In a universe comprising 41 closed-ended vehicles, only Dunedin Income Growth, Troy Income & Growth and Shires Income managed to outperform their natural benchmark in 2009, 2010 and 2011.
Year-on-year performance of trusts vs index since 2009
| Name |
Returns in 2011 (%) |
Returns in 2010 (%) |
Returns in 2009 (%) |
| Troy - Income & Growth Trust |
4.46 |
17.44 |
34.38 |
| Dunedin Income Growth Trust |
-0.49 |
25.97 |
32.34 |
| Shires Income |
-2.49 | 20.43 | 37.55 |
| FTSE All Share |
-3.46 |
14.51 |
30.12 |
Source: FE Analytics
Both Dunedin Income Growth and Shires Income are under the management of Aberdeen. All three trusts use the FTSE All Share as their benchmark.
While an overweight in cyclical stocks led to a number of highly geared investment trusts achieving massive outperformance in 2009 and 2010, the vast majority of these were caught out in 2011. However, these three highly rated portfolios managed to outperform in both the QE-fuelled bull run and the market correction.
The Dunedin Income Growth portfolio has the most consistent record overall, trumping the FTSE All Share every year bar one since 2007.
In cumulative terms, the Shires Income trust has the best record, with returns of 103.15 per cent over a three-year period. It is also yielding the highest of the three trusts, with a one-year historic yield of 6.49 per cent. Dunedin Income Growth Trust and Troy Income & Growth have a yield of 4.89 per cent and 3.72 per cent respectively.
On a risk-return basis however, FE Alpha Manager Francis Brooke’s Troy Income & Growth fund has arguably the best record. The fund was one of only seven UK equity trusts that managed to break even last year, with returns of 4.46 per cent.
Performance of trusts vs index over 3-yrs
Source: FE Analytics
While Jeremy Whitley, who heads up the Dunedin Income Growth trust, says he is fundamentally a long-term investor, he believes Aberdeen’s commitment to quality companies has been a big driver of the portfolio’s consistent performance in recent years.
"The poor performance of the fund in 2008 was not in keeping with Aberdeen’s principles," he said. "In down-markets our funds don’t tend to do as badly, as the group focuses on quality, well financed, strong business models."
"This was one of the reasons I was brought in as manager in 2009, and fortunately since then we have put some of the wrongs to right and performed well."
According to FE Analytics data, the fund lost 36.27 per cent in 2008, compared with -29.93 per cent from the FTSE All Share.
Whitley says his moderate exposure to small and mid caps in 2009 and 2010 contributed to the trust’s outperformance, as well as a selection of recovery stocks that bounced significantly after avoiding bankruptcy.
Gearing certainly aided performance during the 2009 and 2010 rally, but Whitley says the trust doesn’t look to time short-term swings in the market.
"Typically the portfolio is geared between 5 and 15 per cent at any one time," he added.
Commenting on the sparse number of closed-ended funds that have been able to consistently outperform year-on-year, the AIC’s Jemma Jackson says the adverse impact of gearing in down-markets has been significant.
"It’s important to remember that the last year has been a volatile place for the stockmarket," she said. "Many investment companies gear and this can amplify performance on the way down as well as on the way up."
"However, despite a volatile five years for the stock market, the average trust in the AIC Investment Companies universe is still in positive territory, up 7.6 per cent over five years to the end of December 2011. Moreover, over 10 years, the average member is up 100 per cent, illustrating the importance of taking a long-term view," she finished.