Monks Investment Trust, British Empire Trust and the Scottish Investment Trust are the only three global trusts to outperform the MSCI World over the last two calendar years.
For much of the last decade it has been relatively plain sailing for fund managers – invest in growth stocks and the market has rewarded you.
Indeed, from 2009 to 2016, the MSCI World Growth index outperformed the MSCI World Value benchmark by 43.05 percentage points.
In 2016, value made a rare comeback, particularly in the second half of the year as the shock of the UK referendum vote, the US presidential election and the rise of populism in Europe spooked markets.
Last year saw the re-emergence of growth stocks, however, as geopolitical risks were shrugged off, central banks did not raise interest rates as quickly as some had feared and the world economy began to pick up pace.
With such changeable conditions over the last two years, it has meant managers with a strong tilt one way or the other have struggled.
Below FE Trustnet highlights the three global equities-focused investment trusts that have outperformed the MSCI World index – one of the more commonly-used benchmarks for global equity investors – in each of the last two calendar years.
It should be noted, however, that not all trusts in the sector are benchmarked against the index.
Monks Investment Trust
Starting with the top performing of the three funds since the start of 2016, Monks Investment Trust has returned 84.04 per cent over the last two years, the second-highest in the IT Global sector.
The five FE Crown-rated investment company, which is benchmarked against the FTSE World has been run by Charles Plowden, Malcolm MacColl and FE Alpha Manager Spencer Adair since July 2015. In 2016 the trust returned 33.76 per cent while in 2017 it was up by 35.02 per cent, as the below chart shows.
Performance of trust vs sector, benchmark and MSCI World index in past 2yrs
Source: FE Analytics
The £1.6bn investment trust is a growth-focused fund that invests in companies that have an above average earnings growth potential over a five-year period.
As such, top-performing technology stocks including Amazon.com, Alphabet and Alibaba sit among its top 10 holdings.
However, the team separates stocks into four growth profiles: stalwarts, rapid growth, cyclicals and latent (or special situations), meaning that not all companies fit into the traditional growth style.
This blended approach allowed the fund to hold its own in 2016 as the value style outperformed before kicking on in 2017 as the growth style came back.
Analysts at Winterflood Investment Trusts noted: “Monks’ turnaround has been one of the success stories of the global sector over recent years.
“The fund benefits from a well-resourced management team and the Global Alpha Strategy has an impressive long-term track record.
“While the fund is still growth focused, there is an acknowledgement by the managers that growth comes in different forms and they are also cognisant of valuations.”
Monks is 5 per cent geared and its shares are currently on a 2.9 per cent premium to its net asset value (NAV), according to data from the Association of Investment Companies (AIC). The trust has ongoing charges of 0.59 per cent.
British Empire Trust
Next up is the £815m investment company British Empire Trust run by Joe Bauernfreund, which has returned 61.22 per cent since the start of January 2016, as the below chart shows.
Performance of trust vs sector, benchmark and MSCI World since Jan 2016
Source: FE Analytics
The investment company, which is benchmarked against the MSCI ACWI ex US index, had a particularly strong year in 2016 when it returned 41.88 per cent, while last year it delivered a total return of 15.95 per cent – 4.15 percentage points ahead of the MSCI World.
It has a strong value proposition, investing in companies whose share prices stand at a discount to their estimated underlying NAV.
As such, it is 31 per cent invested in Europe with 17 per cent in Japan and 16 per cent in Asia. The trust has a 20 per cent weighting to the US.
Analysts at Kepler Trust Intelligence said the trust is a “highly-active, benchmark agnostic value-orientated portfolio that focuses on family-controlled holding companies, closed-ended funds and asset-backed special situations”.
“Performance has improved markedly since manager Joe Bauernfreund honed the investment process in 2015 and even managed to outperform the MSCI AC World index last year despite a clear style headwind thanks to the team’s stockpicking, especially in Japan,” they noted.
“We think the outlook for British Empire continues to look positive. Clearly, its best relative returns will be generated if value investing does indeed come back into favour compared to the recent dominance of growth, but the trust’s recent performance shows the team can add value when conditions aren’t as conducive.”
British Empire Trust is 6 per cent geared, had a yield of 1.7 per cent and ongoing charges of 0.86 per cent, according to the AIC. Its shares are currently trading at a discount of 10.8 per cent to NAV.
The Scottish Investment Trust
The final investment company on the list is the three FE Crown-rated Scottish Investment Trust run by Alasdair McKinnon since 2014.
“He has introduced a higher conviction, global contrarian investment approach, based on the view that markets concentrate too much on past performance,” analysts at Numis Securities said.
“Reflecting this, the number of holdings has been reduced from 100 to 54. In addition, portfolio income has risen and the fund currently pays a yield of 2.9 per cent (including special), having recently moved to quarterly distributions. “
Earlier this year, McKinnon outlined to FE Trustnet his three best UK value ideas, with the local market representing 29 per cent of the fund’s portfolio.
Elsewhere it is 27 per cent weighed to the US and has 18 per cent in Europe with financials (20 per cent) dominating on a sector basis.
In 2016, the £636m fund returned 30.62 per cent while last year it made 17.01 per cent, both slightly ahead of the MSCI World index, as the below chart shows, though it underperformed the sector average in 2017.
Performance of trust vs sector, benchmark and MSCI World index in past 2yrs
Source: FE Analytics
“A long-term underperformer, the trust had a good year in 2016, but this did not carry through to 2017, with NAV growth well behind the peers despite a uplift of 1.7 per cent from share buybacks,” the Numis analysts said.
While the fund now has a clear investment strategy that is differentiated from its peers, they added that “the jury remains out on the long-term success of the manager’s stockpicking”.
The Scottish Investment Trust’s shares are trading at a discount to NAV of 7.8 per cent, according to the AIC. It is 4 per cent geared, has a yield of 2.5 per cent and ongoing charges of 0.47 per cent.