Technology and healthcare trusts are again the top sectors for risk-adjusted returns over 10 years among investment trusts, according to the latest study from FE Trustnet.
In the continuation of its series using scatter charts from FE Analytics, having looked at the Investment Association universe last week, below we turn our attention to the Association of Investment Companies (AIC) sectors.
In the study below FE Trustnet considers the sectors of the investment trust universe excluding unfocused sectors such as IT Specialist, and those with fewer than three constituents.
We have also removed the more difficult to invest in VCT sectors as well as any trusts without a decade-long track record.
Much like the open-ended study, the best two sectors are both thematic plays that many investment managers favour at the moment – technology and healthcare.
Excluded in this study last year as it did not have enough eligible trusts with a long-enough track record, the IT Tech, Media & Telecom sector has stormed to the top of the chart this year, returning 504.91 per cent to investors.
Risk-adjusted performance of IT sectors over 10yrs
Source: FE Analytics
The sector has had a big tailwind over the last decade as low interest rates and unprecedented quantitative easing measures from central banks have failed to stimulate growth.
As such, investors have been happy to pay up for companies exhibiting supernormal growth, many of which have come from the technology sector with the FAANGs (Facebook, Apple, Amazon.com, Netflix and Google) the poster-children for this phenomenon.
However, on a Sharpe ratio basis – which measures risk-adjusted returns – the IT Biotechnology & Healthcare sector comes out on top.
It is another long-term trend that hits on two themes - an ageing population that is paying more for medical treatment and a growing middle class in emerging markets who can afford private healthcare.
It has gained 466.51 per cent with a Sharpe ratio of 0.92 (IT Tech, Media & Telecomm had a Sharpe ratio of 0.86).
In the more conventional equities sectors, IT Japan (293.78 per cent) and IT UK Smaller Companies (283.17 per cent) top the list again for returns (having done so a year ago), although the latter has the higher Sharpe ratio (0.66 versus 0.65).
The IT Asia Pacific Excluding Japan sector (244.77 per cent) has overtaken the IT North America (226.2 per cent) sector, but yet again the latter has a higher Sharpe ratio (0.66) as it has been less volatile.
At the other end, property sectors IT Property Specialist and IT Property Direct Europe are near the bottom alongside IT Commodities & Natural Resources. All three have made losses over the last decade and a negative Sharpe ratio.
Turning to the trusts themselves, the best performer by some distance is now the Lindsell Train IT, which has returned 927.17 per cent with volatility of 19.83 per cent, giving it a chart-topping Sharpe ratio of 1.15.
Risk-adjusted performance of investment trusts over 10yrs
Source: FE Analytics
Third when we ran this study a year ago, the trust, which is managed by FE Alpha Manager Nick Train, has gained another 41.23 per cent over the 12 months to the end of August.
Its top holding at 43 per cent of the portfolio is in Lindsell Train Limited – its parent company – while the remainder of the portfolio is split between stocks in the consumer franchises, financials and media buckets.
The two next-best returners come from the top IT Tech, Media & Telecom sector with Allianz Technology Trust the first up.
The £503m trust is run by Walter Price and has returned 606.39 per cent over the last decade with volatility of 20.01 per cent giving it a Sharpe ratio of 1.01.
Next is the £1.7bn Polar Capital Technology Trust, which has returned 589 per cent and has a Sharpe ratio of 0.91.
The fund is mostly weighted to the US and Asia with large-cap names including Alphabet, Microsoft, Apple (all of which are more than 8 per cent of the portfolio) dominate the trust.
However, while they may be the second and third-best performers in the AIC universe, on a risk-adjusted basis Worldwide Healthcare Trust has a higher Sharpe ratio at 1.02.
The portfolio has been the sixth-best performer, returning 500.22 per cent, but has volatility of 15.76 per cent, giving it a better risk-return profile.
Table of trusts with highest Sharpe ratio over 10yrs
Source: FE Analytics
Finsbury Growth & Income Trust – another run by FE Alpha Manager Train – is fourth on the list with a Sharpe ratio of 0.95. It has returned 383 per cent with volatility of 14.31 per cent over the last decade.
Standard Life UK Smaller Companies Trust is the only from the IT UK Smaller Companies sector to crack the top 10 with a Sharpe ratio of 0.83.
Run by FE Alpha Manager Harry Nimmo, the trust invests in stocks using Aberdeen Standard Investments’ proprietary Matrix quant-screening system before investing for the long-term. It has returned 433 per cent with volatility of 17.83 per cent over the last 10 years.
Meanwhile, despite returning significantly less than the two trusts below them, JP Morgan American IT and Mid Wynd International Investment Trust sit in seventh and eighth place respectively as their volatility has been significantly lower.
The Biotech Growth Trust and Acorn Income round out the list, with Sharpe ratios of 0.75 and 0.74 respectively.
Like last year, commodity funds dominate the bottom of the list, with Golden Prospect Precious Metals and Geiger Counter the two worst trusts for risk-adjusted returns.
They have lost 63.73 per cent and 55.43 per cent respectively while experiencing volatility of 48.15 and 51.81 per cent, giving them a Sharpe ratio of -0.06.
Property trusts are also prevalent in the bottom part of the universe while the only equity strategy with a negative Sharpe ratio (-0.03) is Blue Planet Investment Trust, which has lost 27.68 per cent over the period.