shares.

Asia Pacific equities

There were no changes within this sector, with both Pacific Horizon (PHI ) and the China-focused Fidelity China Special Situations (FCSS ) trust keeping their place on the buy list.

Pacific Horizon has been a top performer in its peer group over the past five years and the analysts have faith in Roderick Snell’s ‘nimble approach to allocation’ and willingness to ‘re-assess longstanding positions’. 

The portfolio is currently aligned to several structural themes including commodities fuelling the energy transition, real estate trends in India, and manufacturing exports in Vietnam.

Fidelity China Special Situations manager Dale Nicholls has delivered NAV Total returns of 134% since he took over the fund in 2014 and Bird said the proposed merger with Abrdn China (ACIC ) is a ‘representation of the value placed o the manager’s stock picking expertise in an environment whereby mega-cap growth names have sold off’.

Emerging market equities

Similarly, there were no changes within emerging markets, with both JPMorgan Emerging Markets (JMG ) and BlackRock Frontiers (BRFI ) keeping their places.

BlackRock Frontiers is offering investors access to ‘underinvested markets in a pragmatic and diversified fashion’. The macro outlook for frontier and emerging markets could ‘potentially be brighter’ than developed markets, said Bird.

‘The fund has regularly traded on a premium over the last 10 years, and the current discount of 9% is substantially wider than its five-year average of 6%,’ she noted.

Japanese equities

The number of recommendations within Japan-focused funds has increased from one to two, with Bird and her team adding JPMorgan Japanese (JFJ ), and switching from corporate client Baillie Gifford Shin Nippon (BGS ) to Nippon Active Value (NAVF ).

Bird said the decision was made on the back of the latter’s ‘outstanding performance record since its launch in 2020’ and its increased scale as a result of mergers which ballooned its assets to £300m.

In the three years since launch, manager James Rosenwald has grown the NAV 52.2%, more than doubling the average return in his Japan smaller companies sector and placing the trust miles ahead of the next best return: 17% from AVI Japan Opportunity (AJOT ).

Specialist equities

The number of specialist equity recommendations has been increased from three to five, with Bird adding RTW Biotech Opportunities (RTW ) due to its access to ‘high-growth global biotech and medtech investments across public and private markets’.

Bird said the £228m fund ‘deserves credit for the range of successful fundraisings and clinical trial outcomes in the portfolio’.

Specialist environmental investor Impax Environmental Markets (IEM ) as Bird, who backs the management team, believes the current 10% discount, could re-rerate in a more stable interest rate environment. 

Winterflood continued to recommend Allianz Technology (ATT ),  (WWH ), and BlackRock Energy & Resources Income (BERI ), both of which are corporate clients.

Flexible Investment

One recommendation in flexible investment has been maintained, although Bird switched from £1.6bn wealth preservation fund Personal Assets (PNL ) to global multi-asset portfolio Caledonia Investments (CLDN ), which has an ‘impressive long-term performance record and is trading at an attractive discount’, currently 32%. It is also a client of Winterflood.

Bird said Caledonia has ‘stood the test of time’ and has outperformed its Flexible Investment peer group and the FTSE All Share index over three, five, and 10 years.

She commented the track record was testament to the investment approach, which is ‘driven by its family office structure and the Cayzer family’, which owns 46% of the company.

‘We view such set up as being well suited to the evergreen capital nature of the investment trust structure,’ she said.


Both BioPharma Credit (BPCR ) and CVC Income & Growth (CVCG ), the latter of which is a corporate client, kept their places on the recommendations list, unlike corporate client Blackstone Loan Financing (BGLF ), which put forward proposals for a wind-down last year after being defeated by its chronic discount.

Invesco Bond Income Plus (BIPS ) has been added in Blackstone’s place, as the corporate client offers a ‘largely fixed rate portfolio we believe is well positioned for the current environment’.

The trust targets capital growth and high income predominantly through investment in European high-yield corporate bonds. The managers have made good use of gearing, which is currently 11%, when the market is attractive, said Bird.

Private Equity

The Winterflood team has doubled the number of recommendations in private equity to four to recognise the value offered by the heavily discounted sector, which suffered as interest rates rose and investors worried about inflated valuations.

HgCapital (HGT ) remained on the list and was joined by Oakley Capital Investments (OCI ), which is ‘differentiated from its peers by its deal origination approach’ and space technology fund Seraphim Space (SSIT ), which ‘offers considerable value, supported by structural tailwinds’.

Bird noted the Seraphim was ’hit harder than most’ by the pivot away from growth in response to rising interest rates but the discount of 56% implies that excluding the top two positions and the fund’s cash reserves, ‘all other positions in the trust are worthless’.

‘These seems rather unlikely to us, not lease due to the structural tailwinds offered by increased spending on defence and climate monitoring,’ she said.

Corporate client Abrdn Private Equity Opportunities (APEO ) was switched for Pantheon International (PIN ), which not only offers value but is supported by a ‘significant share buyback programme’.

Pantheon International took home the Citywire Investment Trust Insider Best Board award last year due to its groundbreaking £200m buyback programme in a bid to eradicate the high double-digit discount. The bumper offer is just the first step in a three-pronged plan to instil trust in investors.


The number of property buys remains at four but there have been some switches after another turbulent year for the real estate market.

Schroder Real Estate (SREI ) has been retained but long-lease investor LXI Reit (LXI ), whose tenants include theme parks Alton Towers and Thorpe Park, was removed following its re-rating on the back of a takeover approach by LondonMetric Property (LMP) at the end of 2023.

Tritax Eurobox (EBOX ), which invests in European warehousing, was removed but exposure to logistics and industrials was maintained through the addition of Urban Logistics (SHED ), which saw former M&G Property manager Justin Upton join the team last year.

Bird said Urban Logistics ‘offers attractive value on a 24% discount and continues to benefit from supportive sector fundamentals’.

Impact Healthcare Reit (IHR ), a Winterflood corporate client, was added to the list as it provides ‘well-managed exposure to UK care homes and, in our opinion, offers an attractive prospective dividend yield of 7.6%’.

TR Property (TRY ), run by Columbia Threadneedle’s Marcus Phayre-Mudge remained on the buy list.

Infrastructure & Renewable Energy Infrastructure

There was just one change in the infrastructure and renewables sector, as Sequoia Economic Infrastructure Income (SEQI ) was removed in favour of Downing Renewables & Infrastructure (DORE ).

Sequoia was added last year due to the ‘considerable floating rate exposure in its portfolio’ which Bird felt made it well-placed to ‘capture short-term rate rises’ but that opportunity has ‘now largely played out’.

Downing, which is a corporate client, has been added as it offers an ‘attractive, diversified and fully operational portfolio of hydro, solar, wind, and grid services assets’.

Bird is positive on the long-term outlook for the fund’s hydro assets given the storage capability and ‘we expect there to be a value transfer towards technologies with storage capability as the higher share of intermitted renewable electricity increases the volatility of power prices’.

‘This has presented an attractive entry point with the fund screening cheap at a NAV discount of 26% versus the peer average of 17%,’ she said.

Cordiant Digital Infrastructure (CORD ), Gresham House Energy Storage (GRID ), and corporate client BBGI Global Infrastructure (BBGI ), have all retained their position on the list.

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