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Small caps dominate list of best-performing investment trusts in H1 2021

12 July 2021

Trustnet examines the best-performing investment trusts in a record-breaking six months for the closed-ended space.

By Rory Palmer,

Reporter, Trustnet

Chelverton Growth Trust, River & Mercantile UK Micro Cap and Mobius Investment Trust are just three of the top-performing investment trusts in the first half of 2021.

Five of the top-10 came from the IT UK Smaller Companies sector as the asset class rebounded strongly after an EU trade deal and impressive vaccination roll-out combined to boost the economy.

At a wider level, a total of £6.3bn was raised by investment companies in the first half of 2021, the highest amount ever in a half-year period according to new data from the Association of Investment Companies (AIC).

The record amount included £5.1bn raised by existing investment companies (secondary fundraising), also a record for a half-year period and £1.2bn raised in IPOs, the highest amount since H1 2017.

The £6.3bn total fundraising exceeded the previous record of £4.9bn in H1 2017.

Ian Sayers, chief executive of the AIC said: “The record fundraising in the first half of this year shows investment companies bouncing back strongly from Covid-19 and giving investors what they want, from growth opportunities in smaller and unquoted companies to income-generating alternatives such as renewable energy assets and infrastructure.

“The new launches demonstrate that income remains a top priority and investment companies are continuing to help investors gain access to emerging areas such as digital infrastructure and energy efficiency."

Top performing investment trusts in H1 2021

 

Source: FE Analytics

At the top of performers is the £2.6m Chelverton Growth Trust, managed by David Homer and David Taylor.

Sitting in the IT UK Smaller Companies sector, the trust aims to provide capital growth by investing in companies listed on the Official List and Alternative Investment Market (AIM).

These businesses must have a market-cap of up to £50m at the time of investment and are believed to be at a “point of change.”

Since the turn of the year, the trust has made a total return of 62.50 per cent, while the average sector peer returned 23.59 per cent.

Manager David Homer said: “The announcement of multiple successful vaccine trials in November brought about a substantial swing in sentiment, with optimism now the order of the day.

“The market largely shrugged off new waves of the pandemic and additional lockdowns, with the focus now firmly on the post-pandemic recovery and the expected wave of consumerism, funded by savings built up during the pandemic.”

In second, and also managed by Homer, is the Chelverton UK Dividend Trust, co-managed this time by Oliver Knott.

The trust screens stocks of any size that on a 12-month view will yield at least 4 per cent and this forms the key principle of the income strategy.

A company can only be held in the portfolio if it’s believed that it will yield 4 per cent over a year, which means every company held contributes to the overall yield of the fund.

According to analysts at Rayner Spencer Mills Research: “The manager is very experienced and has managed money throughout many of recent history’s financial issues.

“The simple approach of focusing on the dividend yield of all companies as a leveller to remove sectoral differences is quite compelling and has worked throughout the life of the strategy.”

In the first half of 2021, the £71.8m trust made a total return of 45.81 per cent, while the average fund in the IT UK Equity Income sector made 14.73 per cent.

Performance of fund vs sector & benchmark since launch

 

Source: FE Analytics

Homer has run the fund since launch in May 1999 and has presided over a 1015.83 per cent return, compared to 353.92 per cent for the FTSE Small Cap ex Inv Co index and 283.35 per cent for the average trust in the IT UK Equity Income sector.

Going back to the IT UK Smaller Companies sector, in third is the £103.4m River & Mercantile UK Micro Cap trust, which has been managed by George Ensor since 2018.

Analysts from Winterflood Investment Research said: “We have been advocates of using the closed-ended fund structure to access the opportunity set that exists amongst UK micro-cap companies for some time, given the inherent illiquidity of companies at that end of the market place.

“In addition, we have seen it as an attractive space for a genuinely active fund manager to add value through stock selection.

“River & Mercantile plays to both of these themes, with a concentrated portfolio of around 40 holdings and an emphasis on companies with strong growth prospects.”

Next up, is the £36.6m Geiger Counter Trust, from the IT Commodities & Natural Resources sector.

Managed by Rob Crayfourd and Keith Watson, the trust, according to research from Trustnet back in April is the only fund that appears in both top-25 performing investment trusts across 2020 and 2021.

After making a total return of 78.71 per cent last year, it has made 40.43 per cent in the first half of 2021.

Geiger Counter invests primarily in the securities of companies involved in the exploration, development and production of energy, predominantly in the uranium industry.

Uranium mining equities rose strongly in early February 2021 and, despite giving back some early gains, the net asset value (NAV) of the trust ended that month up 31.6 per cent.

While trusts from the IT UK Smaller Companies sector make up the rest top-10, there are two outliers – the $156m Vietnam Holding Limited and £151.2m Mobius Investment trusts.

The former, which sits in the IT Country Specialist sector has made 38.54 per cent in the first half of the year.

Indeed, Vietnam was the best performing stock market in the world in May, with the benchmark VN All Share index up more than 32 per cent over the first five months of 2021, in spite of a fourth wave of Covid-19.

Finally, the Mobius Trust, run by Frostrow Capital, invests in emerging and frontier market equities.

The trust has made a total return of 34.56 per cent, while its average IT Global Emerging Markets sector peer made 10.16 per cent.

Considering the difficulty countries such as India and Taiwan have had with Covid cases, the portfolio has remained resilient.

The management team commented: “The portfolio of the Mobius Investment Trust has held up strongly amidst these headwinds and over the reporting period, the NAV and share price rose by 2.5 per cent and 7.8 per cent respectively.”

The trust is currently trading at a 1.4 per cent discount to NAV and is not currently geared.

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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.