A number of large trusts are already well-positioned as popular choices for the retail market and have simplified procedures, policies and charges to make them readily understandable to the layman.
For investors looking for the core building blocks of their portfolio, there are now a number of decent candidates among closed-ended funds.
FE Trustnet looked for those that score highly across the FE Crown and FE Alpha Manager ratings, are larger than £500m in size and have simple charging and discount policies.
UK equity income
It comes as little surprise that most of the trusts that are best-suited to retail money are in the UK Growth & Income sector, given the high popularity of income investing in recent years.
One of the standout options is the £878m City of London IT. Job Curtis’ trust, which has five FE Crowns, has made an effort to become more retail-friendly, cutting and simplifying fees down to a low figure of just 0.45 per cent per annum.
It is not one of the most aggressive funds in the sector, with second-quartile returns over three and five years.
Performance of trust vs sector and benchmark over 3yrs
Source: FE Analytics
This still puts its returns significantly ahead of the FTSE All Share, however, and its large cap holdings should be reassuring to anyone buying investment trusts for the first time.
Curtis explained his process and portfolio to FE Trustnet in a recent interview.
FE Alpha Manager Neil Woodford’s Edinburgh Investment Trust is another that is large enough to be liquid, at £1.14bn market capitalisation. It has four FE Crowns.
It is similar to that of Woodford’s open-ended income funds, but it has managed to outperform them in recent years.
This has been helped in part by the use of gearing – the fund has some long-term debt that will need to be repaid.
The Lowland Investment Company has five FE Crowns and an FE Alpha Manager in James Henderson, although at £353m market capitalisation it is smaller than the other candidates. Its returns of 105.25 per cent over the past three years put the other funds in this list to shame. Edinburgh Investment Trust has made 59.07 per cent over this period.
Performance of trusts vs benchmark over 3yrs
Source: FE Analytics
Perpetual Income & Growth, run by FE Alpha Manager Mark Barnett for Invesco, has four FE Crowns and at £805m is reassuringly liquid.
Barnett’s portfolio tends to be punchier than Woodford’s and has made 67.28 per cent over the past three years in share price terms.
Global income
Fewer global income trusts are as obviously appealing to an investor new to trusts, with the most obvious candidate arguably too expensive.
Murray International is, at £1.36bn, large enough to reassure retail investors. Bruce Stout’s trust has an excellent long-term track record, with the manager’s bearish outlook serving him well over the past five years.
Performance of trust vs sector and benchmark over 5yrs
Source: FE Analytics
However, its strong performance has pushed it on to a large premium, meaning that investors have to pay 8.1 per cent more than net asset value per share.
The trust also has a performance fee, which many investors find off-putting.
The £382m British Assets Trust is the next largest option, and does not have a performance fee.
It does not stand out on our ranking systems, however, with three FE Crowns out of a possible five.
UK growth
Investors who wish to play the apparent recovery in the UK domestic economy may want to have a look at Keystone IT, which has five FE crowns and is run by FE Alpha Manager Mark Barnett.
It is only £223m in size, however, although it stands out in our ranking systems.
Barnett has run the trust since 2003, and over that time has returned 252.73 per cent to investors while the FTSE All Share has grown by just 123.96 per cent.
Performance of trust vs sector and benchmark over 10yrs
Source: FE Analytics
For investors looking for mid cap exposure, Schroder UK Mid Cap has four FE Crowns and an FE Alpha Manager, Rosemary Banyard. The fund is only £147m in size, however.
Mercantile Investment Trust is the largest in the sector, at £1.3bn, although it has only two FE Crowns.
Emerging markets
There are few options in the emerging markets sector, although the ones that do exist are becoming more important as a number of open-ended options have closed.
Templeton Emerging Markets, at £1.8bn, is the most popular option out there.
Run by Dr Mark Mobius, the fund has gone slightly off the boil of late, returning less than the MSCI Emerging Markets in 2012 and 2013 so far.
A lot of experts back it to do well in the medium-term, however.
Performance of trusts vs index over 3yrs
Source: FE Analytics
Both this fund and Genesis Emerging Markets have four FE Crowns, and the latter, at £735m market cap, is also of a decent size.
The Genesis fund has held up better over the past three years, although both trusts have underperformed the MSCI Emerging Markets benchmark.
