August is usually a quieter month for markets, but following the pattern from the past year nothing happens like it should with plenty of activity closing out the summer.
Largely, markets acted similarly to last month, as the recovery trade and concerns over US monetary policy continued. This created similar performance tables for investment trusts to July, especially at a sector level.
Source: FE Analytics
That being said the month’s top performer – IT India – was more of a surprise. The sector made an average return of 9.1%, some way ahead of IT Private Equity in second (6.6%).
There appears to be no major catalyst for this strong performance other than a generally resilient Indian economy following its recent wave of coronavirus.
India struggled significantly with the initial Covid outbreak and struggled to keep cases under control. At it worst the country’s seven-day rolling case average was 392,000, but this has now declined to a 42,640 average, according to the World Health Organisation (WHO) data.
Fairview Consulting director Ben Yearsley added that inflation also appears to be under control. “By most accounts the monsoon season has been good as well,” he said.
The rest of August’s investment trust performance table reflects the ongoing recovery and value trade which has been ongoing since the launch of Covid-19 vaccine last year. Sectors like IT Private Equity, IT European Smaller Companies, IT UK Smaller Companies and IA UK All Companies are all seen as value peer groups.
August was a busy month for the UK, particularly when it comes to mergers and acquisitions (M&A). This year has proven to be a strong one for M&A activity in the UK, with deals in the first seven months fo 2021 reaching a 14-year high of $198bn.
This is against a backdrop of falling unemployment rates and a strong vaccine programme. GDP also grew but overall the economy is still smaller than it was pre-pandemic by 4.4%, according to the Office for National Statistics (ONS).
The UK still has to contend with the end of its Covid furlough scheme at the end of September and the implications that will have.
At the other end of the table and IT China/Greater China is a repeat worst performer, with a loss of 2.83%. The sector has experienced high losses and volatility following the Chinese government’s new regulation on technology and education stocks.
Andy Merricks, 8AM fund manager, said: “China has been changing its outlook and tremors are being felt beyond its borders.”
This shift has seen the government focusing on its own financial and social policies more than overseas investors, Merricks said. Some of the countries internet ‘giants’ Alibaba, Tencent, JD and Meituan have consequentially seen “have seen billions wiped off their valuations,” Merricks said.
IT North American Smaller Companies also struggled, with the average trust losing 1.54%.
The US has experienced increased volatility the past month, ultimately down to speculation on the path of the Federal Reserve’s policy stance.
Discussions of a potential ‘taper tantrum’ have risen recently and US stocks fell ahead of the annual ‘Jackson Hole’ meeting last week. At the meeting, Fed chair Jerome Powell said economic activity continues to progress towards the central bank’s benchmark for reducing its pandemic suppoort, but is not there yet. Powell maintained his cautious signalling around interest rates.
On the individual trust side, the best performers were a mixed bag with private equity, commodities, UK small-caps and India focused trusts making the month’s highest returns.
Two private equity trusts were the month’s best performers: Literacy Capital Plc and BMO Private Equity Trust Plc, returning 26.8% and 19.4%, respectively.
Source: FE Analytics
The former invests primarily in UK small-cap businesses with a portion of the trust dedicated to helping disadvantaged children’s literacy rates.
BMO Private Equity Trust Plc takes a more international approach, with almost 60% currently invested in the UK and the remainder in the US. Launched in 1999, it has been run by Hamish Mair since 2000.
Another well-known trust on the list is JPMorgan UK Smaller Companies, run by Georgina Brittain and Katen Patel.
Holding an FE fundinfo Crown rating of four, the trust invests in small and Alternative Investment Market (AIM) growth stocks, companies such as media company Future Plc, motor & cycling company Halfords and Games Workshop.
The trust made 13.7% last month, the best IT UK Smaller Companies fund during that time.
It pipped peer Chelverton Growth Trust, which made 13.3%.
Chelverton Growth Trust has been the best performing IT UK Smaller Companies trust so far this year. Managers David Horner and David Taylor invest in companies in the AIM with a market cap of up to £50m which they believe are “at a point of change.” It’s currently on a 4.02% premium.
Riverstone Energy Limited also performed well, making 15.4%.
Residing in the IT Commodities & Natural Resources sector, it invests in privately negotiated investments in the exploration & production, midstream, services and power sectors, including renewable energy sectors. One of its investment focuses is crude oil, which has been on a more positive run recently. Despite the Delta variant increasing downside risks for oil, prices have stabilised at around $70.
Other high-performing trusts include JPMorgan India, Schroder UK Mid Cap, Fidelity Special Values, Premier Miton Global Renewables Trust and The Schiehallion Fund.
Source: FE Analytics
At the bottom of the table was an IT UK Equity Income fund, the British & American Investment Trust which lost 22.5%. It’s currently running on a 33.97% premium.
Other trusts struggling in August were BlackRock World Mining Trust, RTW Venture Fund Limited, Brown Advisory US Smaller Companies, Fidelity China Special Situations and Baillie Gifford China Growth Trust.