FE Trustnet looked at investment trusts with more than £500m worth of assets under management (AUM) that were bottom quartile in their sector during 2012.
According to FE Analytics, FE Alpha Manager Sebastian Lyon’s Personal Assets Trust was a bottom-quartile performer in IT Global Growth, delivering 4.33 per cent.
Performance of trust vs sector in 2012
Source: FE Analytics
It also significantly unperformed its benchmark – the FTSE All Share – which returned more than 12 per cent over the 12-month period.
The Personal Assets Trust does not use gearing, which may have contributed to its poor showing in last year’s risk-on environment.
Winterflood’s Kieran Drake says that investors shouldn’t be put off by Lyon’s bottom-quartile performance last year, as he sees it as a solid defensive play.
"Personal Assets Trust is one we rate highly," he said.
"Last year wasn’t a bad year for markets at all, so this explains why it lagged against other trusts in the sector. Its objective is to protect and increase its shareholders' cash – capital preservation is the name of the game."
"We like it as a defensive play and for that reason I think it is a very good option, although it may underperform in a market rally."
Troy declined to comment.
FE Analytics shows that since Sebastian Lyon began running the £557m trust in March 2009, it has returned 73.04 per cent – 30 percentage points less than the All Share. However, it has been significantly less volatile, and has a far lower max drawdown.
Personal Assets Trusts is currently on a premium of 1 per cent and has an ongoing charges figure of 1.01 per cent.
Gerald Smith’s £786m Monks Investment Trust was another bottom-quartile performer in the IT Global Growth sector last year, with returns of 0.3 per cent.
Its FTSE World benchmark returned 16.7 per cent in 2012, meaning that Monks underperformed by 16.4 percentage points.
Smith highlights poor stock selection and a rally in European markets as the major reasons why the trust underperformed, but he is confident that his current holdings can deliver over the longer term.
"The biggest contributors to the rise in the index were stocks we did not own," he said.
"Large pharmaceutical companies, big oil companies and other high-yielding shares perceived to be among the most defensive available to investors led the market higher, along with Apple and Google."
"There was also a good period for the markets of the eurozone, to which Monks had relatively little exposure."
Performance of trust, sector and index in 2012
Source: FE Analytics
"Being less than fully invested or 'de-geared' for much of the year was also a drag on performance during a period of rising markets, but had a smaller impact than stock selection. The trust’s worst fears for markets were not realised."
"Arguably the share prices of many of the trust’s holdings are more volatile than most of those in the market, which contributed to quite a few being out of favour in fearful times, but they have other characteristics that are consistent with companies that should deliver superior performance over the long-term."
"We are confident that these stocks will be recognised positively by the market at some stage soon and the performance of the trust will improve significantly as a consequence," Smith added.
The trust is currently trading on a 14.5 per cent discount. It has underperformed both its sector and benchmark over three and five years as well.
The £554m John Laing Infrastructure trust returned 5.09 per cent to its investors last year – the second-lowest figure in its IT Infrastructure sector.
A spokesperson for the trust said its main focus is income, reflected by its competitive yield of 5.55 per cent. It is not currently geared and is trading on a 4.1 per cent premium.
FE Alpha Manger Neil Woodford’s Edinburgh Investment Trust returned 12.89 per cent last year, but it was in the bottom quartile of its IT UK Growth & Income sector nonetheless.
However, it should be noted that it beat its FTSE All Share benchmark over the period – albeit only by 0.59 percentage points.
Drake is a big fan of Woodford, but recommends investors consider FE Alpha Manager Mark Barnett’s Perpetual Income and Growth Investment Trust as an alternative, due to liquidity issues.
"The trust is yield-focused and has a defensive tilt, which is perhaps why it underperformed last year," he said.
"The Edinburgh Investment Trust is not on our recommendation list, though Woodford is a very good and experienced manager."
"A fund which we prefer is Perpetual Income & Growth. The manager [Barnett] works very closely with Woodford, so investors do get that overlap. However, he is in charge of a lot less money."
Perpetual Income & Growth is also on a lower premium than the Edinburgh Investment Trust – 1.4 per cent compared with 6.4 per cent, according to the AIC.
The underperformance of star manager Anthony Bolton’s Fidelity China Special Situations IT has been well documented.
It was bottom quartile in IT Country Specialist Asia Pacific last year, although that is not a very fair comparison given how diverse the sector is.
The £576m trust also fell short of the MSCI China index over the 12-month period, with returns of just over 16 per cent.
Performance of trust vs index over 1-yr
Source: FE Analytics
However, as the graph shows, the trust came roaring back in the last quarter of the year and only underperformed the index by 1.34 per cent by the end of the year.
The Fidelity China Special Sits IT is currently on a discount of 1.2 per cent, and has an ongoing charges figure of 1.7 per cent.
In a recent article, FE Trustnet looked at the giant underperforming open-ended funds of last year.