Trusts can gear, or borrow money, allowing managers to make higher-conviction bets, and their structure means that managers aren’t adversely impacted by inflows or redemptions.
These vehicles tend to give managers the breathing space to take longer-term positions, and on average also have lower ongoing charges figures (OCFs) than funds – though this cost advantage was brought into question by a number of industry experts in a recent FE Trustnet study.
Here, we highlight three globally-focused investment trusts with high FE Crown ratings.
Law Debenture Corporation
This £537m trust has five FE Crowns to its name, and with good reason: our data shows that it is consistently one of the best performers in its IT Global Growth sector, and has consistently beaten its benchmark in the process.
Performance of trust versus sector and index
| Name | 1yr (%) | 3yr (%) | 5yr (%) | 10yr (%) |
|---|---|---|---|---|
| Law Debenture Corporation | 27.27 | 69.54 | 74.58 | 289.32 |
| IT Global Growth | 15.93 | 27.94 | 33 | 210.98 |
| FTSE All Share | 16.93 | 25.94 | 32.03 | 158.85 |
Source: FE Analytics
However, the trust has been more volatile, which reflects the managers long-term style.
It has had a particularly strong three years, with returns just short of 70 per cent. Part of this is down to the fact the trust is geared, which tends to help closed-ended vehicles in rising markets. The gearing is currently at 5 per cent.
Performance of trust versus sector and index over 3yrs
Source: FE Analytics
Law Debenture Corporation is primarily invested in the UK, but has around 30 per cent of its assets split between Europe ex UK, North America, Asia Pacific and Japan. The companies it targets tend to have a global focus.
It uses the FTSE All Share index as its benchmark, and invests across the market cap spectrum. FTSE 250 company Interserve, FTSE AIM company Oxford Catalysts Group, and FTSE 100-giant GlaxoSmithKline are all top-10 holdings.
The trust is headed up by FE Alpha Manager James Henderson (pictured), who also runs the five-crown rated Henderson UK Equity Income fund.
Many private investors are put off of the trust because it usually trades on a premium, which could lead to heavy losses if demand falters.
However, Iain Scouller, analyst at Oriel Securities, says they may want to take a second look. “It’s always on a premium because it holds a trustee business within its portfolio, which the board haven’t put a value on,” he explained.
“We did a notional valuation on this recently, which added an extra 10-15 per cent on top of the net asset value [NAV].”
According to data from the AIC, the trust is currently trading on a premium of 11 per cent.
“This business is helpful at generating income, and helps management to keep the yield growing. They’ve also managed to deliver a good level of growth at the same time.”
“I don’t think this premium should be enough to put investors off, unless it’s at significantly higher than a 10 per cent level. At the moment it’s probably on a discount to its true NAV of about 5 per cent, which is pretty good when you consider some income trusts are worse value, and haven’t grown their dividend in the same way.”
According to FE data, the Law Debenture Corporate is currently yielding 3.13 per cent.
The trust has an OCF of 0.47 per cent, making it one of the cheapest vehicles of its kind around. It doesn’t charge a performance fee.
F&C Global Smaller Companies IT
Scouller is also a big fan of this £345m trust, which he says is one of the very few standout small-cap options in the IT global sectors.
“This trust has done very well in a very interesting area,” he said. “A lot of trusts can do UK small cap or Asian small cap, but not many can put all these together and make a global smaller companies portfolio.”
“Peter Ewins is a very good manager, and F&C has a good presence in a lot of different regions.”
Again, the five-crown rated trust has an exemplary record. It tops the IT Global Growth sector over a three-, five- and 10-year period, and is second over the last 12 months.
Performance of trust versus sector and index over 10yrs
Source: FE Analytics
Needless to say, it has beaten its composite benchmark, split 70/30 between the MSCI World ex UK Small Cap and Hoare Govett UK Smaller Companies (ex ITs) indices, over these four time periods as well.
F&C Global Smaller Companies invests almost exclusively in developed countries, through both individual stocks and other collectives. It includes the Scottish Oriental Smaller Companies IT and M&G Japan Smaller Companies fund as top-10 holdings.
It has an OCF of 0.81 per cent, but does charge a performance fee on top. The trust is currently on a 2.6 per cent premium, reflecting its popularity.
Mid Wynd International IT
Michael McPhee’s £73.6m Mid Wynd International trust is the smallest and lowest profile of the three, but a strong contender none the less.
The four-crown rated portfolio has beaten its FTSE World benchmark over a three-, five- and 10-year period, and it’s been close to the top of its sector over these time frames as well.
It’s returned slightly less than Henderson’s Law Debenture Corporation over the medium and long-term, but has been less volatile; FE data shows that McPhee’s trust has an annualised volatility of 15.51 per cent over the last decade, compared to 18.42 per cent from Henderson’s. This is in spite of a very up-and-down period for the manager in 2010 and 2011.
Performance of trusts and index over 10yrs
Source: FE Analytics
McPhee has a greater focus on emerging markets than his peers featured in this article, holding around 14 per cent in these regions overall. Bermuda-domiciled investment company Ocean Wilson, which has major exposure to Brazil, is one of the trust’s top-10 holdings.
Scouller says he likes the trust, but sees it as a riskier play than even the F&C Global Smaller Companies trust, which has been significantly more volatile over the last decade.
“He takes large positions across the market cap spectrum, investing in large, mid and small caps,” he said.
“It takes a very long-term view, which is in keeping with Baillie Gifford’s style, looking for both high growth companies and undervalued companies.”
“He’s a big believer in emerging markets, which has cost the trust a bit in the last couple of years.”
“It’s a bit more specialist than something like F&C Global Smaller Companies in my view, because the manager makes big bets on individual companies.”
The Mid Wynd International IT is currently trading on a discount of 1.7 per cent, and is yielding 1.33 per cent.