The only two investment trusts to outperform the FTSE All Share have experienced a much tougher start to 2017, according to the latest data from FE Trustnet. 
Last year was extremely for difficult for active managers as the value trade roared back into fashion and a number of unloved sectors, including mining and oil stocks, outperformed.
As such, only two UK investment trusts managed to beat the FTSE All Share index, which is heavily weighted towards those sectors.
Indeed, the IT UK Equity Income and IT UK All Companies sectors fell short of the 16.75 per cent return by the FTSE All Share by 9.91 and 12.94 percentage points respectively.
Performance of sectors vs index in 2016
Source: FE Analytics
Of the two funds to outperform the index last year, Temple Bar Investment Trust benefited from the return of the value style. It is managed by Alastair Mundy, who has overseen the 91-years-old trust since 2002.
Alex Paget, research analyst at Kepler Trust Intelligence, said: “I think Alastair Mundy is a good manager and over the long-term he has shown an ability to add value.
“However, this portfolio is heavily value-biased and so the returns of this trust will deviate significantly from the index and its peers (no other AIC UK Equity Income trust has this type of value approach).”
Mundy looks for stocks which have fallen at least 50 per cent from their five-year peak and imposes a strict due diligence process to reach a ‘fair value’ estimate, Paget (pictured) added.
“It was the only trust to beat the index last year, but 2016 was a year where value investing paid off in a big way as some of the most beaten up areas (mining, energy and banks) witnessed significant mean reversion,” the analyst said.
The £845m trust was the top performing fund in the IT UK Equity Income sector last year, returning 20.73 per cent, beating the FTSE All Share by 3.98 percentage points.
Performance of fund vs sector and benchmark in 2016
Source: FE Analytics
The fund has been a top quartile performer over the long term, returning 120.65 per cent over the last decade – almost double that of the FTSE All Share – but can go through periods of underperformance due to its value approach.
Indeed, over the last three and five years the fund is in the bottom quartile over the IT UK Equity Income sector as growth stocks have been the main driver of returns.
“Clearly, the trust has struggled at times over the past five years as the market has typically rewarded less economically sensitive growth stocks,” Paget said.
This year the fund has returned to the bottom quartile of the sector having also struggled in 2014 and 2015.
“The market in 2017 has been almost the complete opposite though with areas such as small- and mid-caps rebounding from their Brexit-lows (an area the trust has minimal exposure to), so it isn’t too surprising that the trust has lagged,” the analyst added.
However, he noted that the net asset value (NAV) has held up far better than the share price as the discount has widened considerably.
Currently the trust is at a 5 per cent discount to NAV and though it is not as wide as it has been over the last year (it was in double-digit territory at points last year), this is still considerably wider than its five-year average.
Paget noted: “Though there is no guarantee this will continue, interestingly, the trust’s discount has tended to be negatively correlated to performance of the wider UK market, jumping to a premium when the index has corrected and moving to a wide discount when it rallies.”
Overall, he noted investors are relying on the manager’s process and stockpicking to outperform as the concentrated portfolio has some ‘punchy bets’ in banks and energy stocks.
“You are also relying on value investing making a more sustained comeback – though that tends to happen in the latter stages of a bull market, which you could argue we are hurtling towards,” he said.
“Nevertheless, this highly-differentiated positioning (especially compared to the ‘average’ UK equity income portfolio) means it could dovetail with the Mark Barnetts, Neil Woodfords and Nick Trains of this this world.”
The trust is not geared, has a yield of 3.2 per cent and ongoing charges of 0.52 per cent, according to the latest data from the Association of Investment Companies.
Unlike Temple Bar the other top performing trust in 2016 – Crystal Amber fund – uses an activist approach to invest in UK special situations where the manager believes value can be found regardless of market direction.
Typically, manager Richard Bernstein looks for companies that can generate a return of around 20 per cent per year over the course of his investment.
The four crown-rated fund had a top year in 2016 and was the best performing trust in the IT UK All Companies sector.
The trust returned 34.26 per cent, more than double the FTSE All Share and almost 10 times the sector average. It was also 27.6 percentage points ahead of its FTSE 250 benchmark.
Performance of fund vs sector and FTSE All Share in 2016
Source: FE Analytics
Kieran Drake, research analyst at research house Winterflood Investment Trusts, said: “The fund tends to invest in smaller companies in order to take a meaningful stake and exert greater influence.”
Drake said that the average market cap of the fund’s s top 10 holdings was £313m ranging in size from £1bn to £22m. 
The fund also has a concentrated portfolio, with the £201m fund made up of just 17 holdings as at the end of March, with the top 10 holdings representing 92 per cent of the overall portfolio.
“We believe that Crystal Amber’s activist investment approach offers the potential for idiosyncratic returns independent of the market direction,” Winterflood reported.
The fund has been a strong performer over the medium and long term, sitting in the top quartile of the IT UK All Companies over both three and five-year periods.
Drake said: “The fund has a strong performance record, although we would highlight that the concentration of the portfolio and the long-term approach mean that performance can be lumpy.”
Indeed, despite its strong returns over the above periods, the fund is in the bottom quartile of the sector this year having returned 1.49 per cent in 2017 though it was as high as 20 per cent up by mid-May.
It has been struck by the recent fall in Hurricane Energy, of which it owns 150 million shares at 23p and a further 23.3m shares in Warrants.
The stock – which is worth 29.9 per cent of the portfolio – has seen a sharp decline in its share price as investors have become worried about the “poor handling of its warrant issues,” said the research analyst.
Crystal Amber commented that, as Hurricane's largest independent shareholder owning 12.2 per cent of the issued share capital, it is supportive of monetising Hurricane's assets.
Drake added: “The fund, which has previously realised profits on Hurricane of £15.7m from Hurricane, has employed specialist external consultants in relation to its holding in Hurricane Energy for the last two years.”
The fund is on a premium of 3.1 per cent to NAV following the decline, with a yield of 2.4 per cent and ongoing charges of 2.17 per cent, according to the latest data from the AIC.
Drake concluded: “Crystal Amber has been backed since its launch in 2008 by a number of leading institutional investors and we believe this reflects Richard Bernstein’s reputation both in identifying attractive special situations and effecting change.
“In our opinion this fund is a specialist vehicle that should prove complementary to mainstream UK funds through its activist investment approach.”