The trust, which invests in private and US-listed Chinese companies, has returned less than both its IT North American Smaller Companies sector and the Russell 2000 index it measures itself against over 10, five, three and one years, Financial Express data shows. However, analysts say it offers an interesting way to gain exposure to China, and at a good price. RENN Universal Growth Investment Trust was trading at a discount of 19.7 per cent as of 19 October.
Performance of trust vs sector and benchmark
Source: Financial Express Analytics
"The fact it has underperformed has been due to it being in unlisted companies, as well as being dollar denominated. Lots of people will like it as it's on a big discount, and the story is quite interesting," Charles Stanley's investment trust analyst Stephen Peters said.
He added: "Indices are a not that relevant for something like this. Investors are looking for uplifts. All fund managers are saying M&A is going to rise in the next few years – you would expect the likes of this to benefit a lot from that."
The trust has a 30 per cent holding in unquoted companies, which Scott Douglass, vice president of Renaissance Capital Group which runs the trust, considers amongst his best holdings.
He highlights Anchor Free, an advertising and subscription funded internet security site which is popular in countries where there is government censorship, as it allows the investor to surf the net privately, without interference. Douglass also points to China Greenscape, a landscaping company, as a top performer, and says he expects it to list by the second quarter of next year in Shanghai.
He added: "Zhongpin, the hog processing company, has also been a good earner for us, and we've actually sold off some of our holdings. Turnarounds are another good way to make money. We had a mattress company which we invested in, and made twenty-fold our money back."
"This trust is very different to anything else on the market, and provides access to an exciting area. Investors will need to take a long term view, however, as their venture capital type approach is a high risk investment strategy. It has good potential," Simon Elliott, investment trust analyst at Winterflood Securities said.
The trust neglects to take full advantage of its gearing facility, saying it has no need to take on the debt, and offers no currency hedging.
"We don't hedge currency as, long-term, we don't think it makes a big difference to dollar and sterling investors. The weak yuan actually helps us, because it will only appreciate against the dollar, boosting our investments," Douglass said.
The trust does not pay out a dividend, but focuses on growth. Douglass said smaller companies are the best way to achieve this. The trust mitigates risk by requiring companies' management teams to take a reasonable stake in their own businesses, but Douglass admits his vehicle is not for a low-risk investor.
He said: "The venture capital structure we have means investing is a lumpy ride. We're industry agnostic and just look for companies we think are set to do well."
The fund offers a very different asset allocation to the other funds in its sector.
Table showing investment trusts in the North American Smaller Companies sector
| Trust | Discount | 1-yr | 3-yr | 5-yr |
| F&C US Smaller Companies |
-6.4 | 16.1 | 31.7 | 39.9 |
| JP Morgan US Smaller Companies |
-15.2 | 16.3 | -6.8 | 5.2 |
| North Atlantic Smaller Companies |
-23.5 | 26.8 | -10.9 | 8.8 |
| RENN Universal Growth |
-19.7 | 1 | -18.3 | -5.1 |
"The outlook for the sector is positive and we believe RUG offers investors an attractive means of gaining a diversified exposure to both US and Chinese emerging growth companies," Matthew Read, investment analyst at Edison Investment Research said.