In today?s world of ETFs, OEIC?s, ETPs, hedge funds, unit trusts unit-linked life and pension funds, one of the world?s oldest investment vehicles, the investment trust, is slipping away into obscurity.
Unlike almost all of the other fund groups, investment trusts are closed-ended vehicles with a structure similar to that of a company. The great thing about this structure is that investment trusts tend to have a longer lifespan and more secure dividend payouts than other fund types. Trusts such as City of London, Bankers Investment Trust, and Alliance Trust have all racked up 50 years of consecutive dividend increases…
In today’s world of ETFs, OEIC’s, ETPs, hedge funds, unit trusts unit-linked life and pension funds, one of the world’s oldest investment vehicles, the investment trust, is slipping away into obscurity.
Unlike almost all of the other fund groups, investment trusts are closed-ended vehicles with a structure similar to that of a company. The great thing about this structure is that investment trusts tend to have a longer lifespan and more secure dividend payouts than other fund types. Trusts such as City of London, Bankers Investment Trust, and Alliance Trust have all racked up 50 years of consecutive dividend increases for income investors.
The Hansa Trust (LSE: HAN) has been around since 1950 and over this time management has grown its net asset value from around £10m to £315m.
Hansa offers investors exposure to an interesting selection of assets. Management describes the portfolio as a “long-term, non-index correlated portfolio of unusual investments, which would not normally be available for investment to individual investors.” This may sound like a high-risk collection of investment stakes, but it could actually be a prudent investment when combined alongside an already well-diversified portfolio.
Indeed, the great thing about Hansa’s “unusual” portfolio is that it provides insulation from wider market moves. Over the past 17 years, the trust has produced a capital return of 75% compared to the FTSE 100 return of 31%. Both of these figures exclude dividends.
However, those numbers severely understate the trust’s potential as shares in Hansa currently trade at a large discount to net asset value. According to a press release from the company today, on June 26 Hansa’s ex-income net asset value per ordinary share was 1,310.9p, around 46% above the current share price of 901p.
An attractive discount?
The question is, why is this discount so large? The answer, it appears, lies in the trust’s portfolio. Around one-third of assets are invested in Ocean Wilsons Holdings Limited, another investment company that is engaged, through its subsidiaries, in the provision of maritime and logistics services in Brazil. Thanks to problems in this developing nation, shares in Ocean Wilsons have struggled in recent years, falling 4.1% over the past five years.
Nonetheless, over the long term this company has produced huge returns for shareholders. Since 2004 the shares have returned 553% excluding dividends, outperforming the FTSE 100 by 484%.
Alongside Ocean Wilsons, the rest of Hansa’s portfolio is filled with investment funds, which provide the offered “unusual” exposure but may be too high risk for some investors.
That said, as an alternative to traditional investments, Hansa should be considered for a place in your portfolio. If Brazil’s economy begins to recover, Ocean Wilsons will benefit and this should lift Hansa’s overall net asset value as well as stock price. What’s more, the broad collection of highly diversified funds under the investment trust’s umbrella could offer protection in a volatile market environment, helping you to improve your long-term returns and achieve your financial goals.
The trust currently yields 1.78% and the total expense ratio is 0.94% per annum.
How to achieve financial independence
Building a robust investment portfolio that's able to produce acceptable returns through both the good times and the bad is a crucial part of achieving financial independence.
To help you establish this steady asset base, Motley Fool is here to help. Our analysts have recently put together this brand new free report titled The Foolish Guide To Financial Independence, which is packed full of wealth creating tricks and stock tips.
Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.