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The low-cost, top-performing investment trusts to spice up your portfolio

12 October 2015

FE Trustnet reveals the closed-ended portfolios investing in stocks in the racier parts of the market but keeping their costs low and outperforming to boot.

By Daniel Lanyon,

Senior reporter, FE Trustnet

Having lower charges than any peers is no guarantee of top returns for a portfolio as this comes from the underlying appreciation of its holdings, but cost is one of the biggest drags on performance and needs to have an eye kept on it.

Over the long term – 10 years or so – the difference can be substantial between two portfolios where one is charging 1 percentage point less than the other. Of course, an argument can be made that you get what you pay for and more cash equals more resources towards a fund’s management.

In this article, we look at four investment trusts that have all achieved long-term outperformance, have been headed by the same manager for a long period and currently charge substantially less than their peers, taken on average.

 

Scottish Mortgage

This highly popular trust sits in the IT Global sector and invests in some of the most headline-grabbing and high growth stocks around, such as Amazon, Tesla Motors, Illumina, Google and Facebook.

The £3.3bn portfolio has been managed by James Anderson since 2000 since which, according to FE Analytics, it has gained 236.78 per cent over time, vastly more than its sector average and index. It is also top decile over three, five and 10 years in the IT Global sector.

Performance of trust, sector and index over 10 years


Source: FE Analytics

Anderson was joined by Tom Slater in 2009, who is now co-manager. The two mangers use a largely thematic approach to their portfolio, which ignores quantitative methods of picking stocks more popular with many funds and trusts.

However the managers have shifted the portfolio away from its previous focus on the ‘the rise of China and technological disruption’ to several new themes such as energy, transportation and healthcare.

The trust is prone to greater volatility than both the index and its peers and 2015 has not been as successful as its longer term track record, with the portfolio down 12.36 per cent since June.

However, Scottish Mortgage has reduced its ongoing charges figure (OCF) several times in the past few years and it is now just 0.48 per cent.

The trust is 13 per cent geared and is currently on a premium of 2.2 per cent.

 

The Biotech Growth Trust

A similarly high growth part of the market is covered by this vehicle; the Biotech Growth Trust, which has the lowest cost in its sector with an OCF of 0.87 per cent. 

However it also has a performance fee which at the last data point meant total charges rose to 1.34 per cent – but this was much lower than the amount levied by its peers.

The trust, like much of the broader biotech space, has boomed in recent years and sits top of its sector over five and 10 years.


 

Biotech Growth has returned 474.78 per cent in total return terms over the latter period, while the NASAQ OMX Biotechnology index and its sector have gained 400.08 per cent and 328.05 per cent respectively.

Performance of trust, sector and index over 10yrs


Source: FE Analytics

This is despite a sell-off over the past six months which as seen it lose more than its rivals. Its top holdings include Biogene Celgene and Amgen, which add up to a punchy 24.5 per cent of the portfolio.

It is on a discount of 6.1 per cent and is 17 per cent geared.

 

BlackRock World Mining

The £547m BlackRock World Mining Investment Trust has been headed up by Evy Hambro since 2009, who has been joined by Olivia Markham this year as co-manager.

It has an OCF of 1.4 per cent, which is cheaper than any other mining or specialist natural resources trust.

Since Hambro took over the portfolio in May 2009, it has lost 19.84 per cent, less than its sector or its Euromoney Global Mining benchmark.


Performance of trust versus index under Hambro


Source: FE Analytics


This year represents a turnaround from a difficult 2014, where the trust underperformed due to a few stock specific issues hurting the overall portfolio.

 It must be noted that its concentrated and punchy strategy, with the trust’s top 10 holdings accounting for 62 per cent of the total assets, creates an underlying risk for investors who prefer a diversified portfolio.

Of course, commodities have been generally a dire place to be for several years as well.  Hawksmoor’s Richard Scott is, however, is one investor buying back into the depressed market, choosing this trust as it is on a relatively high dividend yield of 8.6 per cent.


 

“We don’t expect BlackRock World Mining to maintain its dividend at a yield of almost 10 per cent although some of the observers in the market think that’s possible,” Scott said. 

BlackRock World Mining currently trades on an 8.1 per cent discount and is geared at 15 per cent.

 

Schroder Oriental Income

Schroders’ highly rated manager Matthew Dobbs has headed up this trust since 2005 and with an ongoing charges figure of 0.89 per cent it is one of the lowest charging trusts in the IT Asia Pacific ex Japan sector, as well the IT Global Emerging Markets sector where there is an overlap of exposure.

However, this trust also has a performance fee. This brought charges up most recently to 1.34 per cent. Schroder Oriental Income has veered between a premium and discount for several years and it now sits at 0.8 per cent premium to net asset value.  

Dobbs has a very good record versus his MSCI Asia Pacific ex Japan benchmark over the past 20 years, having also managed the Schroder Asia Pacific IT since then. Schroder Oriental Income is top quartile over three, five and 10 years.

Performance of trust, sector and index over 10yrs



Source: FE Analytics


It has a current yield of 4.2 per cent and has no gearing.

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Data provided by FE fundinfo. Care has been taken to ensure that the information is correct, but FE fundinfo neither warrants, represents nor guarantees the contents of information, nor does it accept any responsibility for errors, inaccuracies, omissions or any inconsistencies herein. Past performance does not predict future performance, it should not be the main or sole reason for making an investment decision. The value of investments and any income from them can fall as well as rise.