Last year saw a number of more niche strategies post some of the highest returns from the investment trust universe although it was one of the industry’s better-known names that delivered the best performance, FE data shows.
With issues such as the US-China trade spat, monetary tightening and Brexit making meaningful progress for investors very difficult, we have reviewed the Association of Investment Companies (AIC) universe to see how trusts performed in this environment.
On a sector level, it was the IT Country Specialists: Other peer group that made the highest total return, as its average member was up 26.56 per cent. The sector is home to trusts that invest in just one of two countries outside of Europe, Asia Pacific and Latin America (which have their own sectors).
Source: FE Analytics
As it happens, there is only one trust that currently resides in the sector: Gulf Investment Fund, which is by Epicure Managers Qatar and invests in stocks from the Gulf Cooperation Council (GCC) group of countries.
As the chart above shows, more specialist sectors made the highest average total returns in 2018 with IT Utilities, IT Forestry & Timber and IT Leasing all being found among the top five. IT Infrastructure, in fourth place, is more of a mainstream offering but still falls into the alternatives bucket.
The worst returns, on average, came from the IT Insurance & Reinsurance Strategies sector, which posted a 23.65 per cent loss last year. It was followed by IT European Smaller Companies (down 20.05 per cent), IT Commodities & Natural Resources (down 14.55 per cent) and IT Japan (down 14.41 per cent).
When it comes to individual investment trusts, it’s Lindsell Train IT – which is headed up by FE Alpha Manager Nick Train – that sits at the very top of the table with its 46.60 per cent total return. However, not all of this gain came through investment performance.
Laura Suter, personal finance analyst at AJ Bell, said: “Not all the figures can be taken at face value. Lindsell Train Investment Trust is the top-performing trust but this is a case where you need to look under the bonnet to see where the performance has come from.
“The Lindsell Train investment trust is now trading at a 45 per cent premium to the net asset value, having started the year at around a 13 per cent premium. The trust returned 44.8 per cent in share price terms this year, while the net asset value has risen by a more modest 10 per cent.
Source: FE Analytics
“The trust’s biggest holding by far, at 47 per cent, is the fund management company running it – Lindsell Train, an unlisted company, and the reason for the premium is that investors feel the management company is undervalued by the trust’s board. The board clearly disagrees and anyone buying in at this price needs to seriously consider whether they want to pay almost half as much again for the value of the assets.”
As can be seen in the above table, some of the other highest returning trusts of 2018 have focused on specialist areas, which have held up well during times when more mainstream markets were either flat or in negative territory.
Syncona, in second place with a 34.11 per cent total return, is a healthcare specialist that invests in “global leaders in life science”. This is another trust trading on a significant premium to net asset value, currently at 28.8 per cent according to AIC data.
Plenty of other niche investment trusts were responsible for last year’s highest total returns, with PME African Infrastructure Opportunities, hedge fund BH Macro, the £1.8bn 3i Infrastructure trust and various versions of the Doric Nimrod Air aircraft leasing trust sitting at the top of the table.
The first fund from a ‘mainstream’ equity sector to appear on the list, for example, is SVM UK Emerging trust. This £5.8m trust, which is headed up by FE Alpha Manager Margaret Lawson with Colin McLean as deputy, is in 17th place with a 14.50 per cent return; it resides in the IT UK Smaller Companies sector.
The highest-returning IT UK All Companies trust is Crystal Amber, whose 9.96 per cent total return puts it in 27th place of the AIC universe. It is followed by Sanditon Investment Trust (which made 2.49 per cent last year) and Woodford Patient Capital Trust (which fell 2.78 per cent), but they are much further down the overall list.
Source: FE Analytics
At the very bottom of the 2018 performance tables, Vinaland and Origo Partners fell more than 80 per cent but these are very small trusts.
CATCo Reinsurance Opportunities is in third place after dropping close to 75 per cent and is a more notable trust with assets under management of £202.5m.
Suter said: “The alternative trust aims to generate returns from investments linked to catastrophe reinsurance risks but has been hit by a number of large loss events, such as the Californian wildfires and hurricanes in the US.”
At the end of 2018, it was also revealed that the trust’s its US fund manager Markel Corporation is the subject of a regulatory investigation over loss reserves made in late 2017 and early 2018 by Markel CatCo Investment Management and its subsidiaries. This pushed further pushed down its shares.