Global investment trusts like Lindsell Train IT, Scottish Mortgage and F&C Global Smaller Companies have spent the most time at the very top of their sector for long-term performance, FE Trustnet research shows. 
Advocates of investment trusts argue that the structure offers more potential for long-term outperformance than open-ended funds as trust managers can construct their portfolios without having to worry about the impact of inflows and outflows.
We can see some evidence of this viewpoint in the performance of the average trust in the IT Global sector compared with the average IA Global fund. As the chart below shows, the 429.24 per cent total return made by the trust sector over the 15 years to the end of June 2018 is significantly higher than the gain from open-ended funds and the MSCI World index.
Performance of sectors vs index over 15yrs
Source: FE Analytics
Our data also shows that the average global trust is beating the average global fund over one, three, five and 10 years. With this in mind, we wanted to find out which trusts have spent the bulk of the track record at the top of the peer group for long-term investors.
To do this, we looked at quartile rankings in 54 rolling 10-year periods (calculated on a quarterly basis) going back to 1995. The first period spans 1 April 1995 to 31 March 2005 then we move forward in three-month increments until we reach the period covering 1 July 2008 to 30 June 2018.
There are no members of the IT Global sector that have been the top quartile for 100 per cent of their track record, although some have come very close indeed.
Sitting at the top of the list is Lindsell Train IT, which was in the IT Global sector’s top quartile for 28 of its 30 decade-long periods; this means top-quartile performance for long-term investors in 93 per cent of the periods we examined. What’s more, the trust was in the second quartile for the remaining two periods and has an average 10-year quartile ranking of 1.1 across its track record.
The £230m trust is headed up by FE Alpha Manager Nick Train and has the aim of maximising long-term total returns while avoiding the loss of real value. A key element of the trust’s success has been a stake in Lindsell Train Limited, the fund management boutique founded by Train and partner Michael Lindsell, which has enjoyed a strong run and been a significant contributor to the portfolio’s total return.
Lindsell Train Limited accounts for 43 per cent of the trust’s assets and is the largest holding in the portfolio. It is joined in the top 10 by Diageo, London Stock Exchange, Nintendo, Unilever and AG Barr.
Rolling 10-year total returns of trust vs sector
Source: FE Analytics
The trust, according to Association of Investment Companies figures, is trading on a premium to net asset value (NAV) of 42.1 per cent.
This was touched upon by chairman Julian Cazalet in the last annual report: “I have asserted before that the board view the premium as unwarranted and do so again. Consistent with that I continue to caution new shareholders about buying shares at a premium as any reversal in markets or in Lindsell Train Limited’s performance could cause it to evaporate, leading to significant losses.”
Lindsell Train IT has ongoing charges of 0.86 per cent, which rises to 2.90 per cent when its latest performance fee is included. It is not geared and is yielding 1.9 per cent.
Four more IT Global trusts have an average 10-year quartile ranking below 2 but F&C Global Smaller Companies stands out among them. The £859.9m trust averaged a ranking of 1.1 over the full 54 periods and was in the sector’s top quartile 89 per cent of the time.
The fund’s strong outperformance of its average peer is down to the fact that it focuses on opportunities further down the market-cap spectrum, which do have the potential for greater levels of risk but can also lead to much larger returns.
Managed by Peter Ewins, the £877.9m trust looks for understandable business with competitive advantages and a solid business model, combined with strong management and an attractive price.
Ewins looks after the UK and responsibility for international holdings is given to other BMO managers or third parties; there is also close attention paid to risk management.
Analysts at Kepler Trust Intelligence said: “F&C Global Smaller Companies is a proven alpha generator which has performed well in a variety of market cycles, offering exposure to global equities with a slightly racier feel than the usual mega cap-focused offerings that operate in the sector.”
The trust has ongoing charges of 0.59 per cent, is trading on a 1.2 per cent discount to NAV and yields 1 per cent. It is 4 per cent geared.
Rolling 10-year total returns of trust vs sector
Source: FE Analytics
The three other IT Global trusts that performed well in this research are: Law Debenture Corporation, with an average 10-year quartile rank of 1.5 and 59 per cent of periods in the top quartile; Mid Wynd International, with a 1.6 average rank and 57 per cent of periods in the top quartile; and Scottish Mortgage, with a 1.6 average rank and 52 per cent top-quartile periods.
However, not all trusts have performed as well as those highlighted above. Our research also found that seven of the trusts in the peer group did not spend one of the 54 decade-long periods in the top quartile.
These were JP Morgan Elect PLC Managed Growth, Foreign & Colonial Investment Trust, EP Global Opportunities Trust, Alliance Trust, The Scottish Investment Trust, Brunner Investment Trust and Majedie Investments.