Other specialist closed-ended funds such as the HICL Infrastructure Trust and TR Property Investment Trust have also proved popular, but global portfolios such as Scottish Mortgage and RIT Capital Partners also featured high up the list.
However, the study showed that fund managers prefer to use open-ended portfolios for their UK exposure, with Montanaro UK Smaller Companies the only UK trust making it into the top 10.
Source: FE Analytics
3i Group topped the list as there are 12 funds in the IMA universe that count it as a top 10 holding.
One is FE Alpha Manager Alex Savvides’ JOHCM UK Dynamic fund. Savvides holds 3.57 per cent of his portfolio in 3i, which means he is taking a 3.39 per cent active bet on the trust.
Other funds that have a high weighting to the private equity trust include the five crown rated Majedie UK Focus fund and the five crown rated Schroder UK Absolute Target fund, which is headed up by FE Alpha Manager Steve Cordell.
The next most popular private equity trust is Electra Private Equity, though it only features in six funds' top 10 holdings lists.
3i Group is the largest trust in the sector, which may be one reason managers like to use it to gain access. It has a market capitalisation of £3.6bn which means that it sits in the FTSE 250 index.
Our data shows that 3i Group has performed well over recent years.
According to FE Analytics, it has returned 56.41 per cent over a cumulative three year period, more than doubling the returns of the IT Private Equity sector in the process.
Performance of trust versus sector over 3yrs
Source: FE Analytics
It has also outperformed over 12 months.
However, the trust tends to be hit very hard during periods of market weakness. Our data shows, for example, that it lost a staggering 71.59 per cent in the crash year of 2008 and a further 43.59 per cent in the falling market of 2011.
That has affected its longer term numbers, as an investors who bought 3i 10 years ago would be sitting on a return of just 27 per cent.
The 3i Group also looks expensive at the moment given that it’s trading on an 18 per cent premium to NAV.
The second most popular closed-ended fund with fund managers is the Scottish Mortgage Investment Trust, which is headed up by the highly-rated James Anderson.
All in all, 10 funds count it as a top 10 holding and they include Jupiter Fund of Investment Trusts, F&C Multi Manager Investment Trust and JPM Multi Manager Growth.
According to FE Analytics, it has been the third best performing portfolio in the IT Global sector over 10 years with returns of 282.54 per cent, beating its benchmark – the FTSE All World index – by more than 161 percentage points in the process.
It has also been top quartile over rolling one, three, five and 10 year periods having beaten both the sector average and its benchmark in seven of the last 10 discrete calendar years. Anderson currently has high weightings to North America and Europe, but only holds 0.7 per cent in Japanese equities, having told FE Trustnet last year that he sees no value in the region despite the Government’s recent pro-inflationary policies.
Scottish Mortgage is currently trading on a 2.5 per cent discount, which is wider than its one year average. For instance, it has traded on a 4 per cent premium at points over the last 12 months, according to data from the AIC.
The trust is 15 per cent geared and has ongoing charges of 0.51 per cent.
Interestingly, although it is very popular with retail investors, no fund managers hold Bruce Stout’s Murray International trust – which also sits in the IT Global sector – as a top 10 holding. Although, it’s almost constant premium may be the major reason behind that.
HICL Infrastructure and TR Property are the third and fourth most popular investment trusts with fund managers, as they are appear in nine and seven top 10s, respectively.
Experts tend to agree that the closed-ended structure of trust makes them better vehicles to access illiquid asset classes such as infrastructure and direct commercial property.
HICL Infrastructure, and others like it, have proved to be very popular with both professional and private investors alike, as they tend to pay a high, reliable and partially inflation-proofed dividend. This has certainly been the case recently, given the ultra-low interest rate environment and as bond yields are expected to gradually rise.
However, while HICL Infrastructure has a yield of 4.7 per cent, investors who buy shares now will have to pay a 15 per cent premium.
While TR Property does invest in direct property, the majority of the portfolio is in property shares. It has also performed well recently, delivering a return of more than 35 per cent over the last 12 months.
It yields 3 per cent and but is also trading on a 3 per cent discount.
The final closed-ended fund to feature on the list is RIT Capital Partners, which is chaired by Lord Jacob Rothchild.
There are seven IMA portfolios that count it as a top 10 holding, one of which is FE Alpha Manager Bill McQuaker’s five crown rated Henderson Multi Manager Diversified fund.
While he doesn’t hold in his top 10, Unicorn’s Peter Walls has also been buying shares in RIT for his five crown rated Mastertrust fund. He told FE Trustnet that the reason he has been upping his exposure to the trust is because he wanted to build in layers of protection against a possible market correction.
RIT has a heavy bias towards capital preservation. It fell just 14 per cent in the crash year of 2008 and made a positive return in 2011 when its MSCI World benchmark fell 8 per cent.
It has, however, failed to keep up with the recent rally. Nevertheless, that hasn’t detracted from its long term performance as it has returned 137.1 per cent over 10 years, beating its benchmark by 34 percentage points.
Performance of trust versus index over 10yrs
Source: FE Analytics
RIT Capital Partners invests in both listed and unlisted equities, plus it also holds collective investment vehicles such as specialist and absolute return funds. They management team also takes long and short currency positions within the trust.
It trades on a discount of 5.5 per cent and isn’t geared. Ongoing charges, plus a performance fee, come to 0.65 per cent.