Investment trusts managed by UK equity stars such as Nick Train, Mark Barnett and James Henderson have built up strong track records in beating their respective benchmarks over the past 10 calendar years.
While the long-term view is the most important consideration when investing, few investors enjoy looking at their holdings at the end of a given year and seeing that they have lost money.
With this in mind, we examined the performance of the trusts in the IT UK All Companies and IT UK Equity Income sectors to find out how many have returned more than their benchmark in each of the full calendar years of the past decade.
Of the 30 investment trusts we looked at, not one has beaten its benchmark in all 10 of the years but some have come close. FE Alpha Manager Nick Train’s £1.4bn Finsbury Growth & Income Trust has posted a higher return than the FTSE All Share in nine of the past 10 years – and is outperforming over 2018 so far.
Performance of trust vs sector and index since 1 Jan 2008
Source: FE Analytics
The only year it failed to outperform was 2016 – which was a difficult year for active managers given the Brexit result and Donald Trump’s presidential victory – when it made a 12.58 per cent total return compared with 16.75 per cent from the index.
Train runs a concentrated portfolio of around 25 stocks and is well-known for his long-term, low-turnover approach, which is reflected in the fact that he has only added one new stock to the portfolio in the past four years. Holdings include Diageo, Unilever, RELX, London Stock Exchange and Hargreaves Lansdown.
Finsbury Growth & Income’s portfolio concentrates on quality stocks, which have had a strong run in the post-crisis period, and shies away from value and cyclical companies. Some have argued that this could mean the trust is in for a challenging period if rising interest rates, rising inflation and accelerating economic growth mean that cyclicals start to outperform.
However, Train disputed this argument in a recent update, saying: “We think it is misleading to categorise your portfolio as being full of bond proxies. Some may do so; we certainly don’t. Instead, we think it more appropriate to look at it as a collection of undervalued growth companies. Your portfolio is more diverse – despite the focus on a few themes – than it is sometimes given credit for.”
Another 10 funds have outperformed their respective benchmarks in seven of the past 10 full calendar years, although only two of these are also ahead of the index for 2018 to date.
Thomas Moore’s £251.2m Standard Life Equity Income investment trust made 152.40 per cent between 1 January 2008 and 21 May 2018. The only years it didn’t make a higher total return than the FTSE All Share were 2009, 2011 and 2016.
Moore is a highly active investor and pays no attention to the make-up of the benchmark when building his portfolio, but has a bias towards companies that generate attractive dividend growth. Top holdings at the moment include John Laing, Rio Tinto, GVC, Royal Dutch Shell and BP.
Performance of trust vs sector and index since 1 Jan 2008
Source: FE Analytics
The other trust that has outperformed its index in seven of the past 10 years as well as over 2018 so far is Schroder UK Mid Cap, which is headed up by FE Alpha Manager Andrew Brough and Jean Roche.
The £207.9m trust has a strong long-term track record and made 254.66 per cent since the start of 2008, compared with 178.67 per cent from the FTSE 250 (ex IT) index. The years in which it underperformed the index were 2009, 2014 and 2016.
The approach behind the fund sees stocks categorised as ‘A’ companies, or those with secular growth, pricing power, strong franchises and quality management teams; ‘B’ stocks, or those where there are issues such as management change or the prospect of a re-rating; and ‘C’ stocks, which do not provide investors with growth opportunities. The portfolio is made up of ‘A’ stocks for the long-term with some ‘B’ holdings as short-term opportunities.
Schroder UK Mid Cap’s latest factsheet shows that 27.9 per cent of the portfolio is in financials, with 23.4 per cent in industrials and 23.2 per cent in consumer services. SSP Group, Renishaw, Grainger, HomeServe and Intermediate Capital Group are its five biggest holdings.
As mentioned previously in this article, another eight UK investment trusts were ahead of their benchmarks in seven of the past 10 full years but are currently lagging them over the year to date.
Five of them are managed by Invesco Perpetual: Edinburgh and Perpetual Income and Growth (both of which are looked after by FE Alpha Manager Mark Barnett), Invesco Perpetual Select UK Equity and Keystone (which are run by James Goldstone), and Ciaran Mallon’s Invesco Income Growth.
All five of these trusts have generated higher total returns than the FTSE All Share’s 91.85 per cent since the start of 2008, with performance ranging from Invesco Income Growth’s 97.31 per cent to Invesco Perpetual Select UK Equity’s 188.24 per cent. They all underperformed the index in the same years: 2009, 2016 and 2018 (as well of over 2018 so far).
Performance of trusts vs index since 1 Jan 2008
Source: FE Analytics
Chelverton Small Companies Dividend, which is managed by David Horner and David Taylor, outperformed the FTSE Small Cap ex ITs index in seven of the past 10 years. It lagged the index in 2008. 2012 and 2014.
Temple Bar Investment Trust also achieved this, despite the fact that the deep value approach favoured by manager Alastair Mundy, has been out of favour for much of the past decade.
The final trust on the list is James Henderson’s Lowland, which has made 146.41 per cent over the period in question. Henderson has an all-cap approach that seeks to “grow the capital to grow the income”, which means the portfolio often looks very different to its FTSE All Share benchmark.