While past performance is of course no guide to future performance, the FE Crown Ratings aim to identify funds that have not only done well on a total return basis, but in terms of alpha generation, downside risk and volatility, and the consistency with which they have beaten their benchmark.
Funds are then ranked within their relevant peer group.
FE Trustnet looks at a selection of the investment trusts that have received the biggest boost to their ratings in the rebalancing.
Standard Life UK Smaller Companies – 3 FE Crowns to 5 FE Crowns
FE Alpha Manager Harry Nimmo’s Standard Life UK Smaller Companies trust is one of the most well-regarded small cap portfolios in the closed-ended space. He took over the investment company in September 2003, having already managed the equivalent open-ended UK Smaller Companies fund since 1997.
According to FE Analytics, Standard Life UK Smaller Companies IT has topped the performance tables of the IT UK Smaller Companies sector over three, five and 10 years.
Over the last decade, the trust has returned 763.13 per cent, beating the returns of its benchmark – the Numis Smaller Companies ex IT index – by more than 500 percentage points.
Performance of trust vs index over 10yrs
Source: FE Analytics
Nimmo (pictured) is a growth investor who is not afraid to run his winners.
His top-three holdings – online retailer ASOS, bookmaker Paddy Power and financial services company Hargreaves Lansdown – have all been longstanding names within his portfolio.
The trust’s performance has attracted large amounts of investor attention and as a consequence it is now trading on a 3.3 per cent premium to its NAV.
Standard Life UK Smaller Companies has ongoing charges of 0.98 per cent and is 8 per cent geared.
JP Morgan US Smaller Companies IT – 3 FE Crowns to 5 FE Crowns
Another small cap portfolio to witness a re-rating is the JP Morgan US Smaller Companies IT, managed by Don San Jose.
It has consistently outperformed its Russell 2000 benchmark in the short-, medium- and long-term.
It has returned 63.38 per cent over 12 months, against the index’s 35.49 per cent. This level of outperformance was aided by a narrowing discount.
Although its 3.3 per cent premium makes it look expensive – it has a one-year average discount of 9 per cent – with the US economy apparently in recovery mode, that premium may well be worth paying.
JP Morgan US Smaller Companies IT’s largest sector weightings are to consumer products and financial services, which make up 25.7 and 23 per cent of the portfolio, respectively.
The trust is 7 per cent geared and has ongoing charges of 1.69 per cent, but that does not include its performance fee.
UK Commercial Property Trust – 3 FE Crowns to 5 FE Crowns
With interest rates and yields from traditional fixed income assets at rock-bottom levels, investors are having to look elsewhere for income.
This has led to property’s resurgence in popularity. One of the best-performing trusts in recent years with this focus has been the UK Commercial Property Trust.
The trust, which is domiciled in the Channel Islands, has returned 72.34 per cent over five years, 21.63 per cent over three and 16.57 per cent over one.
It has an impressive headline yield of 6.84 per cent and our data shows it has maintained its level of income distribution in recent years.
However, that high yield has not gone unnoticed in the current environment and the trust is now trading on an 11.36 per cent premium.
It is not alone in this regard: every trust in the IT UK Direct Property sector has seen its discount narrow substantially over the past year.
The trust invests in direct listed commercial property across the UK, and areas such as Swindon, London, Leicester and Leeds are all represented in the top-10 holdings.
The UK Commercial Trust is geared at 17 per cent and has ongoing charges of 1.48 per cent.
Picton Property Income – 1 FE Crown to 4 FE Crowns
The Picton Property Income trust has had the highest re-rating of any trust in the IT universe, moving three FE Crowns.
While it is still down on its launch price from October 2005, if an investor had bought shares in the trust five years ago, they would now be up 61.24 per cent.
Performance of trust over 5yrs
Source: FE Analytics
Winterflood is backing the trust and recently recommended that investors switch from the F&C Commercial Property Trust to Picton Property Income, given the fact F&C Commercial Property is now trading on a 14 per cent premium.
Although Picton Property Income is still trading on a 0.29 per cent discount, it has become a lot more expensive recently, with a one-year average discount of 21.68 per cent.
Like the majority of trusts in the sector, it is its income that has been the major attraction for investors. Picton Property Income currently has a yield of 7.25 per cent, for example.
The trust’s portfolio is heavily weighted towards London and the south east, with 55 per cent of its assets allocated to the region. The trust is highly geared and has a total expense ratio of 1.7 per cent.
VinaCapital Vietnam Opportunity – 3 FE Crowns to 5 FE Crowns
One of the main attractions of investment trusts is the fact that they allow investors to gain access to areas of the market that are not covered by open-ended funds.
One such example is the Cayman Islands-domiciled VinaCapital Vietnam Opportunity, which now has the coveted five crown-rating.
The trust has 46 per cent in listed equity and 17.2 per cent in Vietnamese real estate. Manager Don Lam also has exposure to private equity and fixed income.
It was launched in October 2003 and since then has returned 139.32 per cent. As the graph shows, the trust performed strongly in the years before the financial crash; however, investors who bought the trust in January 2007 have still not made their money back.
Performance of fund since Oct 2003
Source: FE Analytics
The trust is trading on a 26.37 per cent discount to its NAV. That discount has narrowed over the last year.
The Vietnamese market had a storming start to 2013, making 29.02 per cent by April. This saw renewed interest in the frontier market as an alternative to the underperforming emerging markets.
The market has sold off since then, and is now only 10.71 per cent up year-to-date; the fund has maintained its gains, however, and is up almost 25 per cent in 2013.
VinaCapital Vietnam Opportunity does not use gearing and has ongoing charges of 2.12 per cent.
