Kepler Trust Intelligence
Updated 01 Jan 2025
Kepler symposium
Disclaimer
This is not substantive investment research or a research recommendation, as it does not constitute substantive research or analysis. This material should be considered as general market commentary.
A symposium, in ancient Greece, involved a group of men sitting on couches arranged around a circular room designed for the purpose called an andron, each taking turns to discuss a topic put forward by their host – the symposiarch – who would also choose the wine, and dictate the pace at which the assembled company would drink it.
The Roman equivalent followed a similar pattern and its Latin name, convivium, captures the atmosphere of this social occasion so well that we use it to this day to describe an event or atmosphere which according to the OED is ‘friendly, lively and enjoyable’.
To pull off a good symposium, the Greek playwright Euboulos advised that for sensible men three kraters (bowls) of wine should be sufficient. The next three, he said, would induce bad behaviour, rudeness and shouting, seven would provoke a fight, by number eight the furniture would be broken, while depression and eventually madness would set in at the ninth and tenth.
Having consumed a sensible three kraters of wine to mark the rapidly approaching death of the old year and the birth of the new, it was in convivial spirits that the team at Kepler Trust Intelligence sat down to hold a symposium of our own, the aim of which was to identify the trusts we think are likely to deliver the best (share price) returns in 2025.
Naturally, none of this is meant as advice – and you should regard our choices more as the latest instalment in an amusing annual tradition than a serious attempt to predict the future, for which we all know past performance and the wisdom of analysts is no guide….
Pascal Dowling – JPMorgan UK Small Cap Growth & Income
My bet for 2025 is JPMorgan UK Small Cap Growth & Income (JUGI). Led by veteran UK equities manager Georgina Brittain and co-manager Katen Patel. The trust delivered a stellar performance earlier in the first half of 2024 and saw its discount narrow sharply after it absorbed stablemate JPMorgan Mid Cap (JMF). It was trading close to par when we last covered it in September.
Since then however the discount has slipped out to 12.4% as confidence in the UK’s long awaited recovery has slumped under a barrage of anti-Labour newsprint and simultaneous barrage of myopic decisions, own goals and poor communication (or more concisely: poor leadership?) from the Labour Party itself.
Whilst I have mixed feelings about VAT on private schools and taxes on farmland, these to my mind are not particularly important to the UK’s economic success in the grand scheme of things (which is perhaps why they might’ve been best left alone). What is important is the impact of higher national insurance contributions on corporate profitability, and the potential for unemployment to rise – squeezing confidence further and potentially driving us towards a recession.
So far, so downbeat – perhaps I should be the Prime Minister – but with the proviso that the national insurance hike could prove to be my undoing, I remain convinced that the UK is in a better position than it has been for many, many years – if only by dint of not being an absolute political basket-case.
America’s too expensive, China’s bust, the German government collapsed last month, Spain hasn’t had a functioning government for a decade and poor old France is on the verge of its sixieme republique – quite possibly under the leadership of Mme Le Pen who, like her far-right counterparts in Denmark, Austria and Italy, is definitely not a massive racist with protectionist instincts when it comes to international trade.
In the words of one of our recent short-lived (though to her credit not outlasted by a salad vegetable) prime ministers Old Blighty, at least relative to its European peers, is in the unusual position of being a strong and stable destination for investors’ money. It is also, thanks to almost a decade in the wilderness under an increasingly deranged ruling party, cheap.
This combination of cheap valuations and an unusually stable environment for investment in a volatile world is a compelling one and that – in my view – hasn’t changed on the back of a piss-poor start from Starmer & Co, though there’s time yet, of course.
Pascal Dowling
Pascal is a partner at Kepler Partners LLP and launched Kepler Trust Intelligence when he joined Kepler in 2015. Prior to this he managed FE Trustnet, one of the UK’s largest investment research websites, for ten years. In a former life Pascal was a financial journalist and he has written extensively about investment trusts and other investments for the trade and national press.
Thomas McMahon – Geiger Counter
There are two possible approaches to this sort of task. Obviously, nobody can have a strong conviction when it comes to picking one investment over a one-year time horizon. That’s why nobody would dream of putting all their actual money in one fund over 12 months. How you answer depends on your attitude to glory and to shame: do you go for something solid and sensible, and hope that events don’t lead to your pick underperforming by 50bps rather than outperforming? Or do you swing for the fences, and pick something that has the potential to do exceptionally well or exceptionally badly? Well, sick of finishing in the middle of the pack, I have decided to take the latter strategy this year.
One of the adjacent trades to the AI boom is nuclear energy. Microsoft has struck a deal to reactivate a reactor at Three Mile Island in Pennsylvania to power its AI data centres. Oracle is designing a data centre that would require 1 GW of power which would be supplied by three small modular reactors, while Amazon is funding the development for SMRs and siting a data centre next to an existing nuclear facility. These tech giants recognize that nuclear is going to play a significant role in any post-energy transition grid. If AI comes even close to fulfilling its potential, it will require a huge investment in new energy supply, and for a number of reasons that will involve nuclear.
Geiger Counter (GCL) is a small listed fund that invests in the uranium mining sector. Some stocks in the space have rallied in recent months, notably Cameco, the world’s second-largest producer and largest outside Kazhakstan, while NexGen, GCL’s largest holding has had a decent year. Other stocks have disappointed though, and GCL’s shares have been weak, declining around 10% in 2024 at the time of writing. The shares trade on a discount of over 20% and the trust had 16% net gearing as of the end of October. I think there is a real chance that 2025 is a breakout year for GCL, while if it disappoints, I will have the comfort of knowing I gave it a real shot.
Thomas McMahon
Thomas is Head of Investment Companies Research and joined Kepler in April 2018. Previously he was senior analyst at FE Invest, where he was responsible for fund selection for a range of model portfolios. He covered all asset classes over time, but has particular experience with emerging markets and fixed income as well as UK smaller companies funds. He has a degree in Philosophy from Warwick University and is a CFA charterholder.
William Heathcoat Amory – BH Macro
The word “portfolio” comes from the Italian word portafoglio, which means “a case for carrying loose papers”. The word is made up of porta, which means “carry,” and foglio, which means “sheet” or “leaf”. Not so long ago, a wealth manager would keep each of his or her clients’ investments in a separate notebook or portfolio. A portfolio differs from a single sheet of paper, in that it has many different elements to it. Which feels desperately old fashioned in the current market, where the only show in town is Nvidia.
It is in this context that I am picking BH Macro (BHMG) as my investment trust pick for 2025, with an eye towards diversifying away from the crowded trades such as the US market. BHMG is a feeder fund into the Brevan Howard Master Fund, run by one of the foremost hedge fund managers in the world. As a manager, Brevan Howard is unique in many ways, not least in that it has a closed-end fund that effectively allows investors to access its returns by investing only around £4 (a single share). This is in contrast to most hedge funds, which generally only accept capital in the form of an institutional mandate, with a minimum investment running into the millions.
BHMG performed very strongly in 2020, and again in 2022. It has had a relatively fallow period since then, but with US election and political wobbles in Europe seeing heightened volatility in interest rate, bond and FX markets BHMG has seen returns perk up over the very short term. This fits a long running pattern to returns which sees it typically perform well when market uncertainty rises. There are no guarantees, but as the graph below shows, over the last ten years BHMG has delivered handsome returns in the worst months for world equities. In the context of an elevated US stock market, with Trump’s anticipated tariffs potentially impacting economies all around the world, it feels a fair bet that uncertainty and volatility is set to rise. This could usher in a new chapter for Brevan Howard’s traders, and offer them the potential to deliver strong returns.
BHMG’s discount remains wide by historical standards – it is not long ago since early 2023 when the shares were on a chunky premium. At that time, investors had recent memories of BHMG’s very strong outperformance of equities and bonds during 2022. With the board buying shares back, the risks of the discount widening significantly for a sustained period are arguably limited. On the other hand, if BHMG’s NAV returns improve – especially if equity markets struggle to gain ground or perhaps fall, there is a good chance demand for the shares may improve, and the discount narrowing will add a nice tailwind to returns. In a ‘portafoglio’ context (or just seen against my colleagues picks for this year) this would serve as a good reminder that it helps to have some different looking ‘sheets’ in your ‘folder’.
WORST TO BEST MONTHLY RETURNS OF WORLD EQUITIES
Source: Morningstar, Kepler Partners
Past performance is not a reliable indicator of future returns
William Heathcoat Amory
William Heathcoat Amory is a co-founding partner of Kepler Partners LLP and leads the Kepler investment trust research team. William has over 20 years of experience as an investment company analyst. Prior to co-founding Kepler Partners in 2008, he was part of the Extel number 1 rated research team at JPMorgan Cazenove.
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