Whether you think global markets are due a significant rebound, or are waiting for a significant fall in markets in the near future, it may be worth keeping an eye on trusts trading on a discount in the popular IT Global Growth sector.
James Anderson – discount 7.4%
The manager’s Scottish Mortgage Investment Trust is renowned for its long-term time investment horizon and low turnover. As a result, it is susceptible to heavy losses during market falls, as seen in 2011; according to FE data, the portfolio was down 15.25 per cent over the 12 month period – 10 per cent more than its FTSE World benchmark.
However, for long-term investors who are willing to look past short-term volatility, this could be a good time to snap up the services of Anderson. His trust is currently trading on a discount of 7.4 per cent – around average for a Global Growth trust – in spite of the trust’s stellar medium and long-term record.
Performance of trust versus sector and index
| Name | 1yr (%) | 3yrs (%) | 5yrs (%) | 10yrs (%) |
| Scottish Mortgage IT | 4.24 | 59.84 | 29.60 | 219.18 |
| IT Global Growth | 4.18 | 34.34 | 7.90 | 140.92 |
| FTSE World | 13.15 | 26.84 | -7.09 | 86.63 |
Source: FE Analytics
Over ten years, the Scottish Mortgage IT has returned 219.18 per cent, compared to 140.92 per cent from its sector average, and just 86.63 per cent from its benchmark. The trust has also significantly beaten both over three and five years, though falls short of its benchmark over one.
As the graph below shows, the portfolio is significantly more volatile than its peers, which Anderson says is likely to always be the case.
“Don’t own Scottish Mortgage if you cannot accord a five year time horizon,” he said in an interview with FE Trustnet earlier this year. “You’re not going to see the likes of Vodafone, BP and Shell in the top-10 – it’s more about finding the next big thing.”
Performance of trust versus sector and index over 10yrs
Source: FE Analytics
Anderson is particularly excited by the “extraordinary pace” of technological advancement, and says he is constantly looking for companies that have exposure to this area.
Scottish Mortgage has a total expense ratio (TER) of 0.5 per cent, and is currently yielding 1.9 per cent.
Jeremy Tigue – 9.5%
The manager has headed up the £2.3bn Foreign & Colonial Investment Trust – one of the largest in the AIC universe – since 1997. The portfolio has consistently beaten its composite FTSE All World Europe ex UK and FTSE All Share benchmark under the manager, with less volatility. Its record is particularly strong over five years; according to FE Analytics, the trust has delivered 18.85 per cent, compared to 4.11 per cent from its benchmark.
Performance of trust versus sector and index over 5yrs
Source: FE Analytics
This is likely to be viewed as a safer option than rival Anderson’s, outperforming it during down markets but falling well short during up periods. In spite of this, it’s on an even bigger discount – 9.5 per cent – which is a touch more than the average IT Global Growth trust.
Tigue’s trust has underperformed the Scottish Mortgage IT over three, five and ten years, but with returns of 15.19 per cent, it’s outperformed over one.
Foreign & Colonial has a high exposure to private equity, which currently stands at 18.9 per cent. It’s also overweight emerging markets.
Like Scottish Mortgage, it has a TER of 0.5 per cent, but with a one year historic yield of 2.56 per cent, it’s yielding slightly more.
The trust was launched back in 1868, making it the oldest investment trust in the entire industry.