Strongly performing world equity markets have lead a number of global growth investment trusts to trade close to or above their all time high share prices. For some trusts this represents a peak going back over a 100-year plus history.
As a result of these global market rises, the discounts of many trusts have narrowed significantly. The average discount for a global growth investment trust is now 4.9% according to Trustnet, three years ago this was closer to 11%.
According to Trustnet, over the last three years to January 2, 2006, the three of the best performing trusts in the AITC Global Growth sector have been Caledonia, Jupiter Primadona Growth and SVM Global.
Caledonia was the top performer, returning 132.4% over three years, with Primadona growing 128.2% and SVM Global up 116.6%. The AIC Global Growth sector average return over the same time period was 78.0%.
Nick Greenwood, chief investment officer at iimia Investments, says all three trusts are very different from one another. He notes the Jupiter Primadona Growth trust, managed by Paul Sheehan, is the most traditional global growth fund, whereas the SVM Global fund, managed by Colin McLean is an aggressively managed fund of funds portfolio.
A family affair
The Caledonia trust is more unusual. Originally a shipping company in the 1880's, the company was acquired by the Cayzer family in 1951 and renamed Caledonia Investments. In 1987 Caledonia became an investment holding company and it was finally converted into an investment trust in April 2003. The Cayzer family still own a substantial minority of the trust and the portfolio is self-managed by its directors, rather than by a fund management group.
Richard Scott, a fund manager at iimia, says the Caledonia trust is a hybrid between a global generalist trust and a private equity trust. He estimates roughly two-thirds of the portfolio is invested in unquoted companies and the rest is in quoted. It also invests in other investment trusts, with some 10% currently invested in British Empire Securities.
He adds: "The portfolio is quite concentrated, it's not unusual for management to own 10% stakes in the companies they invest in. In addition they frequently work with the management of the companies they hold to realise more value from them."
Prior to its conversion to an investment trust, Scott notes the company traded at a huge discount to net asset value. He says the discount stood at 30% when it first converted to an investment trust, whereas as of January 2, 2007, it had fallen to just 0.8%.
As of the same time, the Jupiter Primadona Growth trust stood at a discount of 4.0%, while the SVM Global trust was trading at 1.3% premium to NAV.
Given the recent market highs, Greenwood adds the share prices of both SVM Global and Caledonia both now trade at all time highs. On December 18, 2006, the share price of Caledonia stood 2094p, surpassing its pervious high of 800p which it reached in March 2000. On January 2, 2007 the price had fallen back to 2080p, but over 12 months the share price had risen 11.5%.
Meanwhile SVM Global is now trading at 382.75p, topping its peak in March 2000 of 250p. Primadona is the only trust of the three not to surpass its all-time high of 1270p, current trading at 990p.
Primadona: A stockpicking fund
Tim Cockerill, head of research at Rowan & Co Capital Management, does not hold any of the three funds. However he notes the Primadona trust has had "a chequered history".
Cockerill says between 1999 to 2000, the trust, which was once Jupiter's flagship fund, performed strongly thanks to its high weighting in technology companies. "However since the burst of the tech bubble it struggled for along time after, with the discount dipping to some 20-25%. It went from being a must have investment trust to being very out of favour," he adds.
During its more successful period the trust was managed by Adrian Paterson, who is now at Artemis managing the open-ended £654m Artemis UK Growth fund. After Paterson left the portfolio was taken over by Justin Seager, and Cockerill says it was at the point the market shifted the "wrong way and performance suffered.
Greenwood describes Primadona as very much a stockpicking fund, with Sheehan holding a number of Jupiter funds in the portfolio. He adds in October last year the board of the trust brought in a discount control mechanism, which saw the discount move from 15% in early September to under 5% now.
Formerly called the Scottish Value Investment Trust, Cockerill says the SVM Global fund is known for using hedge funds and alternative investments in its portfolio.
He says: "It is quite a specialist animal, having exposure to the Russian and Japanese sectors. While we don't hold the fund, manager McLean is well respected and has a loyal following."
Greenwood also does not own the trust, but he notes he does hold the open-ended version of the portfolio SVM Global Opportunities (launched in May last year) in the iimia Growth multi-manager fund. "Colin's thought process is similar to what I do in many of the growth mandates I manage, but the way the portfolio is constructed is much more aggressive which adds to the beta in our existing portfolio," he says.
In terms of volatility, Greenwood notes that all three trusts have been quite volatile over the last three years. However with all adding significant returns over their benchmarks, he says they have been volatile in "a good way".
Of the three he says Jupiter Primadona has been the most volatile. However he adds: "In isolation my view is that volatility does not give a accurate view of a trust's risk. Instead you have to break down the risks by looking within the portfolio and where the bets are."
While not a holder of any three of the trusts at present, Greenwood says they are all in his investment universe and he has owned all of them in the past. "We do meet the managers and follow the fortune of the trusts as they are all interesting. We like to look at funds which can invest anywhere in the world and they all do this, they aren't in a portfolio simply due to the current strength of our other holdings," he says.