Markets have had an eventful three months since the beginning of the year, serving up different challenges for investors to navigate.
US president Joe Biden swiftly signed a $1.9tn stimulus package into law, raising important questions over the near-term risks of inflation, traders on RobinHood took on hedge funds at their own short positions and there was a US tech sell-off at the beginning of March.
That said, markets have continued to be buoyed by the Covid-19 vaccine news in November, especially in the stocks hit hard by nationwide shutdowns and where there is considerable undervaluation.
Trustnet looked at how the main investment trust sectors have performed so far this year and found that UK smaller companies trusts led the way in terms of returns after the dual-headwinds of Brexit and Covid, which has depressed UK valuations for some time, were abated in November.
On the other hand, it has been a difficult few months for the Japanese sectors and both the IT Japan and IT Japanese Smaller Companies sectors have posted losses year-to-date.
Top performing investment trusts of 2021
Source: FE Analytics
At the top by quite a distance is the £101.3m Miton UK MicroCap Trust, run by Gervais Williams and Martin Turner.
As of 16 March, the fund had made a total return of 35.06 per cent in 2021, surpassing its total return of 33.32 per cent for the whole of 2020.
The UK, and especially UK small- and-micro-caps, looked prime to enjoy a strong 2021 considering the strong response of the vaccination programme and Brexit trade deal giving companies and investors greater certainty about the UK’s future.
Speaking on the potential of UK micro-caps in January, Williams said the scale of the upside would be greater for various financial and commodity companies due their cyclical nature at a time of pandemic recovery.
“Furthermore, if inflationary pressures were to become more pronounced in future quarters, then the upside potential on financial and commodity micro-caps could be even greater,” he added.
“They have been so out of favour for so long that it is easy to underestimate the full scale of their upside recovery potential.”
In second place, the £161.4m RTW Venture Fund Limited trust, which sits in the IT Biotechnology & Healthcare sector, made a total return of 22.73 per cent year-to-date.
Generally the last quarter of 2020 was strong for the healthcare sector with the large-cap biotech heavy Nasdaq Biotechnology index finishing the year with a return of 26.5 per cent and small-cap biotech heavy Russell 2000 Biotechnology index at 52.6 per cent.
The team at RTW Investments said: “We believe the healthcare sector remains attractively valued, especially given the explosion in scientific innovation, and generalist interest just starting to return to the sector in the past year.
“The Covid vaccine experience brought some needed attention to how quickly new medicines can be discovered and developed leveraging genetic data and new drug technologies like mRNA.”
Two further funds from the IT UK Smaller Companies sector follow: the £37.4m Downing Strategic Micro-Cap Investment Trust and the £1.7m Chelverton Growth Trust. They have made 22.03 and 21.43 per cent in 2021 respectively.
Fidelity China Special Situations, managed by Dale Nichols, completes the top five with a total return of 13.89 per cent since the start of the year.
The economic backdrop for China remains supportive of markets as the economy broadly continues to recover after a strong response to Covid-19.
China’s real GDP growth came in at 6.5 per cent year-on-year in Q4 2020 beating market expectations, bringing 2020 annual GDP growth to 2.3 per cent.
One of its top performers in the portfolio is Meidong Auto Holdings.
Manager Dale Nichols said: “Its focus on lower-tier cities, a strong portfolio of luxury brands, strong revenues from after sales services and an improvement in new car sales margins contributed to its healthy sales and profits.”
Other IT UK Smaller Companies trusts dominate the list of top performers, with just one addition from the IT UK Equity Income sector - the £64m Chelverton UK Dividend Trust, managed by David Horner and Oliver Knott.
According to Rayner Spencer Mills Research, the manager is adept at managing money throughout many of recent history’s financial issues.
The research team added: “The simple approach of focusing on the dividend yield of all companies as a leveler to remove sectoral differences is quite compelling and has worked throughout the life of the strategy.”
Similarly, the only IT Asia Pacific trust to make the list is the Invesco Asia Trust, managed by Ian Hargreaves.
The £260.7m fund applies a pragmatic, valuation-orientated approach that allows for bottom-up stock selection.
Worst performing investment trusts of 2021
Source: FE Analytics
On the other hand, 2021 has been difficult for other strategies, with some even experienced double-digit losses since the turn of the year.
It has been a difficult start for Japan, as four of the bottom five are Japanese strategies.
Indeed, as a whole, the IT Japan and IT Japanese Small Companies sectors have posted losses of 5.37 per cent and 9.30 per cent respectively.
Baillie Gifford Shin Nippon is a highly respected trust with an experienced Japan manager boasting strong long-term returns. Over 10 years, the £727.4m fund has made a total return of 790.88 per cent, however, since the start of 2021 has made a loss of 11.99 per cent.
The worst performing trust is the British & American Investment Trust, which sits in the IT UK Equity Income sector with a loss of 31.88 per cent. The fund is in the fourth quartile of performers over one, three and five years, but has regained 11.8 per cent in the last month.