In a year where markets have put investors through their paces, many have turned to some of the most well-known, and biggest investment trusts for reassurance, data from Hargreaves Lansdown, AJ Bell and Interactive Investor has found.
Almost £7bn has been raised by pre-existing investment trusts so far this year, according to data from the Association of Investment Companies (AIC). A further £1.5bn was raised by new initial public offerings (IPOs).
Trustnet previously looked at the most popular funds on the three investor platforms so far this year. This time the focus is on closed-ended options.
The table below reveals the 10 most popular investment trusts for all three platforms, with six names reappearing in all three lists: Scottish Mortgage, Monks, City of London, Edinburgh Worldwide, Pacific Horizon and BlackRock World Mining.
Source: Hargreaves Lansdown, AJ Bell and Interactive Investor
Baillie Gifford
As with the favourite funds several Baillie Gifford names appear.
Emma Wall, head of investment analysis at Hargreaves Lansdown, said Baillie Gifford’s growth style, which has produced a US, tech bias, has been a massive driver behind the fund groups’ long-term outperformance, as these type of stocks have been in favour with the market.
Wall added that these style and sector biases are something investors should be “mindful of” and should be conscious of “adding diversification through their other holdings.”
This style bias has contributed to Scottish Mortgage, Monks, Edinburgh Worldwide and Pacific Horizon’s exceptional returns, which have drawn investors into the portfolios.
All of them have fallen back relative to their peers in the short-term as growth has struggled during the value rally this year but over the long-term they have delivered some of their sectors’ best returns.
Scottish Mortgage, the largest investment trust in world at £19.3bn, has not been hindered by its size, making the best returns in the IT Global sector across time horizons ranging from one year to 20 years.
Performance of trust vs sector and index over 20yrs
Source: FE Analytics
Ryan Hughes, head of active portfolios at AJ Bell, said that the striking outperformance made it a “fantastic advert for long-term active investing.”
Wall said, however, that Scottish Mortgage’s outperformance was at times driven purely by controversial electric car giant Tesla, which may put off some investors.
Monks was second to Scottish Mortgage over the past 20 years, making 868.9%.
Performance of trust vs sector and index over 20yrs
Source: FE Analytics
Although it follows Baillie Gifford’s primary process Monks offers some “diversification,” Hughes said.
The trust invests in more than 100 stocks across sectors with a less exposure tech, though it does buy some fast-growing technology companies, which account for a quarter of the portfolio. It also has less invested in private equity than other Baillie Gifford names.
“It’s not as aggressive as others in the Baillie Gifford stable,” Hughes said.
These 100 companies are ones managers FE fundinfo Alpha Manager Spencer Adair and Malcolm MacColl think are due a “turnaround in fortunes,” Wall said.
“They look for companies hit by crisis which they believe have the ability to recover with a bang.”
This does add some risk to the strategy as not all companies might recover and those that do can take some time to reward shareholders.
Still, Hughes said it was a way to access “exciting growth companies” at a low cost, running an ongoing charges figure (OCF) of just 0.43%.
Edinburgh Worldwide also offers a differentiated approach from Baillie Gifford’s core process by investing in small-caps, though it maintains a focus on unlisted start-ups and “tech darlings,” Wall said.
Edinburgh Worldwide beat the three other trusts in its IT Global Smaller Companies sector over 10 years, returning 486.1%.
The final Baillie Gifford trust, Pacific Horizon, gives investors access to “Baillie Gifford’s Asian capability,” Hughes said, while still following the “usual formula.” This means that while the top geographic weightings are India and China the main sector allocations are technology and consumer stocks.
Over 10 years it made 481.5%, beating the IT Asia Pacific sector (215.1%) and the MSCI AC Asia ex Japan benchmark (140.9%).
The City of London Investment Trust
Moving away from Baillie Gifford with The City of London Investment Trust, which has grown its dividend for 55 consecutive years. Its dividend 4.95% yield and low OCF (0.36%) have made it a “popular choice for UK equity income investors,” Hughes said.
Job Curtis has run the trust for more than three decades, a tenure Dzmitry Lipski, head of funds research at interactive investor, called “exceptionally rare.”
Curtis buys high-yielding, cash-generative businesses and takes small bets away from the index, rather than aggressive sector and stock weightings. Ideally the companies are undervalued on a medium-term basis but can be invested in long-term.
“The portfolio is well diversified with around 100 holdings and the manager likes to run his winners, so portfolio turnover is low,” Lipski said.
The ii researcher noted that the trust has moved towards more overseas names due to the “unprecedented level of economic uncertainty in the UK,” primarily Brexit and the coronavirus pandemic.
Indeed years of Brexit and coronavirus headwinds have hurt the fund’s performance, Wall said, ranking third quartile throughout the past decade, returning 122.2%.
“But it has delivered on its income mandate and investors clearly value this consistency,” Wall said.
BlackRock World Mining
Last up is £1.1bn BlackRock World Mining trust. Hughes said the portfolio has been a popular option recently due to its mining and gold holdings, assets investors have sought out in preparation for rising inflation.
Due to the nature of its holdings it can be a volatile portfolio, Wall noted. But the trust does have relatively decent volatility for its sector, 27%, which is top quartile for the IT Commodities & Natural Resources sector.
Wall recommended using it as a satellite option rather than a core portfolio holding.
Over the past 10 years its made the best returns in the IT Commodities & Natural Resources sector, 34.68%. Over 20 years it made 1,003.9%.
Performance of trust vs sector and index over 20yrs
Source: FE Analytics
Other notable trusts to appear in at least two of the fund providers’ lists were: Smithson, Fidelity China Special Situations and Baillie Gifford US Growth.
