Investment trusts with a focus on natural resources, Latin America and niche areas of the market like litigation finance have made some of the highest returns in the Association of Investment Companies (AIC) universe over the past six months, according to FE data.
The opening six months of 2016 presented some difficult conditions for investors, as the year got off to a start with heavy falls on the back of slowing Chinese growth, low commodity prices and speculation on the timing of the Federal Reserve’s next interest rate rise.
After a tough January and February, the market saw somewhat of a rally but investor sentiment was further tested in the run-up to the UK’s remain/leave referendum on the European Union. The resulting vote to quit the union is expected to cause volatility for some time to come, even though stock markets have initially appeared to take it in their stride.
Against this backdrop, four investment trusts (out of just over 400 in the universe) managed to make a total return of more than 50 per cent while 98 achieved double-digit gains over the six-month period. FE Analytics also shows that 213 trusts are in positive territory but the remaining 194 have made a loss – with 75 of these seeing their losses extend into the double digits.
Source: FE Analytics
As the graph above shows, the Guernsey-domiciled Golden Prospect Precious Metal investment trust sits at the top of the AIC universe over the period in question with a 121.33 per cent total return. The fund invests in companies involved in the precious metals sector and has rallied as investors flocked to perceived safe havens such as gold during the recent tick-up in volatility.
Given the rebound in commodity prices that has taken place in recent months, other natural resources trusts can be found among the period’s strongest performers. Baker Steel Resources Trust and BlackRock World Mining IT, for example, come in third and fourth places with respective total returns of 65.52 per cent and 58.95 per cent.
It is worth bearing in mind that natural resources and gold funds have gone through a rough patch over recent years, witnessing heavy falls in value. This lower starting point has allowed them to stage a strong rally.
Golden Prospect Precious Metal, for example, is down 54.31 per cent on a five-year view while its average peer in the IT Commodities & Natural Resources sector has fallen 67.66 per cent.
Performance of trust and sector over 5yrs
Source: FE Analytics
The £720m Burford Capital investment trust, which specialises in litigation finance investments, comes in second place. This is a niche area of the market and one that investors cannot access through open-ended funds.
Being an early mover in the space has allowed Burford Capital to benefit from the demand for alternative assets, which has intensified as valuations of mainstream assets like equities and bonds moved to historical highs. Since launch in October 2009, the trust has made a 277.17 per cent total return.
The list of 20 best performing trusts also includes three portfolios that focus on Latin America: JP Morgan Brazil Investment Trust, Aberdeen Latin American Income and BlackRock Latin American IT. The region has benefited over recent months from recovering commodity prices and high-profile moves to crack down on corruption in Brazil.
Only one trust from the main UK equity sectors has made into the period’s top 20. David Horner and David Taylor’s Chelverton Growth Trust resides in the IA UK Smaller Companies sector and made a 36.08 per cent total return during the two quarters.
Trust’s discount/premium over 5yrs
Source: FE Analytics
The fund has made a 168 per cent total return over the past five years; the above graph shows that this is largely down to a sharp rise in its share price, which has moved from a hefty discount to a premium.
Other UK equity trust struggled to fare as well. The average IT UK Smaller Companies trust lost 11.42 per cent in the opening half of 2016, while in IT UK All Companies the average fall was 9.77 per cent and it came to 3.92 per cent in IT UK Equity Income.
Only 10 trusts from the three peer groups, including Chelverton Growth, were in positive territory for the period.
Source: FE Analytics
Some familiar names can be found on that list, including Nick Train’s Finsbury Growth & Income and Francis Brooke and Hugo Ure’s Troy Income & Growth. Both are headed up by FE Alpha Managers with a track record of generating strong total returns for investors, in both their trusts and open-ended funds.
