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The UK investment trusts beating open-ended funds in the Brexit rally

05 September 2016

FE Trustnet finds out which investment trusts have bucked the trend and made higher returns than their Investment Association rivals over recent weeks.

By Gary Jackson,

Editor, FE Trustnet

The average UK investment trust has lagged its open-ended rival in the 10 or so weeks since the UK voted to quit the European Union, data from FE Analytics shows, although a number of closed-ended vehicles have managed to make double-digit gains over the period.

After the referendum on 23 June came out in favour of Brexit, the FTSE All Share suffered a sharp fall as investors became immediately concerned by the future prospects for the UK economy. However, a similar fall in the price of sterling and the fact that the bulk of the index’s largest members source most of their earnings from outside the UK bolstered sentiment.

FE data shows that the FTSE All Share has made an 8.80 per cent total return since 23 June and is currently trading close to the 6,900 mark. This has wrong-footed many active managers, as the average UK all companies and UK equity income fund in the open- and closed-ended sectors are underperforming the index over that time.

Performance of sectors vs index since 23 June

 

Source: FE Analytics

As the chart above also makes clear, investment trusts in both sectors have underperformed their open-ended rivals. The same is true in the UK smaller companies space: the average trust is up 2.52 per cent over the time since the referendum but the average open-ended portfolio has made 4.53 per cent (the FTSE Small Cap is up 7.36 per cent).

FE Trustnet recently took a look at the UK investment trust space, noting that discounts have widened since the UK’s leave/remain referendum and contributed to an underperforming total return.

Data from the Association of Investment Companies, for example, shows that the average discount in the IT UK All Companies sector currently stands at 8.9 per cent – significantly higher than the one-year average of 6 per cent and above the 7 per cent three-year average.


Within the AIC’s UK All Companies sector, only four members have beaten the return made by the average open-ended fund in the IA UK All Companies sector.

The best performer here is actually a passive vehicle as Aberdeen UK Tracker Trust has made an 8.89 per cent total return. Not only has it beaten its average closed- and open-ended peer but the £316.1m trust has beaten the FTSE All Share – which it tracks – by 9 basis points over the period.

When it comes to active funds, Chris Kinder’s £38.7m Columbia Threadneedle UK Select Trust is on top after making 8.20 per cent since the Brexit result. This return is 60 basis points behind the FTSE All Share, however.

Performance of trust vs sectors and index since 23 June

   

Source: FE Analytics

The fund’s top holdings are FTSE 100 companies, which have benefitted from a weaker sterling and exposure to the global rather than domestic economy. Its largest stake is in Royal Dutch Shell (which has also been buoyed by a recovering oil price), followed by AstraZeneca, GlaxoSmithKline, Imperial Brands and BT Group.

Columbia Threadneedle UK Select Trust has ongoing charges of 1.94 per cent and yields 3.10 per cent. It is trading on a 14.17 per cent discount, compared with a three-year average discount of 6.60 per cent.

The other trusts that are outperforming their average open-ended rival are Invesco Perpetual Select UK Equity, helmed by FE Alpha Manager Mark Barnett, and Philip Matthews’s Schroder UK Growth trust. Like the previous fund, both have top 10s largely constructed from FTSE 100 names.


Over in the AIC’s UK Equity Income sector we have a greater number of outperforming trusts. FE Analytics shows that four have beaten the FTSE All Share’s 8.80 per cent gain while eight are ahead of the IA UK Equity Income sector’s 5.87 per cent total return.

 

Source: FE Analytics

As the table shows, the £372.4m Dunedin Income Growth Investment Trust – managed by Jeremy Whitley and Ben Ritchie – has made the sector’s highest return.

Again, the portfolio has its largest positions in blue-chip stocks like GlaxoSmithKline, British American Tobacco, AstraZeneca, Royal Dutch Shell and Unilever. However, the managers did use the Brexit sell-off to add to small- and mid-cap names like healthcare REIT Assura, UK life insurer Chesnara and plastic products design and engineering company RPC Group.

“Markets have always recovered from shocks such as the result of the EU referendum. Unusually, this time, the recovery has been particularly rapid as the prospect, and realisation, of greater monetary and fiscal stimulus coupled with the benefits of the weakness of sterling seem to have outweighed the significant downgrades to domestic GDP growth expectations,” the managers said in their latest update.

“However, the uncertainty regarding the UK’s relationship with the EU remains and builds on an already challenging global macroeconomic picture. In more difficult circumstances it tends to be those companies with globally diverse revenue streams, strong competitive advantages and robust financial characteristics that perform best. We will endeavour to retain this focus as we navigate the uncharted waters ahead and stand ready to add capital to such companies at discounted valuations should opportunities present themselves amid the uncertainty.”

Dunedin Income Growth has ongoing charges of 0.64 per cent, is trading on a 9.6 per cent discount and yields 4.6 per cent.

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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.