Investment trusts focusing on UK small-caps, commodities and private equity are among those that have topped the Association of Investment Companies (AIC) universe during growth stocks’ bull run and then when value staged their recent comeback, Trustnet research shows.
The growth style of investing prospered for much of the post-financial crisis bull market, as growth stocks tend to be the preferred option for investors in low growth, low inflation environments.
As the first chart below shows, the MSCI AC World Growth index was up 130.98 per cent in the five years to 9 November (when the announcement of Pfizer’s Covid vaccine sparked a market rotation) while its value counterpart made just 40.52 per cent.
But, as the second chart highlights, this situation has completely reversed since investors were buoyed by the reopening of the global economy and the expectation of strong growth and inflation numbers. The value index is up 22.12 per cent since 'Pfizer Monday'; growth only 5.37 per cent.
Performance of indices in growth bull market and since Pfizer Monday
Source: FE Analytics
In this article, Trustnet looked at the performance of all the trusts in the AIC universe (excluding the IT Unclassified and VCT sectors) over two periods: the five years up to 8 November 2020 – which was dominated by growth investing – and the time since 9 November and now – when value investing has led the market.
When we looked for trusts that were top quartile in the whole AIC universe (as opposed to being top quartile in their specific sector) over both these periods, we were left with just seven.
The trust that has posted the highest total return over both periods combined is Baker Steel Resources Trust, which is up 415.79 per cent – compared with a gain of 126.26 per cent from its average IT Commodities & Natural Resources peer.
This is the result of a 222.37 per cent return in the five-year growth period and a 60 per cent rise since value started rebounding in November.
Baker Steel Resources Trust concentrates on investing in unlisted companies although it does hold listed business, especially those that are considered ‘special situations’. It is run by Baker Steel Capital Management, which is a specialist in investing in the gold and natural resources sectors.
In the latest annual report, chairman Howard Myles explained why the trust performed strongly during last year’s pandemic: “Initial investor reaction saw a sharp sell-off in global equity markets including metals and mining shares but this proved short lived as sentiment recovered when it became evident that governments would support economies with unprecedented fiscal measures.
“The future inflationary risk of this massive government borrowing propelled the gold price to all-time highs. This was then followed by increases in base metal prices with increased expected demand from government stimulus packages including resource intensive infrastructure projects to kick start their economies.”
The other six trusts that were top quartile in the AIC universe over both periods under consideration can be seen in the table below, which is ranked by the total return across the two periods we looked at.
Source: FE Analytics
Looking at the growth and value periods separately, we see that Baker Steel Resources Trust also made the highest return over the five years of the growth bull market that we examined, gaining 222.37 per cent.
The trust with highest returns over the value rebound is Ingot Capital Management’s UIL Limited, thanks to a 63.02 per cent total return. Over the growth period, it was up 79.85 per cent – meaning a 193.2 per cent return over the whole period.
The £336m trust resides in the IA Flexible Investment sector and seeks to invest in “undervalued investments” in a wide range of sectors and markets.
It has large stakes in several investment platforms backed by Ingot Capital Management. Somers, a Bermuda Stock Exchange listed financial services investment holding company,is one of these and its UIL’s largest holding with a weighting of 38.4 per cent.
Indeed, all of the trust’s top five holdings – which are completed by Zeta Resources, Utilico Emerging Markets Trust, ICM Mobility and Allectus Capital – are also investment platforms managed by Ingot Capital Management.
Saumya Banerjee, equity research analyst – investment funds at Shore Capital, said: “Despite the volatility and the associated risks, we note that the platforms have delivered value as a whole over time in identifying strong investment themes and opportunities.
“We believe that UIL might be attractive for a range of investors looking for focused investments in areas such as financial services and technology, where the managers typically get involved in nurturing the company rather than merely investing in them.”
Other trusts on the list which might be familiar names include the £1.2bn BlackRock World Mining Trust, which is one of the best-known members of the IT Commodities & Natural Resources sector, and BlackRock Throgmorton Trust, which invests in UK smaller companies.