Investment Trust Awards 2009
Few of us need reminding about the unprecedented and turbulent events of the past year – least of all the managers of investment trusts. As the credit crunch persisted and developed momentum, the wave of collapsing banks, government bailouts and recessionary fears sent global stockmarkets into a tailspin, wiping out the gains that so many trusts had worked hard to achieve.
The way investment trusts are structured and listed on the stockmarket goes some way to explaining their descent. As markets began to decline, demand for investment trusts dried up and share prices fell as a result. With discounts beginning to widen, the trusts traded further below their net asset values (NAVs), causing heavy losses for investors.
"Last year was a very tough year for the majority of investment trusts," says Annabel Brodie-Smith, spokesperson for the Association of Investment Companies (AIC). "But market volatility demonstrates the importance of taking a long-term view of your investments.
Despite the highs and lows of the markets, an investment of £1,000 in the average investment company 10 years ago has grown to £1,519 today."
Of course, picking the right investment trust in the first place will go some way to helping avoid those sleepless nights on the way to reaping the rewards – and this is where the Moneywise Investment Trust Awards come in.
Each year we seek out and honour those trusts that have generated solid returns year in and year out – rather than the ones that do well one year and fall away the next.
However, while our awards can help you find the trusts that have stood out in good times and bad, bear in mind that past performance is never a guide to how an investment will perform in the future. And before you choose the trust for you, consider also your investment goals, your attitude to risk and your time-frame.
Whatever you need from an investment trust, whether you are looking for a home for your individual savings account allowance or to build up a nest-egg for a child or grandchild, you can at least be sure that a Moneywise investment trust award winner will have proven its worth.
UK GROWTH AND INCOME
With the UK as the first port of call for many investors, growth and income investment trusts are often the lifeblood of portfolios because they are designed to provide investors with an income, primarily from the growth of large blue-chip companies in the UK.
However, while the UK may be home to a number of big, long-established and, in the Growth & Income sector, low-cost trusts, they have struggled badly this year, with the average trust falling by a painful 36.9%. But despite this sector providing the lowest total returns over the past five years, our judges believe this year's winner should still be worthy of consideration.
"The Temple Bar Investment Trust, managed by Alistair Mundy since 2002 is an excellent core holding for investors," says Gavin Haynes, managing director of Whitechurch Securities and one of the judges of this year's awards. "It only dipped by 11.2% last year and has returned 24.87% for investors over five." Importantly for income-seekers, it is yielding a decent 6.1% at present.
Fellow judge Nick McBreen, an independent financial adviser at Worldwide Financial Planning, agrees, putting the performance down to Mundy's income-seeking approach in defensive stocks. "With oil and gas a large component of the fund and healthcare in second place, it may be a sound call and ride out the negative investor sentiment for the UK."
Our runner-up is Henderson's City of London Investment Trust, managed by Job Curtis since 1991. "The trust's portfolio reads like a Who's Who of top companies to be invested in right now," says McBreen. "UK equity is a difficult sector and this trust stood up very well dropping only 18.6%."
Winner: Temple Bar Investment Trust
Investec Asset Management
Fund manager: Alistair Mundy
Contact: 020 7597 1800 & templebarinvestments.co.uk
Fund size: £384.88 million
NAV % performance over five years: 24.87%
Share price performance five years: 32.26%
Standard deviation: 4.13
Total expense ratio: 0.51
Fund manager offers own ISA wrapper: No
Highly commended: City of London Investment Trust (Henderson Global Investors)
Unlike growth and income trusts, pure UK growth trusts tend to be slightly riskier as they do not need to worry about producing a yield. But with many able to stray from large dividend - producing blue chips, the average UK growth trust managed to perform better than the UK Growth and Income sector over the past year. And, over five years, the average trust in this sector has returned a more impressive 24.90%.
Our winner – Invesco's Keystone Investment Trust – takes the award for the second consecutive year. It managed to outperform the FTSE All-Share index by 13% last year to extend its excellent performance record of a 53.90% return over five years.
"Mark Barnett's trust is a good solid holding with large exposure to utilities and consumer goods," says Alan Smith, managing director of Capital Asset Management and a judge on the panel. Financial adviser Philip Pearson, of Southampton-based P&P Invest, also notes that its modest discount of only 3% to NAV reflects its popularity with investors.
The award of highly commended goes to the Capital Gearing Trust, which is also a relatively low-risk trust compared with many in the UK Growth sector. Its manager, Peter Spiller, outperformed the average trust by 26.4% last year. "To return a solid 44.5% over the past five years is no mean feat," says McBreen. "This is no ordinary fund, however. It is currently heavily invested in cash and fixed interest."
UK Growth winner: Keystone Investment Trust
Trust provider: Invesco Asset Management
Fund manager: Mark Barnett
Contact: 020 7065 3897 & keystone.co.uk
Fund size: £170.0 million
NAV % performance five years: 53.90%
Share price performance five years: 57.11%
Standard deviation: 3.89
Total expense ratio: 1.03
Fund manager offers own ISA wrapper: No
Highly commended: Capital Gearing Trust (Capital Gearing Asset Management)
UK SMALLER COMPANIES
While UK Smaller Companies is the riskiest sector of the three, it is where some of the most interesting trusts can found. But as smaller companies are among the first to suffer in an economic downturn, the potential for reward comes at a price – the average UK Smaller Companies Trust plummeted by 37.40% in 2008.
Despite these higher levels of risk, the silver lining is that smaller companies are the best placed to profit when markets recover, and all our judges agreed that once the green shoots of recovery appear this year's winner should thrive.
The Standard Life UK Smaller Companies Trust has achieved genuine consistency, having won the category for the previous two years. Managed by Harry Nimmo since 2003, it has consistently beaten its peer group and delivered solid returns, making it a true favourite with advisers.
"Nimmo has achieved consistent top performance with below-average investment risk," says Haynes, who puts the manager's 46% return over five years down to his disciplined investment approach and support of a solid research team. "This would be my favoured choice if I was looking to invest in a pure UK smaller companies investment trust," he adds.
In second place is Gartmore Growth Opportunities Investment Trust, which has also kept volatility levels low in the current climate, only falling by 24.9% over the past 12 months.
"Gervais Williams, who has managed the trust for the past 16 years has achieved consistent returns with below-average risk," explains Pearson. "Although the portfolio is positioned defensively with a high cash holding, he sees real value in significantly under-rated smaller companies."
UK Smaller Companies winner: Standard Life UK Smaller Companies
Trust provider: Standard Life Investments
Fund manager: Harry Nimmo
Contact: 0845 60 24 247 & standardlife.co.uk
Fund size: £62.99 million
NAV % performance five years: 45.88%
Share price performance five years: 75.59%
Standard deviation: 5.8
Total expense ratio: 1.43
Fund manager offers own ISA wrapper: Yes
Highly commended: Gartmore Growth Opportunities (Gartmore Investment Management)
The ongoing economic crisis has not just affected our shores. Germany, Spain and Ireland are all in a recession, and France and the Netherlands are not far behind. Nevertheless, the European investment trust sector fared better than the UK Growth sector by 9% over the past 12 months, proving it could be a costly mistake to ignore our continental neighbours.
Our numero uno, the Henderson Euro Trust, dropped by 21.8% over the past 12 months. "Tim Stevenson, who has been at the helm for 17 years, spots high-quality European investment opportunities in companies where the gloss has gone off their performance," says McBreen.
Gavin Haynes is inclined to agree: "Stevenson has a 'growth at a reasonable price' investment approach. With large exposure to Germany, France and Switzerland, he invests heavily in industrials and consumer services and he has returned 61.1% over five years."
Gartmore takes another silver medal this year with its European Investment Trust, managed by the highly respected Roger Guy. Alan Smith says: "Roger is a very experienced fund manager with excellent stockpicking skills, and over five years he has returned 51%." He adds that the trust is an excellent core holding for those looking to invest in solid blue-chip companies in continental Europe.
European Winner: Henderson Euro Trust
Henderson Global Investors
Fund manager: Tim Stevenson
Contact: 0800 832 832 & henderson.com
Fund size: £105.6 million
NAV % performance five years: 61.31%
Share price performance five years: 74.19%
Standard deviation: 5.45
Total expense ratio: 0.86
Fund manager offers own ISA wrapper: Yes
Highly commended: Gartmore European Investment Trust (Gartmore Investment Management)
Investors who fancy spreading their wings further afield tend to invest in the global growth story. Global Growth is the largest of all the investment trust sectors; its trusts allow investors to gain exposure to a variety of different assets and markets and effectively diversify their risk, while minimising the high costs commonly associated with global investing at the same time.
Yet while plunging stockmarkets across the globe have slashed 27% off the average trust over the past year, our winner deserves praise for only just dipping into the red. "The Lindsell Train Investment Trust, managed by Nick Train and Michael Lindsell, is only just in negative territory compared with the sector average," says Alan Smith. "Returns of 80% over five years prove the team is more than capable of delivering, with its multi-asset approach and nimble size."
Fellow judge Gavin Haynes agrees. "This is an excellent unconstrained investment trust. Its absolute return approach and shrewd stock picks helped stem losses last year. Its 'go anywhere' portfolio holds a significant stake in the Lindsell Train fund management company too, thus aligning investors' interests."
The RIT Capital Partners Investment Trust, which comes in at second place, is different in that the lion's share is invested in the US, UK and Europe, and McBreen believes the trust represents excellent value for return-hungry investors. "Solid returns of 77% over five years speak volumes about the skill of the management team and augurs well for future returns."
Global Growth Winner: Lindsell Train Investment Trust
Trust provider: Lindsell Train Investment Management
Fund managers: Nick Train / Michael Lindsell
Contact: 0207 227 8200 & lindselltrain.com
Fund size: £29 million
NAV % performance five years: 78.64%
Share price performance five years: 80.4%
Standard deviation: 4.5
Total expense ratio: n/a
Fund manager offers own ISA wrapper: No
Highly commended: RIT Capital Partners (J Rothschild Capital Management)
ASIA EXCLUDING JAPAN
This sector has benefited from many of the same developments as emerging markets funds – namely the emergence of China as an economic superpower. But it's a more diverse sector, with trusts investing in countries ranging from China and Australia to Malaysia and South Korea.
However, because the Far East sector is heavily influenced by China, it is reliant on demand from US consumers. As the economic downturn took hold, demand for many Asian goods tailed off, seen in the 31.5% fall in the average trust over the past 12 months. But even factoring in this drop, the average trust has still managed to return an impressive 32.1% over five years.
Because of this our judges decided to award the gold medal this year to a trust that has outperformed its peers, weathered the storm and kept volatility levels low. "The Aberdeen Asia Smaller Companies Investment trust has shown resilience, only falling by 18% over the past year, while returning 43.8% over five," says Alan Smith.
He points out that as a fund management company, Aberdeen has long been synonymous with a wealth of experience and knowledge of Asian markets.
Taking silver for the second consecutive year is Henderson's Far East Income, which has been managed by Michael Kerley since 2007. "This is a unique trust that I have long been a supporter of," says Haynes.
It invests in a broad spread of consumer companies in Australia, China and Singapore and is suitable for investors who wish to benefit from growth in Far Eastern markets but who also wish to receive an attractive income from their investment."
Asia ex Japan Winner: Aberdeen Asian Smaller Companies
Trust provider: Aberdeen Asset Managers
Fund manager: Hugh Young
Contact: 0845 300 2830 & aberdeen-asset.co.uk
Fund size: £102.7 million
NAV % performance five years: 69.14%
Share price performance five years: 35.12%
Standard deviation: 5.89
Total expense ratio: 1.87
Fund manager offers own ISA wrapper: Yes
Highly commended: Henderson Far East Income (Henderson Global Investors)
GLOBAL EMERGING MARKETS
The Global Emerging Markets is a new category for our awards, introduced partly to reflect investor demand for trusts investing in rapidly developing economies. However, with the price of commodities collapsing last year, this sector suffered the worst fall of all our categories.
Despite such high volatility levels, the potential of the sector is borne out by the 102.19% growth over five years generated by our winner, the JPMorgan Emerging Market Investment Trust.
"This trust is a clear winner for me on many levels," says Philip Pearson. "During a difficult climate, it not only held up well to sustain its excellent long-term track record, but it is also an excellent way to get well-diversified, well-managed exposure to emerging markets."
Our runner-up, the Templeton Emerging Market Investment Trust, has been managed by the well-respected Dr Mark Mobius since its inception in 1989. With more than 40 years of investment experience, Mobius is certainly no stranger to winning a Moneywise award either.
Gavin Haynes points out that his track record is one of sound outperformance – with the trust returning an impressive 79.29% over five years. "He holds a diverse portfolio of 100 to 120 stocks and is a good core holding for such a volatile area."
Global Emerging Markets Winner: JPMorgan Emerging Markets Investment Trust
Trust provider: JPMorgan Asset Management
Fund managers: Austin Forey & Richard Titherington Contact: 0800 40 30 30 & jpmorganassetmanagement.co.uk
Fund size: £346.09 million
NAV % performance five years: 102.19%
Share price performance five years: 139.86%
Standard deviation: 7.57
Total expense ratio: 1.19
Fund manager offers own ISA wrapper: Yes
Highly commended: Templeton Emerging Market Investment Trust (Franklin Templeton Investments)
MONEYWISE INVESTMENT TRUST GROUP OF THE YEAR
Gartmore Investment Management
With markets experiencing volatility at levels not seen in a generation, the judges were given the opportunity to pick out an investment trust group that has not only managed to deliver the goods year in and year out, but one that has coped well with recent turmoil.
Our judges believed that the award of Investment Trust group of 2009 should go to Gartmore Investment Management. Of five investment trusts in total, three appeared as finalists in their respective sectors: Gartmore Global, Gartmore European and Gartmore Growth Opportunities, with the latter two picking up highly commended.
"As a trust provider, Gartmore is a solid house," says Alan Smith. "It has built an enviable reputation for delivering consistently above average returns across the various sectors it operates in."
Philip Pearson agrees. "Gartmore's most successful trusts have the advantage in that the fund manager has been in place for many years. This consistency of management promotes confidence when selecting Gartmore as part of a balanced portfolio."
While Nick McBreen adds: "The turbulent market conditions over the past year have meant that experienced stockpickers, who have traded through recessions in the past, are likely to prove to be a valuable commodity." He points to the credentials and reputation of managers such as Roger Guy and Gervais Williams, which he believes have been a vital component of Gartmore's investment success.
Methodology: Although we initially looked at nine sectors, we had to reduce this to seven – UK Growth & Income; UK Growth; UK Smaller Companies; European; Asia Pacific Excluding Japan; Global Growth and Global Emerging Markets. Japan and North America were omitted as neither had sufficient funds to meet our criteria, which included having at least 10 funds with five years of history.
The funds are ranked, by sector, on net asset value (NAV) performance (gross income reinvested), calculated by Trustnet over one, three and five years to 1 February 2009. The awards were announced in April 2009.
Performance over each time-frame was aggregated to produce an overall top 10 in each sector. This was then filtered down using standard deviation ratings from Lipper to remove the most volatile trusts.
The shortlist of five finalists in each sector was then judged by our panel of four experts – with emphasis on performance, manager skill, investment strategy, resources, prospects and pricing – to identify a winner and a runner-up.
The judges were: Gavin Haynes of Whitechurch Securities, Alan Smith of Capital Asset Management, Philip Pearson of Southampton-based P&P Invest and Nick McBreen of Worldwide Financial Planning.
All investment returns are measured against a benchmark to represent “the market” and an investment that performs better than the benchmark is said to have outperformed the market. An active managed fund will seek to outperform a relevant index through superior selection of investments (unlike a tracker fund which can never outperform the market). Outperform is also an investment analyst’s recommendation, meaning that a specific share is expected to perform better than its peers in the market.
Net asset value
A company’s net asset value (NAV) is the total value of its assets minus the total value of its liabilities. NAV is most closely associated with investment trusts and is useful for valuing shares in investment trust companies where the value of the company comes from the assets it holds rather than the profit stream generated by the business. Frequently, the NAV is divided by the number of shares in issue to give the net asset value per share.
Total expense ratio
Most investment funds levy an initial charge for buying the units/shares and an annual management fee but other expenses also occur in running the fund (trading fees, legal fees, auditor fees, stamp duty and other operational expenses) which are passed on to the investor and so the TER gives a more accurate measure of the total costs of investing. The TER is especially relevant for funds of funds that have several layers of charges. Unfortunately, investment fund companies are not obliged to reveal TERs and many only publish the initial charges and annual management charge (AMC).
The general term for the rate of income from an investment expressed as an annual percentage and based on its current market value. For example, if a corporate bond or gilt originally sold at £100 par value with a coupon of 10% is bought for £100 then the coupon and the yield are the same at 10%, or £10. But if an investor buys the bond for £125, its coupon is still 10% (or £10) and the investor receives £10 but as the investor bought the bond for £125 (not £100) the yield on the investment is 8%.
Investment trusts are companies that invest money in other companies and whose shares are listed on the London Stock Exchange. As with unit trusts, private investors buying shares in an investment trust are buying into a diversified portfolio of assets (to reduce risk), which is managed by a professional fund manager. Investment trusts differ from unit trusts in two important ways: they are listed on the stockmarket and so are owned by their shareholders and are closed-ended funds with a finite number of shares in issue. This means the share price of investment trusts might not reflect the true value of the assets in the company (known as the net asset value, or NAV) and if the NAV value of a share is £1 and the share price in the market is 90p, the trust is said to be running a discount of 10% to NAV. But this means the investor is paying 90p to gain exposure to £1 of assets. Investment trusts can also borrow money and use this money to buy investments. This is known as gearing and a geared trust is thought to be more of an investment risk than an ungeared one.
Investors who borrow money they use for investment and use the securities they buy as collateral for the loan are said to be “gearing up” the portfolio (in the US, gearing is referred to as “leveraging”) and widely used by investment trusts. The greater the gearing as a proportion of the overall portfolio, the greater the potential for profit or loss. If markets rise in value, the investor can pay back the loan and retain the profit but if markets fall, the investor may not be able to cover the borrowing and interest costs, and will make a loss. Also used to describe the ratio of a company’s borrowing in relation to its market capitalisation and the gearing ratio measures the extent to which a company is funded by debt. A company with high gearing is more vulnerable to downturns in the business cycle because the company must continue to service its debt regardless of how bad sales are.
Generic, loosely-defined term for markets in a newly industrialised or Third World country that is in the process of moving from a closed economy to an open market economy while building accountability within the system. The World Bank recognises 28 countries as emerging markets, including Argentina, Brazil, China, Czech Republic, Egypt, India, Israel, Morocco, Russia and Venezuela. Because these countries carry additional political, economic and currency risks, investors in emerging markets should accept volatile returns. There is potential to make large profit at the risk of large losses.
If you own shares in a company, you’re entitled to a slice of the profits and these are paid as dividends on top of any capital growth in the shares’ value. The amount of the dividend is down to the board of directors (who can decide not to pay a dividend and reinvest any profits in the company) and they will be paid twice yearly (announced at the AGM and six months later as an interim). Dividends are always declared as a sum of money rather than a percentage of the share’s price. Although dividends automatically receive a 10% tax credit from HM Revenue & Customs (HMRC), which takes the company having already paid corporation tax on its profits into account. Dividends are classed as income and, as such, are liable for personal taxation and so shareholders have to declare them to HMRC.
An individual employed by an institution to manage an investment fund (unit trust, investment trust, pension fund or hedge fund) to meet pre-determined objectives (usually to generate capital growth or maximise income) in prescribed geographic areas or investment sectors (such as UK smaller companies, technology or commodities). The manager also carries the responsibility for general fund supervision, as well as monitoring the daily trading activity and also developing investment strategies to manage the risk profile of the fund.
A term applied to raw materials (gold, oil) and foodstuffs (wheat, pork bellies) traded on exchanges throughout the world. Since no one really wants to transport all those heavy materials, what is actually traded are commodities futures contracts or options. These are agreements to buy or sell at an agreed price on a specific date. Because commodity prices are volatile, investing in futures is certainly not for the casual investor.
Invidivual Savings Accounts were introduced on 6 April 1999 to replace personal equity plans (PEPs) and tax-exempt special savings accounts (TESSAs) with one plan that covered both stockmarket and savings products, the returns from which are tax-exempt. The ISA is not in itself an investment product. Rather, it’s a tax-free “wrapper” in which you place investments and savings up to a specified annual allowance where the returns (capital growth, dividends, interest) are tax-exempt (you don’t have to declare ISAs and their contents on your tax return). However, any dividends are taxed within the investment, and that can’t be reclaimed.