The best performer in the first six months of the year is the £8.3m Invista European Real Estate trust, which has bounced back from being one of the worst performers in the AIC universe last year.
It has returned 96.92 per cent in 2014 compared to a loss of 83.12 per cent last year thanks to its high exposure to European industrial property, mostly in France and Germany.
Trusts investing in Indian equities have also been a stand out area from a total return basis. All three trusts that specialise in this market are amongst the top-10 performers in 2014.
Performance has been partly buoyed by a strongly rising market in India following the expectation and subsequent election of Narendra Modi on a pro-business ticket. Modi has restored confidence to country’s markets following a difficult previous year which saw a generally downward trend.
The £44.5m Ocean Dial Asset Management India Capital Growth has been the best performer of the three. It has returned 33.8 per cent, making it the fourth best performers in 2014, with JPM not far behind in ninth.
Source: FE Analytics
Over the same period the MSCI India has risen 20.32 per cent, although only the JP Morgan trust names the index as its benchmark.
The £119m Aberdeen Asset Managers New India trust was the ninth best performer in 2014 from a total return basis. It has returned 18.42 per cent over the period – almost two percentage points less than MSCI India. Again, the strong performance of the trusts is in direct contrast to their dire performance last year. Charles Cade (pictured), head of investment companies’ research at Numis, points out that improving sentiment towards India has seen discounts come in across the board, giving performance an extra kick.
Now may not be the best to buy in though, he says.
“Last year India was one of the worst performing markets as you had a big hit to the currency. This year there has been a lot of euphoria over the elections and the reforms. Valuations certainly look relatively expensive now,” he said.
Performance of trusts since Jan 2013
Source: FE Analytics
“If you are buying in now, you have got to believe that Modi will be effective and turn things around. Clearly there is a huge potential in India so buying on a medium to long-term basis might be decent value, but quite a lot of the Asian and emerging market managers we have spoken to are taking profits in India due to the good run.”
The Ocean Dial India trust is currently on a 20 per cent discount, compared to a high of 31.62 per cent over the past 12 months. The JPM and Aberdeen trusts also have a lower discount than their 12 month average.
With developed equity markets flat across the board – the IT Global, North American and UK sectors have all returned between 3 and -3 per cent – it’s relatively unsurprising that specialist investment trusts dominate the top of the tables. These are susceptible to times of stark outperformance – especially those that are highly concentrated. However, the tide can turn just as quickly.
“The year has seen a bit of a re-rating of some of the more specialist areas, as domestic markets have been fairly dull overall with the FTSE All Share moving very little and sterling being strong,” said Cade.
The Ecofin Water & Power Opportunities trust is the third best performer from a total return basis in 2014, as well as one of the best on a relative basis. It has returned 41.14 per cent since the start of the year.
Measured against its benchmark, the FTSE All Share, it has added more alpha – or value – than any other trust in 2014.
The team invests mainly in utilities, which from a sector basis was the best performer this year with returns of 22.02 per cent.
Performance of trust and benchmark in 2014
Source: FE Analytics
The other top performing sectors year-to-date are the IT Country Specialists Asia Pacific, IT Property Securities and IT Property Direct. Candover IT, which came in second from a trust specific point of view, invests in private equity.
Cade thinks it could be time to take profits in some of the best performing areas this year, as discounts have come in considerably.
“A few of the overseas markets have done well, particularly in Asia but not China so much. Property has also been a very strong asset class,” Cade said.
“However both property and infrastructure have generally moved to premiums. As there hasn’t been much issuance the premiums remain high.”
“You have also seen some of the global trusts get big re-ratings such as the Witan Investment Trust, which has moved to pretty close to par after being on a wider discount at the start of the year. “
Andrew Bell’s trust has been one of the best performers in its IT Global sector in 2014, with returns of almost 7 per cent. It is currently on a discount of 1.4 per cent, compared to its three year average of almost 10 per cent.
Other trusts that have seen their discounts narrow significantly of late include Alex Wright’s Fidelity Special Values IT, which is on a discount of 5.5 per cent compared to its three year average of almost 10 per cent.
The popular Caledonia IT has also had a strong run of late, helped by its narrowing discount. It has returned 18.04 per cent this year, and seen its discount come in from a high of 26 per cent over the last 12 months to 17.2 per cent at time of writing.
