Although the weeks and months immediately following the collapse of Lehman Brothers were disastrous, equities have generally been on an upward curve ever since. As FE Trustnet recently highlighted, the best-performing open-ended funds over that time have been the ones that have focused on more risky areas of the market.
It is not too surprising to see, therefore, that the top-performing investment trusts since the crisis have generally outperformed the top-performing OEICs and unit trusts. Trusts’ ability to gear – or borrow money – means they tend to outperform during rising markets, and narrowing discounts have also provided a kicker.
However, these kickers can also work against investment trusts. While some closed-ended funds have delivered huge returns since the financial crash, some have never quite recovered and are still in the red.
According to FE Analytics, 77 per cent of trusts in the listed sector have made money since the collapse of Lehmans – a lower percentage than funds in the IMA universe over that time by some distance. The figure for beating inflation and the Bank of England base rate is 69.5 per cent and 75 per cent respectively – again, a lower percentage compared with funds.
That said, on average, investors would have made more money from holding investment trusts than open-ended funds since 15 September 2008.
Our data shows that 45.1 per cent of investment trusts have beaten the FTSE All Share’s return of 58.18 per cent over the period, while only 39.7 per cent of unit trusts and OEICs have achieved the feat.
Sixty-seven investment trusts have doubled their investors’ money since the crash, accounting for 19.2 per cent of the universe – higher than in the open-ended sector.
Here are some specific examples.
Best performing trusts since 15 Sep 2008
| Name | % Returns |
|---|---|
| Premier Asset Mgmt - Acorn Income | 315.88 |
| Aberdeen Asset Managers - Aberdeen Asian Smaller Companies Investment Trust |
296.28 |
| New Europe Property Investment - New Europe Property Investments | 279.78 |
| Frostrow Capital LLP - The Biotech Growth Trust | 255.68 |
| First State Investments IT - Scottish Oriental Smaller Companies | 255.09 |
| Aberdeen Asset Managers - Aberdeen New Thai IT |
241.95 |
| Standard Life Investments Ltd - Standard Life UK Smaller Companies Trust | 207.08 |
| BlackRock Invest Managers Ltd - The Throgmorton Trust | 190.94 |
| Schroder Investments Ltd - Schroder UK Mid Cap | 183.77 |
| Baillie Gifford & Company - Baillie Gifford Shin Nippon | 177.73 |
Source: FE Analytics
The best-performing portfolio over that time is FE Alpha Manager John McClure’s Acorn Income trust.
Our data shows that it has returned 315.88 per cent over the period, beating its benchmark – the Numis Smaller Companies ex IT index – by more than 190 percentage points.
However, although it is the best performer in terms of total return, one of the major reasons for that has been the function of a narrowing discount, as the graph below demonstrates.
Performance of trust’s NAV and price since Sep 2008
Source: FE Analytics
The trust actually ranks fourth in terms of NAV performance – the best being the Biotech Growth Trust – but with NAV returns of 221.7 per cent it has easily eclipsed the returns of its benchmark.
Data from the AIC shows that the trust is trading on a 0.5 per cent premium to NAV. Not only has it delivered high returns, but its yield of 3.5 per cent is attractive compared with the levels of interest available from bonds and cash.
Other trusts to feature high up the list are Baillie Gifford Shin Nippon, Aberdeen Asian Smaller Companies and FE Alpha Manager Harry Nimmo’s Standard Life UK Smaller Companies trust.
From the figures above it is clear that the highest-risk sectors have returned the most since the crash.
However, due to the fact that a number of AIC sectors have very few constituent members, there is little to be gained from viewing their comparative performance.
However, as FE Trustnet's study of the best performing funds since the Lehmans crash showed, it paid to be brave when others were fearful.
For instance, who would have thought that buying an emerging market country-specific trust such as Aberdeen New Thai on the day one of the world’s largest investment banks filed for bankruptcy would have made you 241.95 per cent in five years?
Despite that, some of the more risky areas of the market have not done as well. One of the most interesting points to come out of the study has been the performance of a number of private equity trusts.
Parts of the private equity sector have performed very strongly as markets have rallied. For instance, 3i Group – which has been described as the bellwether of UK private equity – has returned 115.02 per cent since January 2012.
However, despite those high returns, investors would still be down 20.37 per cent if they had been unfortunate enough to buy the trust on the day Lehman Brothers collapsed.
Performance of trust since Sep 2008
Source: FE Analytics
It is a similar situation with SVG Capital. The closed-ended fund has lost an eye-watering 31.74 per cent since the crash even though it has returned close to 40 per cent year to date. JP Morgan Private Equity IT also features very low down the list, having lost 54.3 per cent.
Investment trusts are not normally an investor’s first port of call when they are seeking capital protection; however, a number of closed-ended funds have been able to effectively shield their shareholders since the crash.
The pick of the bunch for risk/adjusted returns is the Ruffer Investment Company, which is headed up by Hamish Baillie and FE Alpha Manager Steve Russell.
FE data shows the closed-ended Ruffer fund has been one of the best trusts out of the whole listed universe for its Sharpe ratio, downside risk, maximum drawdown and annualised volatility over five years.
Its actual returns have not been bad either. The Guernsey-domiciled trust has returned 76.93 per cent since Lehmans' collapse.
In terms of fund groups, Aberdeen has been by far the best performer of the larger firms, with the likes of Aberdeen Asian Smaller Companies, Murray International and Aberdeen Smaller Companies High Income all adding to its outperformance.
Our data shows that every one of its funds has returned more than 50 per cent since the crash. Its worst-performing trust is the Aberdeen New India IT, but even that has doubled the returns of its MSCI India benchmark over the time frame.
Performance of trust vs index since Sep 2008
Source: FE Analytics
Baillie Gifford as a group has also performed well. All of its trusts have made double-digit returns and the majority have beaten their respective markets.
One notable exception has been the Monks Investment Trust, which has fallen well short of its benchmark – the FTSE World index – with returns of 35 per cent.
Henderson has done very well as a fund house, as all of its closed-ended funds have made positive returns since the fall of Lehmans; this is with the exception of the Henderson Value Trust, which has lost in excess of 25 per cent.
However, the group only took over the trust’s mandate earlier this year from SVG and is attempting to turn around its dwindling performance.
The Henderson Asian Growth Trust did see weak performance until it was taken over by Schroder's with a new total return mandate in March of this year.
