The share price gains on an investment trust are not a fair representation of a manager’s skill given the effect of discount volatility – supply and demand for the shares – on the numbers. Looking at the NAV returns of trusts on a total return basis provides a fairer comparison with the results of open-ended funds, which are not subject to this factor.
Our figures show that while FE Alpha Manager Alex Wright is the top-performing manager in the space over three years on his open-ended portfolio, seven out of the 10 best-performing portfolios are closed-ended.
Given there are only 17 investment trusts in the sector, that means that 41 per cent of the trusts are included in the list.
NAV performance of trusts vs funds over 3yrs
| Name | Member Of | 3yr returns (%) |
|---|---|---|
| Fidelity - UK Smaller Companies | UK Smaller Companies | 126.91 |
| Cazenove - UK Smaller Companies | UK Smaller Companies | 119.47 |
| Henderson Smaller Companies | IT UK Smaller Companies | 105.7 |
| Aberforth Geared Income Trust | IT UK Smaller Companies | 103.4 |
| BlackRock Smaller Companies | IT UK Smaller Companies | 98.3 |
| Rights & Issues Investment Trust | IT UK Smaller Companies | 97.8 |
| Baillie Gifford - British Smaller Companies | UK Smaller Companies | 93.09 |
| Standard Life UK Smaller Companies | IT UK Smaller Companies | 92.5 |
| Strategic Equity Capital | IT UK Smaller Companies | 92.3 |
| JP Morgan Smaller Companies | IT UK Smaller Companies | 91.7 |
| The Throgmorton Trust | IT UK Smaller Companies | 90.7 |
| Henderson - UK Smaller Companies | UK Smaller Companies | 90.28 |
| SWIP - UK Smaller Companies | UK Smaller Companies | 88.91 |
| Marlborough - UK Micro Cap Growth | UK Smaller Companies | 88.24 |
| Scot Wid HIFML - UK Smaller Companies Alpha | UK Smaller Companies | 87.51 |
| AXA - Framlington UK Smaller Cos | UK Smaller Companies | 84.64 |
| Schroder - UK Smaller Companies | UK Smaller Companies | 84.54 |
| Old Mutual - UK Smaller Companies Focus | UK Smaller Companies | 84.49 |
| Aviva Inv - UK Smaller Companies | UK Smaller Companies | 83.93 |
Source: FE Trustnet
Alex Wright’s Fidelity UK Smaller Companies fund has returned 126.91 per cent over the past three years, compared with a gain of 72.81 per cent from its benchmark, according to data from FE Analytics.
Performance of fund vs sector and index over 3yrs
Source: FE Analytics
It is hardly surprsing with figures like this that the fund has had to soft-close, with strong demand pushing the five crown-rated portfolio up to £311m.
Investors who want access to the management expertise of Wright (pictured) will have to turn to the Fidelity Special Values Trust, which he took over in September last year.
According to FE Trustnet data, it has made 49 per cent on an NAV basis in the past 12 months alone, more than all but one trust in the IT Smaller Companies sector.
Another open-ended fund, Cazenove UK Smaller Companies, comes second, with returns of 119.47 per cent. FE Alpha Manager Paul Marriage’s fund is another one that has five FE Crowns.
However, only one other open-ended fund appears in the top-11 performers, which are dominated by investment trusts.
Henderson Smaller Companies has returned 105.7 per cent on an NAV total return basis, making it the pick of the bunch.
It was tipped by Winterflood when the broker recently updated its recommended list, both for its strong performance and the fact it sits on a wide discount of 15.6 per cent.
Aberforth Geared Income Trust comes second, having made 103.4 per cent in NAV terms.
The trust has been out of favour for much of that time, however, with its share price returns lagging those of the index.
Over the past year it has seen a leap in performance, up 52.48 per cent in share price terms while the sector has made 35.83 per cent.
Performance of trust vs sector over 1yr
Source: FE Analytics
This is still less than the 62.5 per cent it made in NAV terms.
The trust has a split capital structure, with ZDP shares also trading with a pre-determined final entitlement of 159.7p in June 2017. They are currently at 136p, according to the AIC.
Mike Prentis’s BlackRock Smaller Companies has made 98.3 per cent in NAV terms, the third-best returns for an IT manager and the fifth-best overall.
Trusts from SVG, JP Morgan and Standard Life also appear on the list, with a total of eight trusts managing to make more than 90 per cent in NAV terms over this period.
The only other open-ended fund to appear is Baillie Gifford British Smaller Companies, which has made 93.09 per cent.
There are a cluster of funds making returns in the 80s that appear in the top-20.
Industry experts explain that managers of trusts have some major advantages over managers of funds, chiefly not having to keep money on hand for redemptions.
Our figures suggest that in the smaller companies sector, where stocks are less liquid, this could well be an advantage.
However, in a previous article, FE Trustnet questioned whether this held for more liquid larger cap funds.
The presence of two open-ended funds at the top of the list shows that the best open-ended managers can prosper despite their disadvantages.
In share price terms, the returns of the trusts are very different.
FE Alpha Manager Harry Nimmo’s Standard Life UK Smaller Companies Trust has made 122.31 per cent over the period, still slightly behind the returns of Wright.
Performance of trusts in share price terms over 3yrs
| Name | 3yr share price returns (%) |
|---|---|
| Standard Life UK Smaller Companies Trust | 122.31 |
| Henderson Smaller Companies | 118.8 |
| BlackRock Smaller Companies IT |
114.04 |
| Strategic Equity Capital | 111.99 |
| Chelverton Growth Trust | 107.25 |
Source: FE Analytics
Five other trusts have been boosted by discount activity to provide returns of more than 100 per cent, according to our data.
In a previous article, FE Trustnet looked at the record of UK income managers.
