Skip to the content

Last year’s best performing investment trusts

04 January 2016

With 2015 now over, FE Trustnet takes a look at the closed-ended funds that took full advantage of last year’s volatile conditions.

By Alex Paget,

News Editor, FE Trustnet

Market falls and huge price swings dominated the financial headlines in 2015.

However, while certain investment vehicles were hit hard by macroeconomic headwinds such as China’s slowing growth, falling commodity prices and worries over an interest rise in the US, others positively flourished.

This difference in performance is clearly seen in the world of investment trusts.

Thanks in part to their structure and features like gearing and discount volatility, certain closed-ended funds delivered barnstorming gains while others halved in value during 2015’s turbulent environment.

In this article, we take a closer look at the trusts that fared best last year - excluding those which sit in the IT Unclassified and various VCT sectors.

 

Source: FE Analytics

As the table above shows, the best performing trust out of the more mainstream peer groups last year was FE Alpha Manager Nick Train’s Lindsell Train IT.

According to FE Analytics, the portfolio gained a hefty 52 per cent last year compared to a 6.78 per cent return from its IT Global sector average. As a point of comparison, the MSCI AC World index was up just 3.29 per cent.

Regular FE Trustnet readers will know by now that Train (pictured) has been through somewhat of a purple patch over recent years as his focus on high quality, cash generative companies (both large and small) with reliable earnings has suited market conditions.

In fact, he has beaten his peer group composite in each of the last 10 calendar years.

His five crown-rated Lindsell Train IT does differ quite substantially from his CF Lindsell Train UK Equity fund and Finsbury Growth & Income Trust, however.

While it has holdings such as Diageo, Unilever and Heineken in common with his other portfolios, its largest position is Lindsell Train Ltd (which is unquoted and makes up 32 per cent of the total assets) plus it also counts the Lindsell Train Japanese Equity fund in its top 10.


 

The trust is also relatively small and has a sticky shareholder base, which has led its shares to drift out to substantial premium of 31.26 per cent. FE data shows that in NAV terms the trust was only up 18.52 per cent in 2015, showing just how important the widening premium has been to the trust’s total return.

 

Source: FE Analytics

Given its current premium and the fact it has delivered an annualised return of 22.54 per cent over the past seven years, investors will no doubt be questioning whether Lindsell Train IT’s stellar run will continue in 2016.

Outside of Train’s portfolio, three other global trusts feature on the list – New Star IT, Oryx International Growth and the Independent Investment Trust, which all returned more than 38 per cent last year and are all relatively small in size.

Two of the most popular areas of the market with both professional and private investors heading into 2015 were Japan and Europe thanks to low valuations (relative to the US) and the prospect of quantitative easing from the regions’ respective central banks.

Though both markets were hit by volatility, investors were largely rewarded for backing Japan and Europe.

Performance of indices in 2015

 

Source: FE Analytics

Therefore, it may come as little surprise that Japanese and European trusts are amongst the top 10 performing portfolios last year – namely Baillie Gifford Shin Nippon and JP Morgan European Smaller Companies, which both focus on the small-cap end of their respective regions.

FE Alpha Manager John MacDougall’s Ballie Gifford offering has been the IT Japanese Smaller Companies sector’s leading light since the manager took charge in May 2007. FE data shows the trust has beaten both its sector and MSCI Japan Small Cap benchmark by more than 100 percentage points over that time.

Baillie Gifford Shin Nippon’s 49.94 per cent gain in 2015 meant it more than doubled its benchmark’s return as well.

Francesco Conte and Jim Campbell’s JP Morgan European Smaller Companies trust (which returned 42.3 per cent in 2015) has also been a strong long-term performer, having easily beaten the IT European Smaller Companies sector and its Euromoney Smaller Europe ex UK benchmark over one, three, five and 10 years.


 

While most are still very positive on Japan and Europe heading into 2016, the JP Morgan European Smaller Companies trust is now trading on a far narrower discount than it has done over one and three years while Baillie Gifford Shin Nippon is now on a 2.3 per cent premium to NAV.

Despite the fact the FTSE All Share lost 2.5 per cent on a headline level last year, it is interesting to note that four of the top 10 performing investment trusts last year focus on UK equities – namely SVM UK Emerging, JP Morgan Mid Cap, Standard Life UK Smaller Companies and Acorn Income.

As their names suggest, though, all of those portfolios are biased towards the lower end of the FTSE All Share.

The UK’s small and mid-caps enjoyed a decent year thanks to poor sentiment towards them following a tough 2014, an improving economic backdrop and a surprisingly certain general election result, while the more internationally-facing FTSE 100 index was rocked by 2015’s multiple macro forces.

Colin McLean’s SVM UK Emerging trust was the best performing closed-ended UK fund last year with a gain of 47.87 per cent, which meant it outperformed its benchmark – the FTSE AIM All Share index – by more than seven times.

The trust has also considerably outperformed its benchmark over three, five and 10 years but (largely due to its area of focus) has underperformed relative to its IT UK Smaller Companies sector over those time frames.

Two of the other UK trusts to make it onto the list also saw somewhat of a comeback last year following a difficult 2014.

One of those is FE Alpha Manager Harry Nimmo’s Standard Life UK Smaller Companies trust, which gained 40.41 per cent last year following on from its 15.1 per cent loss in 2014 caused by a number of stock-specific disappointments.

Following the death of its star manager John McClure and the general underperformance of small caps, the Acorn Income trust also ended 2014 with a double-digit loss. However, under the stewardship of the Simon Moon and Fraser Mackersie (and Paul Smith who looks after the bond portion of the portfolio), the split capital trust rallied back to make 36.03 per cent.

Performance of trusts versus index over 2yrs

 

Source: FE Analytics

Those high returns means that both trusts (which have stellar long-term track records) are now outperforming their Numis Smaller Companies benchmark on a two-year view.

ALT_TAG

Editor's Picks

Loading...

Videos from BNY Mellon Investment Management

Loading...

Data provided by FE fundinfo. Care has been taken to ensure that the information is correct, but FE fundinfo neither warrants, represents nor guarantees the contents of information, nor does it accept any responsibility for errors, inaccuracies, omissions or any inconsistencies herein. Past performance does not predict future performance, it should not be the main or sole reason for making an investment decision. The value of investments and any income from them can fall as well as rise.