Investment trust swaps: Global equity income
With lower costs and lower turnover, closed-ended funds are an attractive prospect for those investing with a long-term horizon.
By Joshua Ausden, News Editor, FE Trustnet
Wednesday August 29, 2012
Income-focused funds with a global mandate are a relatively new concept in the open-ended industry. The IMA Global Equity Income sector was only launched at the beginning of this year, and only one constituent – Standard Life Global Equity Income
– has a 10-year track-record.
However, for those ready to take the plunge and invest in a closed-ended vehicle – or investment trust – there are a number of established dividend-paying options available to investors in the IT Global Growth & Income sector.
The stand-out performer is without doubt Bruce Stout’s Murray International Trust
, which is inevitably on the highest premium of all the trusts focused on global equity income [7.7 per cent].
The Aberdeen-managed portfolio, which has £1.26bn assets under management (AUM), tops its sector by some distance over three, five and 10 years, and is second only to the Securities Trust of Scotland over one year.
It has significantly beaten its composite benchmark, split 60/40 between the FTSE World ex UK and FTSE World UK indices – over every time period mentioned above.
Performance of trust vs sector over 10-yrs
Source: FE Analytics
||1-yr returns (%)
||3-yr returns (%)
||5-yr returns (%)
||10-yr returns (%)
|Murray International Trust
Like all Aberdeen managers, Stout prides himself as a bottom-up stock picker, but his market timing has been one of the biggest drivers of his success.
The manager bought what he viewed as "cheap" government and corporate bonds in 2007, which held him in good stead during and after the Lehman crash in 2008.
He then sold out of bonds in late 2008 in favour of equities – particularly those exposed to the commodities market – which saw his trust fully take part in the 2009 and 2010 rebound.
Since late 2010 Stout has had a preference for defensive dividend-paying companies over cyclicals, which again worked out well for him when the markets plunged in the summer of 2011.
He remains defensively positioned, favouring sectors such as telecoms and tobacco. British American Tobacco (BAT), Taiwan Mobile and Singapore Telecommunications are all top-10 holdings.
The trust has a total expense ratio (TER) of 1.1 per cent, inclusive of performance fee. It is currently yielding 3.91 per cent.
Although it doesn’t come close to Stout’s portfolio in the total return stakes, Patrick Edwardson’s Scottish American Investment Company
is an option for those looking for something a little less expensive.
The £392m portfolio is currently trading on a discount of only 2 per cent, which is slightly below average for the IT Global Growth & Income sector.
It has beaten its composite benchmark, split evenly between the FTSE All Share and FTSE All World ex UK, over three, five and 10 years, although with returns of only 5 per cent, it has underperformed by around 10 per cent over the past 12 months.
Launched in 1873, it is one of the oldest in the AIC universe. Edwardson has been lead manager since January 2004, during which time the trust has returned 109.86 per cent, compared with 85.71 per cent from its benchmark.
Performance of trust vs index since Jan 2004
Source: FE Analytics
This outperformance has come at a price, however, as the portfolio has been significantly more volatile and lost far more during the 2008 crash.
In keeping with Baillie Gifford’s style, the Scottish American Investment Trust has a five- to 10-year investment horizon and has a very low turnover.
It is currently yielding 4.42 per cent – significantly more than Stout’s portfolio – and has a TER of 0.93 per cent.