Moneywise Investment Trust Awards 2015
Now that we've established how investment trusts work and their many benefits, it's time to consider which ones may be suitable to add to your portfolio.
The Moneywise Investment Trust Awards 2015 are here to do just that, by picking out the best on offer across eight sectors, based on their past performance and consistency. And you don't just have to take our word for it. We've teamed up with four leading investment experts to pick the winners.
So with no further ado, here they all are.
UK ALL COMPANIES
WINNER: HENDERSON OPPORTUNITIES
HIGHLY COMMENDED: INVESCO PERPETUAL SELECT UK EQUITY
Starting close to home, the UK All Companies category is new for 2015, replacing the formerly named UK Growth sector – but don't worry, growth remains firmly on the agenda. The winner of this new award is Henderson Opportunities trust.
Over the past five years (1 January 2010 to 31 December 2014), its net asset value (NAV) appreciated by 129%, compared to its peer group's average of just 68%.
The trust's objective is to "provide shareholders with higher-than-average growth of capital over the medium to long [term]". It does this by investing in all different types and sizes of businesses, so it's very well diversified.
Its core holdings include consumer services and healthcare companies, although it has a "strong bias towards industrial and technology stocks", explains its chairman George Burnett. The trust managers, led by James Henderson, regularly meet the management of the companies they invest in and they can have as many as 500 face-to-face meetings each year.
Judge Jackie Beard, who until the end of 2014 oversaw closed-end fund research for Morningstar – which provided the data for our awards – speaks very highly of the Henderson trust. "Henderson Opportunities' relatively small asset base has allowed its managers to be very nimble and invest right down the market-cap scale; this has boosted returns and delivered good results for investors."
Fellow judge Gavin Haynes, managing director of Whitechurch Securities, adds: "This is a good choice for true active management in UK equities and performance has been impressive."
While our third judge, Patrick Connolly, a certified financial planner at Chase de Vere, is also impressed by the trust's performance, he points out that James Henderson is "a fund manager who isn't afraid to take risks. The result has been a strong, long-term track record but shorter periods of volatility."
Highly commended in the category is Invesco Perpetual Select UK Equity, which saw its NAV rise by 121% over the five years to 31 December 2014 – again more than twice its peer group average.
UK SMALLER COMPANIES
WINNER: STRATEGIC EQUITY CAPITAL
HIGHLY COMMENDED: HENDERSON SMALLER COMPANIES
Moving on to our next category, the Strategic Equity Capital trust is the winner of the UK Smaller Companies award. Run by GVO Investment Management, it has continued to build on the success it enjoyed last year, when it took the runner-up spot. Over 2014, its NAV appreciated by 18%, while its peers could only muster a fall of 1.12%. The five-year performance for the trust and its peers is much more impressive, at 197% and 112% respectively.
It invests primarily in securities quoted on any securities market operated by the London Stock Exchange that its manager Stuart Widdowson believes are undervalued and could benefit from strategic, operational and management initiatives. Almost half of its investments are in the technology industry.
Beard says of it: "The team at GVO take a private equity mindset to the management of this small-cap portfolio and it results in a patient, long-term approach which has delivered well for its shareholders."
Highly commended in the category is another trust run by Henderson, this time Henderson Smaller Companies. Its NAV rose by 165% over the five-year period.
UK EQUITY INCOME
WINNER: FINSBURY GROWTH & INCOME
HIGHLY COMMENDED: LOWLAND
Our next category is going by a new name this year. UK Equity Income replaces UK Growth & Income – but it's not all change. Our winner, the Finsbury Growth & Income trust, also took the top spot last year.
Launched in 1926, the trust invests principally in the securities of UK listed companies with the objective of achieving capital and income growth and providing a total return in excess of that of its benchmark, the FTSE All- Share Index (net dividends reinvested). Over the five years to 31 December 2014, the Finsbury trust's NAV grew by 140%, while its benchmark moved up by just shy of 33%. Some of its most well-known holdings include Pearson, Greene King and Unilever.
Our fourth judge, Monica Tepes, investment companies analyst at Cantor Fitzgerald, says this trust's "impressive long-term outperformance" from manager Nick Train is down to the fact "he runs a high-conviction, low-turnover portfolio of quality stocks with a focus on strong brands".
Taking the runner-up spot in the category is Lowland, which also came highly commended by the judges in what was then the UK Growth & Income category last year. Its five-year NAV performance was 133% against its peer group average of 82%.
WINNER: JUPITER EUROPEAN OPPORTUNITIES
HIGHLY COMMENDED: HENDERSON EUROPEAN FOCUS TRUST
Crossing over the Channel, we arrive on the continent for our next category. The winner of the best investment trust specialising in Europe is Jupiter European Opportunities, claiming the top prize for the fifth year in a row.
Consistency really is king in the world of investment trusts and over the past five years its NAV return has been 124%, compared to its peer group average of 61%.
All four judges were unanimous in their appreciation of manager Alexander Darwall's stockpicking capabilities.This is how Patrick Connolly describes his efforts: "One of the best stockpicking European fund managers in the business who, with his slant toward good quality mid-cap companies, has left the competition for dead."
Observers point out that Darwall is of the opinion that economic data can't be predicted with any accuracy and therefore his goal is to outperform the market by concentrating on factors within his control.The trust's holdings are largely in the realms of industrials, healthcare and financial services.
Highly commended in the category is Henderson European Focus trust, run by John Bennett, who Connolly describes as "a very experienced manager who is a very safe pair of hands and is well respected within the industry".
WINNER: JPMORGAN AMERICAN
HIGHLY COMMENDED: NORTH AMERICAN INCOME TRUST
Crossing the Atlantic for our next award, it's a clean sweep for every year this award has been running, with the JPMorgan American investment trust taking the title for the sixth consecutive year. Its five-year NAV performance of 104% against its peer group average of 79% is just one of the reasons it scores so well with our judges.
Gavin Whitechurch explains: "This trust once again stood out against its peers in 2014 and has achieved the difficult task of outperforming the efficient S&P 500 benchmark over the short and long term. It is managed from JPMorgan's New York office and is headed up by Garrett Fish, who manages a portfolio that provides highly diversified exposure of large-, mid-cap and small US stocks."
The trust invests in some of the biggest companies on the planet, including Apple, Microsoft, ExxonMobil and TimeWarner.
Our runner-up this year is the North American Income trust, run by Aberdeen Asset Management. It is taking the accolade for the third year in a row, and its five-year NAV performance to 31 December 2014 was just under 80%.
ASIA PACIFIC EXCLUDING JAPAN
WINNER: ABERDEEN ASIAN SMALLER COMPANIES
HIGHLY COMMENDED: PACIFIC ASSETS
Asia Pacific excluding Japan is our next award category and the winner this year has improved on the second place it secured in 2014. It is the Aberdeen Asian Smaller Companies investment trust. Over the five years to 31 December 2015, its NAV has risen by 134%, more than double the 61% its peers achieved on average.
"This is an excellent way to capture exposure to the exciting growth potential from small companies operating in Asia," says Whitechurch. "While this is a speculative area to invest, the diligence in stock selection and experience of managing director Hugh Young and team provide exposure to a portfolio of high-quality companies at low valuations."
Jackie Beard is equally impressed. She says: "Aberdeen's Asian team has delivered solid returns here, helped by strong performance in small caps; the amount of risk taken has been kept low overall and this has not compromised the returns."
Explaining its investment approach, Aberdeen itself says: "Markets are not always efficient. Companies can change management, business practice and direction. Companies can be valued lower than they are really worth, and identifying such companies is fundamental to generating long-term growth.The key is knowledge."
Its aim, therefore, is to achieve "superior investment performance through first-hand research of companies themselves". It achieves this by focusing on companies it understands well and that offer good value. "But getting on to our ‘buy list' takes some doing: we don't commit a penny until a company has passed through a rigorous assessment process."
The runner-up in the category is the Pacific Assets investment trust, run by First State Stewart. It has achieved a 72% rise in its NAV over the past five years, compared to its peer group average of 61%.
GLOBAL EMERGING MARKETS
WINNER: UTILICO EMERGING MARKETS
HIGHLY COMMENDED: ADVANCE FRONTIER MARKETS
Moving on to the Global Emerging Markets category, this year's winner is the same investment trust that was victorious in 2014 - Utilico Emerging Markets.
"This is a specialist emerging markets trust that looks to provide attractive long-term total returns by investing predominantly in infrastructure, utilities and related sectors mainly
in emerging markets," explains Whitechurch. This includes companies working in water, sewerage, waste, electricity, gas, telecommunications, ports, airports, service companies, rail and roads.
"The performance has been solid over the past year, extending a strong track record," adds Whitechurch. Indeed, during 2014 it managed an improvement in its NAV of 7%, while the rest of its peers only rustled up 0.18% on average. But over the past five years, the figures jump to 68% and 18% respectively.
Highly commended in the category is Advance Frontier Markets, which has seen NAV performance of 42% over five years.
WINNER: SCOTTISH MORTGAGE
HIGHLY COMMENDED: LINDSELL TRAIN
Our next award recognises a trust that chooses investments from around the world, even though its name makes it sound like it has a more local focus. Our winner is Scottish Mortgage, taking the award for the third year in a row – although the sector has been renamed from its previous Global Growth.
The trust has been around since 1909 and is considered Baillie Gifford's flagship investment trust. Just to clarify, "these days the trust is Global rather than Scottish and has nothing whatsoever to do with mortgages", its operator Baillie Gifford says. With total net assets of approximately £3.1 billion at the end of January 2015, it is one of the UK's largest investment trusts.
The trust has seen a 111% improvement in its NAV over the past five years, a time during which its peers experienced a 54% boost."This globally diversified stockpicking trust is managed by the highly regarded James Anderson (a partner at Baillie Gifford).The aggressive nature of this trust can lead to above- average volatility but the risk/reward trade has been very attractive for long-term investors," explains Haynes.
Connolly adds that it makes "an ideal long-term holding for pensions or saving for children, boasting an experienced manager and a great long-term record".
Our runner-up prize in the Global category goes to Lindsell Train, which also came highly commended in 2013. Its NAV grew by 101% over the past five years.
INVESTMENT TRUST GROUP OF THE YEAR
With three appearances in our winner and highly commended lists this year, Henderson is our Investment Trust Group of the Year.To recap, Henderson Opportunities won the UK All Companies category, while Henderson Smaller Companies and Henderson European Focus Trust were highly commended in the UK Smaller Companies and Europe categories respectively.
This is the second year in a row Henderson has been awarded the overall prize. Patrick Connolly says: "Henderson is one of the premier investment companies and has a very strong suite of open-ended funds ranging through different asset classes. However, unlike most other investment companies, it also dedicates extensive resources to its range of investment trusts and this has resulted in strong and consistent performance."
This year the awards looked at eight sectors: UK All Companies, UK Smaller Companies, UK Equity Income, Europe, North America, Asia Pacific Ex Japan, Global Emerging Markets and Global.
For each sector, Morningstar provided us with performance data over one, three and five years (up to 31 December 2014).Trusts were ranked on NAV performance with income reinvested. We aggregated performance over each period to calculate the top trusts in each sector.
Morningstar's Sharpe Ratios enabled us to remove any trusts that took a disproportionate risk.This helped us create shortlists of the top five performing trusts.These shortlists were sent to a panel of independent judges who were asked to vote for their top three trusts in each sector, taking into account: suitability for Moneywise readers, risk, manager ability, investment strategy, consistency, prospects and pricing, in addition to performance.
The investment group of the year was based on the number of appearances each group made in the sector shortlists.
Jacie Beard, director of manager research services, EMEA, at Morningstar UK
Patrick Connolly, certified financial planner at Chase de Vere
Gavin Haynes, managing director of Whitechurch Securities
Monica Tepes, investment companies analyst at Cantor Fitzgerald
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.
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.
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.
This is more usually a feature of car insurance but it can also crop up in contents, mobile phone and pet insurance policies. An excess is the amount of money you have to pay before the insurance company starts paying out. The excess makes up the first part of a claim, so if your excess is £100 and your claim is for £500, you would pay the first £100 and the insurer the remaining £400. Many online insures let you set your own excess, but the lower the excess, the more expensive the premium will be.
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.
An interchangeable term for shares (UK) or stocks (US). Holders of equity shares in a company are entitled to the earnings and assets of a company after all the prior charges and demands on the company’s capital (chiefly its debts and liabilities) have been settled. To have equity in any asset is to own a piece of it, so holders of shares in a company effectively own a piece proportionate to the number of shares they hold. (See also Shares).
A standard by which something is measured, usually the performance of investment funds against a specified index, such as the FTSE All-Share. Active fund managers look to outperform their benchmark index. Cautious fund managers aim to hold roughly the same proportion of each constituent as the benchmark, while a manager who deviates away from investing in the benchmark index’s constituents has a better chance of outperforming (or underperforming) the index.
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.