It may be too early to say that this is an early sign of increasing appetite for the products post-RDR, but there certainly seems to be an air of change in the closed-ended industry, with many groups intentionally making their products more marketable to retail investors.
Here are three of the trusts that cropped up in more than one of our readers' buy-lists:
Hansa Trust
FE Trustnet reader "Cambion" likes John Alexander’s Hansa Trust and sees it as a good value-pick.
"The [trust] is at a monumental discount for a number of reasons and is rather illiquid, but its long-term performance is excellent and its low correlation gives decent diversity. It seems cheap," Cambion said.
According to the AIC, the £257m trust is trading on a discount of 24.9 per cent.
Alexander attempts to deliver growth by investing in "special situations" stocks – those that the manager thinks are undervalued by the wider market.
He identifies catalysts for change, such as new managers, and buys in to them at cheap prices.
The portfolio has a small to mid cap bias and is relatively uncorrelated to the FTSE All Share.
As Cambion suggests, the trust has a strong long-term record; according to FE data, it is up 323.46 per cent over a 10-year period, compared with 185.26 per cent from the FTSE All Share.
Performance of trust vs index
| Name | 1yr returns (%) |
3yr returns (%) | 5yr returns (%) | 10yr returns (%) |
|---|---|---|---|---|
| Hansa Capital Partners LLP - Hansa Trust PLC TR in GB | -10.68 | 10.15 | 1.59 | 323.46 |
| FTSE All Share TR in GB | 17.06 | 31.34 | 39.26 | 185.26 |
Source: FE Analytics
However, it has had a tougher time of it recently, underperforming over one, three and five years.
It has had a particularly poor 12 months, down more than 10 per cent, according to FE Analytics data.
The Hansa Trust is significantly more volatile than the index and most of its peers in the IT UK Growth sector, with an annualised score of 23.54 per cent over 10 years. This is more than 10 percentage points higher than the All Share.
Kieran Drake, investment trust analyst at Winterflood, says it is a trust that the firm rates as a "buy", largely down to the fact that it is on such a large discount.
However, he says investors need to be aware of the risks associated with this particular trust.
"One of the key things to bear in mind is that it has a high proportion of its assets in one company – Ocean Wilson," he explained.
"This is a holding company, with one business in Brazil. The other is an investment portfolio, which focuses on emerging markets."
"The high weighting to this company goes some way in explaining why it’s on such a big discount. Because it’s such a big part of the portfolio, it can swing performance."
"However, it’s worth bearing in mind that Ocean Wilson is itself on a discount to NAV, which means you get a discount within a discount," he added.
Drake adds that part of the reason why the trust did so badly last year was because the Brazilian market performed poorly, which impacted the stock significantly.
According to FE data, the trust has 37.6 per cent invested in Ocean Wilson. It has 4.8 per cent of AUM in NCC Group, its next biggest holding.
The Hansa Trust is currently yielding 1.8 per cent and has an ongoing charges figure of 0.87 per cent, making it one of the cheapest in the UK Growth sector.
Aberdeen Asian Smaller Companies IT
"Hit and miss" is undecided on whether to invest in the open- or closed-ended version of this product, asking: "Is the offshore fund better or the investment trust?"
"Hugh Young is a legend so I’m following him."
Drake thinks the trust has a key advantage over its open-ended rival.
"I would see its closed-ended structure as an advantage, for liquidity reasons," he said. "It would allow the managers to move further down the market cap level if they see fit."
This is particularly important given the size and popularity of the £3.9bn Aberdeen Asian Smaller Companies fund, which is domiciled in Luxembourg. According to FE data, it has more than doubled in size in the last 12 months.
Performance of fund, trust and index over 5yrs
Source: FE Analytics
The trust has outperformed the open-ended fund by more than 100 percentage points over the last five years.
It is also cheaper, with an ongoing charges figure of 1.51 per cent, and has benefited from gearing and a narrowing discount.
It is worth bearing in mind that the trust is now on a premium of 4.3 per cent and so is arguably less attractive than it was.
Lindsell Train IT
Three FE Trustnet readers highlighted the Lindsell Train IT as one they are interested in buying. One look at the performance tables shows why.
Drake rates FE Alpha Manager Nick Train’s Lindsell Train IT, but points out that its high premium of 14.8 per cent is a risk to investors looking to buy now.
It is the only trust in the IT Global Growth sector on a double-digit premium.
"Even the manager has been quoted in the press saying that he couldn’t believe how steep the premium was, and told people not to buy it for that very reason," said Drake.
The trust is very small and illiquid, with just £55m assets under management (AUM). Drake says it is traded less frequently than the majority of trusts.
Train’s performance has been strong since he started running the trust in 2001. It is among the top-three best performers in its sector over one, three and five years, and the top-five over 10 years.
Over the last half-decade the trust is up 115.66 per cent, compared with just 36.31 per cent from its sector average.
Drake points to Train’s larger, more liquid Finsbury Growth & Income Trust as a possible alternative. Unlike the Lindsell Train IT, it invests predominantly in the UK.
The latter has an ongoing charges figure of 1.08 per cent.
In a previous FE Trustnet article, we analysed some of the open-ended funds that our readers are putting in their ISAs this year.