Advisers and platforms have largely ignored these vehicles in the past because unlike open-ended funds, they do not pay commission; however, a level playing field should see them appear in a greater number of portfolios in the coming years.
As FE Trustnet has pointed out on many occasions, investment trusts have numerous advantages that have allowed them to outperform their open-ended rivals over the long-term.
With this in mind, Winterflood’s Simon Elliott (pictured) highlights some of his favourite retail-friendly investment trusts that score highly across FE’s two most popular performance measures: FE Crown Fund Ratings, which highlight top-performing funds; and FE Alpha Manager rating, which highlights managers with a proven track record in rising and falling markets.
In previous articles we have also looked at whether the funds appear in AFI portfolios as well, but investment trusts do not qualify for this rating.
Perpetual Income & Growth Trust
- FE Crowns: 4
- FE Alpha Manager: Yes
"Neil Woodford is a manager we rate very highly; though he’s maybe best known for his funds, he also runs the Edinburgh Investment Trust," he said.
"However, we actually prefer his colleague Mark Barnett’s Perpetual Income & Growth Trust. The reason for this is because the manager runs less money and so is a bit more nimble."
"He’s grown the dividend very consistently as well."
Our data shows that Perpetual Income & Growth is up 329.6 per cent since Barnett took it over in 1999, significantly beating both the IT UK Growth & Income sector average and FTSE All Share index, with less volatility.
Performance of trust vs sector and index since Aug 1999
Source: FE Analytics
The trust has marginally underperformed the Edinburgh IT since Woodford took it over in 2008, but much of this is down to the tightening of the latter’s discount.
In terms of net asset value (NAV) performance, Barnett’s trust comes out on top over the period.
The manager runs a concentrated portfolio of stocks, with a significant bias towards defensive dividend-paying sectors such as tobacco and healthcare.
Imperial Tobacco, British American Tobacco, AstraZeneca and GlaxoSmithKline are all top-10 holdings.
The £855m trust, which is currently yielding 3.24 per cent, is currently at net asset value, and has an ongoing charges figure (OCF) of 1 per cent, excluding performance fee. It is 8 per cent geared.
Finsbury Growth & Income Trust
- FE Crowns: 5
- FE Alpha Manager: Yes
"This one has a very strong total return record indeed."
"The dividend took a bit of a hit during the financial crisis because it had quite a big stake in Lloyds preference shares, which stopped paying a dividend, but it’s recovered very strongly since then."
Performance of trust vs sector and index over 10yrs
| Name | 1yr returns (%) |
3yr returns (%) | 5yr returns (%) | 10yr returns (%) |
|---|---|---|---|---|
| Finsbury Growth & Income Trust | 38.64 | 85.04 | 120.71 | 376.08 |
| IT UK Growth & Income | 25.81 | 44.86 | 35.77 | 181.88 |
| FTSE All Share | 18.87 | 26.91 | 30.6 | 149.79 |
Source: FE Analytics
The trust has been the standout portfolio in IT UK Growth & Income over the past decade.
It is number-one in the sector over one, five and 10 years, and second only to the Lowland Investment Company over three. The sector has 24 constituents. FE Alpha Manager Nick Train (pictured) has more of an eclectic mix of stocks than Barnett, with big off-benchmark positions in companies such as Heineken, Finessa Group and the Daily Mail & General Trust.
The £367m Finsbury Growth & Income Trust is currently on a premium of 0.7 per cent and is 5 per cent geared.
It has an OCF of 0.94 per cent and does not charge a performance fee.
Aberdeen Asian Income
- FE Crowns: 5
- FE Alpha Manager: Yes
"There is a definite need for income at the moment, and there are a number of attractive options overseas," he said.
"There are some generalist Global options, but for something a bit more specific, this is worth a look. Hugh Young’s team is very highly regarded, for good reason."
"This trust has done well since launch, and also has a decent yield [2.94 per cent]."
Performance of trust vs sector and index since launch
Source: FE Analytics
Aberdeen Asian Income has returned 215.52 per cent since it was launched back in December 2005, almost doubling the returns of its MSCI AC Asia Pacific ex Japan benchmark, with a fraction of the volatility.
It has also significantly outperformed over one, three and five years.
The five crown-rated vehicle has an OCF of 1.29 per cent and is trading on a premium of 5.1 per cent. It is only 1 per cent geared.
Young and his team are predominantly invested in emerging Asia, but Japan and Australasia currently have an 8 and 21 per cent weighting, respectively.
There is no alternative vehicle in the open-ended universe, meaning that the Aberdeen Asian Income IT is the only way investors can get a dividend-focused portfolio headed up by Young.
In previous articles in the series, we have looked at open-ended funds that score highly across FE’s performance measures; most recently, in emerging markets.