Page 16 - DIY Investor Magazine | Issue 36

Dec 2022 16
DIY Investor Magazine ·
Over the last 150 years the UK investment trust industry has survived depressions, wars, pandemics and many other crises.
Today’s market conditions bring their own challenges, but history suggests the industry is well-positioned to cope. Here, we take a look at how current market conditions are impacting Schroders investment trusts across five sectors.
PRIVATE EQUITY
Investment trusts are a very appropriate structure for private equity, providing a permanent source of capital to be deployed in less liquid assets. A diversified portfolio of private equity assets offer the potential to deliver premium long-term returns to compensate for this higher risk.
Private equity is clearly not immune to economic headwinds, but it does represent one of the best ways of accessing structural global trends, such as digitisation, disruptive innovation and energy transition, where long-term growth is more assured.
We can therefore remain confident in the enduring opportunity that Schroders private equity investment trusts are targeting.
IMPACT INVESTMENT
Schroders provides impact solutions that aim to alleviate some of the UK’s most pressing social challenges.
As with private equity, many of these opportunities are illiquid and therefore not easily accessible without specialist expertise. Almost two-thirds of its social impact assets benefit from inflation-linked revenues.
More broadly, this area should be less impacted by current market volatility, due to these types of investments historically having low correlation to traditional asset classes. Indeed, the current economic challenges mean the social issues they aim to address are even more pressing.
UK EQUITIES
For much of 2022, markets have been influenced by global headwinds, but in recent weeks, domestic events have contributed to the volatility.
The media narrative suggests the mini-budget prompted a loss of confidence in UK plc, but it is interesting to note that the UK stock market is still outperforming most other major stock markets this year.
The UK is home to many large, global businesses that derive most of their revenues and profits from overseas. The sterling value of their international earnings is therefore enhanced by a strong dollar.
From the perspective of dividends, this is making the long-term income opportunity from UK equities even more enticing. Mid- sized UK companies tend to be more focused on the domestic economy, and sterling weakness may lead to more merger and acquisition activity in this part of the market.
ASIAN EQUITIES
Dollar strength is typically seen as a headwind for Asia’s economies and stock markets.
INVESTMENT TRUSTS:
OPPORTUNITIES IN ALL MARKET CONDITIONS