Specialist portfolios such as these dominate the popularity stakes, with HICL Infrastructure, Electra Private Equity and Templeton Emerging Markets also making it into the top-five.
No UK or globally focused closed-ended funds made it into the top-10.
Most popular investment trusts among fund managers
| Name | Number of funds that hold it |
|---|---|
| Edinburgh Dragon Trust |
11 |
| 3i Group | 11 |
| HICL Infrastructure | 9 |
| Electra Private Equity | 9 |
| Templeton Emerging Markets | 8 |
Source: FE Analytics
Eleven funds of funds in the IMA universe count Andrew Gillan’s Edinburgh Dragon Trust as a top-10 holding.
These include the five crown-rated M&G Fund of Investment Trusts and FE Alpha Manager David Coombs’ Rathbone Multi Asset Enhanced Growth Portfolio. The trust is Coombs’ largest individual holding, making up 7.61 per cent of AUM.
Edinburgh Dragon Trust was launched in September 1987 and has been managed by Gillan since June 2010.
It sits in the IT Asia Pacific ex Japanese Equities sector and has beaten its benchmark – the MSCI Asia Pacific ex Japan index – over one, three, five and 10 years.
According to FE Analytics, the trust has made 545.07 per cent over the last decade, more than double the returns of its benchmark.
Performance of trust vs sector and index over 10yrs
Source: FE Analytics
However, the fund has been considerably more volatile over this time.
The trust’s largest regional weighting is to Hong Kong, which makes up 24 per cent of the portfolio, but Gillan also holds 20.6 per cent in companies listed in Singapore.
Edinburgh Dragon is currently trading on a 5.8 per cent discount and is 10 per cent geared.
Dr Mark Mobius’ Templeton Emerging Markets is another popular holding with fund managers.
Eight managers hold the £2.1bn closed-ended vehicle in their top-10, including the five crown-rated JPM Multi Manager Growth fund.
Templeton Emerging Markets has been run by Mobius since its launch in 1989. It has returned 621.79 per cent over 10 years while its MSCI Emerging Markets index has returned 305.40 per cent.
The trust’s largest regional weighting is to China and Hong Kong; however, unlike Edinburgh Dragon, Templeton Emerging Markets gives its investors high levels of exposure to Brazil, Thailand and Indonesia as well.
Trusts in the IT Private Equity sector are also favourites among fund managers. Charles Cade, head of investment companies research at Numis, says this is not a big surprise, given that trusts offer one of the few ways investors can get exposure to the asset class.
Eleven funds count 3i Group as a top-10 holding. The private equity trust is the seventh-largest holding in James Lowen and Clive Beagles' £1.6bn JOHCM UK Equity Income fund.
3i Group’s long- and medium-term track record does not make for good reading; it has significantly underperformed its benchmark FTSE Small Cap ex ITs index over five and 10 years, with returns of -26.38 and 33.77 per cent.
This underperformance is thanks largely to a disastrous 2008, when it lost more than 70 per cent.
Performance in the shorter term has been much better though. It is up 56 per cent over one year, more than doubling the returns of the index in the process.
Performance of trust vs sector and index over 1yr
Source: FE Analytics
3i is trading on a 5.2 per cent premium to its NAV and is 14 per cent geared.
The five crown-rated Halifax Fund of Investment Trusts and Unicorn Mastertrust are two of the nine funds that count Electra Private Equity as a top-10 holding.
HICL Infrastructure is the most popular infrastructure investment trust with managers, appearing in the top-10 of nine funds.
The most popular UK-focused fund is City of London IT. It is a major holding in only two funds. British Empire Securities & General Trust is the most popular global trust, with a score of five.
Cade (pictured) says he is not surprised that fund managers prefer open-ended funds to their closed-ended rivals to access UK or global equity markets.
"For liquidity reasons, fund managers might pick an open-ended fund over a closed-ended one in the UK," he said. "UK equity trusts have had a lot of momentum recently and so are not great value, maybe if they were on wider discounts it might be a different story."
"In terms of the managers not holding global trusts, fund of funds managers prefer to manage their own asset allocation."
Despite that, Cade says trusts that focus on emerging markets, infrastructure and private equity will always be popular with managers.
"I think the key reason why these types of trusts are popular is because it is difficult to access those specialist areas with an open-ended fund."
"For performance reasons and investors taking a long-term approach, especially in the emerging markets, investment trusts are a good option because you don’t have to worry about inflows."
"Also, with areas like private equity and infrastructure, it is difficult to access them with open-ended funds," he added.