Moneywise Investment Trust Awards 2016
Whether you are saving for your retirement, your children’s educations or simply to build up a nest egg, investment trusts can be an easy, low-cost way to invest in a basket of shares, without the stress of managing a portfolio yourself.
However, during turbulent times, choosing the best investment trust for you can be difficult. With your savings at stake, you want to be confident that your chosen manager will be able to ride out any downturns in the stock market and grow your money over the long term.
This is where the Moneywise Investment Trust Awards 2016 can help. With the assistance of a panel of expert judges, we’ve hand selected the trusts that can be relied on to shine year in and year out.
UK all companies
Trusts in the all companies sector – as its name suggests – can invest across the spectrum of UK-listed companies, so it’s important to understand the strategy of your chosen trust.
Awards judge Patrick Connolly, a chartered financial planner at Chase De Vere notes that while UK equities had, until the recent turbulence, enjoyed a good six or so years, there has been some divergence in equity performance.
He says: “In particular,mid-cap stocks have outperformed larger companies, so those trusts with a bigger mid-cap weighting have enjoyed significant advantages. It is important to take account of this, because mid-cap outperformance won’t last forever.”
Taking the crown in this category is last year’s runner-up, Invesco Perpetual Select UK Equity, which has the freedom to invest across the spectrum of UK companies. Its holdings reflect fund manager Mark Barnett’s convictions rather than the makeup of the benchmark index.
Mr Connolly says: “Mark Barnett is proving to be a premier UK equity fund manager. He looks for high-quality companies that can continue to deliver good results throughout the economic cycle. The flexibility within the trust means it should be positioned to produce consistent returns with relatively low volatility in all environments. This has proved to be the case so far.”
This year’s runner-up is JPMorgan Mid Cap. Judge Jackie Beard, director of manager research services, EMEA at Morningstar UK says: “Georgina Brittain has done an outstanding job in recent years for investors in the JPMorgan Mid Cap fund. Although its risk profile is higher than its peers, given its mid-cap focus, the returns over the past three years show that this risk has been used well.”
UK smaller companies
Investing in smaller companies is not for the fainthearted. Mr Connolly says investors must accept higher volatility and be prepared for short-term losses. He adds: “However, those who are patient and choose experienced, good- quality managers are usually well rewarded in the longer term.”
It was a very close call, but this year’s winner is Henderson Smaller Companies. Judge Gavin Haynes, managing director at Whitechurch Securities, says: “Performance in 2015 was exceptional, with manager Neil Hermon’s preference for medium-sized companies proving beneficial. Mr Hermon, who has managed the fund since 2002, has built up an impressive record of capital growth and dividend increases. With its low annual ongoing charge of 0.46%, this is a strong offering for small-cap exposure.”
Coming a close second was last year’s winner, Strategic Equity Capital. Judge Monica Tepes, a director at investment company research at Cantor Fitzgerald, says:“The distinct very high-conviction approach has delivered outstanding returns over the past five years.”
UK equity income
Mr Connolly says: “This sector plays host to some top-quality managers who have returned ongoing consistent performance. This, combined with steady income, means many trusts in the UK equity income sector could be considered as core long-term holdings in investment portfolios.”
Taking the award for an impressive sixth year in a row is Finsbury Growth and Income, launched in 1926. This trust seeks to provide investors with a double whammy of income and growth by investing primarily in UK-listed companies. Our judges were not short of praise for its manager.
“Nick Train’s long-term patience and deep understanding of his companies sets him apart from his peers. He has applied his investment approach consistently over a number of market cycles to good effect, and turnover in his fund is among the lowest in the industry,” says Mrs Beard.
Ms Tepes describes the trust as “one of the most consistent outperformers among all trusts”.
Coming a close second in this category was Edinburgh Investment Trust, launched in 1899. This is another well- established trust that aims to beat the FTSE All-Share index and maintain its dividend growth to outstrip UK inflation.
The fund was knocked by the departure of stellar manager Neil Woodford (who announced his resignation from Invesco Perpetual in October 2013), but Mr Haynes says new manager, Mark Barnett, has risen to the challenge and preserved the fund’s strong track record. “It had another good year in 2015 and remains a good core choice for UK equity income,” he says.
UK equity and bond income
This is a new category for 2016 that reflects growing demand for trusts that offer maximum diversification by investing across equities (shares in UK and overseas companies) and fixed interest (loans to companies and governments). Mr Connolly notes some big variations in terms of performance.
“Different trusts can have significantly different weightings between shares and fixed interest, and within these that can have very different underlying holdings,” he explains.
Our winner is Henderson High Income, run by David Smith. Mr Haynes says: “This trust performed well in 2015 to extend its impressive long-term record. Its benchmark is to invest 80% in UK dividend stocks and 20% in bonds (although these allocations are flexible). I would recommend this trust for investors for whom income is a key objective, as it offers an attractive yield of more than 5% and has a reasonable annual charge of just 0.5%.”
Once again, this was a tight category, and the Acorn Income Fund was a very close runner-up. Mr Connolly says: “This trust combines smaller company stocks with a portfolio of investment-grade and high-yield bonds, resulting in a trust that has returned exceptional capital growth and produced a competitive income yield, effectively the best of both worlds.” He adds that its exposure to smaller companies means investors must expect volatility and be prepared for short-term capital losses.
“European markets have been favoured by many people, due to the accommodative actions of the European Central Bank and its efforts to improve economies in the region,” comments Mr Connolly.
This is good news for investors in Europe, and it provides ample opportunities for good-quality stock- picking managers.
Among the best is Alexander Darwall, manager of the Jupiter European Opportunities trust, which wins this award for the sixth year in the row and eight out of 11 years. Mr Haynes says:
“Alexander Darwall has proved to be an exceptional stock-picker. He invests in a focused portfolio of around 40 stocks, favours high-quality businesses and invests in the belief that Europe plays host to leading global companies.
Returns for shareholders in this trust have been very strong – more than 100% over the past five years – and I would recommend it for anyone looking for core European exposure.”
Taking second place in this category is Henderson Euro Trust, which invests in undervalued large and medium-sized companies. Mr Connolly says: “In Tim Stevenson this trust has a
very experienced and proven manager. He has run this trust for 24 years and established an impressive track record.”
North America and North America smaller companies
This year we decided to incorporate smaller companies into our North America award to ensure we are recommending the very best the continent has to offer.
The new entrants to this category, however, posed no challenge to JPMorgan American, run by Garrett Fish, which takes the award for an impressive seventh year in a row.
Mr Connolly says: “This is a core US equity holding managed by an established investment team using the resources of JPMorgan. It is a good- quality stock-picking trust that has produced consistently strong long-term performance in this sector.”
It was a close call for runner-up, but the honour goes to a newcomer to this category, North Atlantic Smaller Companies. Mr Connolly is a fan of this trust too. “This trust boasts excellent performance and has a long-established, high-quality manager, although it is not a typical US investment trust,” he says. “Many of its underlying stocks are listed in the UK, including a significant number of unquoted stocks. It is important that investors understand exactly what they are buying.”
North America and North America Smaller Companies
WINNER: JPMorgan American
HIGHLY COMMENDED: North Atlantic Smaller Companies
Asia Pacific ex. Japan
“Asian equities have struggled in recent years and been left behind by western equity markets.The top performers are often those that do the best job of protecting capital in falling markets,” says Mr Connolly.
It is no surprise then that this year’s winning trust is run by a company that knows the region inside out. Our judges unanimously voted to give the award to last year’s runner up, Pacific Assets.
“This is managed by First State, a top-quality investment manager in Asia. Its conservative focus has been beneficial for investors, who have enjoyed more capital protection and less volatility than most other trusts in the sector.
With its excellent investment team, Pacific Assets should be positioned to continue performing well in future, “Mr Connolly says.
Taking second place is Schroder Oriental Income. Mrs Beard, praises the trust’s consistency. “Matthew Dobbs is a seasoned investor, whose experience spans more than 30 years at the same firm – something rarely seen. His process has stood the test of time and delivered excellent risk-adjusted returns for investors,” she says.
Global Emerging Markets
This sector has had a torrid time in recent years, so investors seeking exposure to areas such as Africa, the Middle East, Latin America and Asia Pacific need to choose wisely and seek out managers that can limit losses in turbulent markets.
Our winner and runner up are two of just three trusts that have been able to post positive returns over three and five years.
Commenting on our winner, Blackrock Frontiers, Mrs Beard says: “Sam Vecht has deep experience in frontier markets, and he has used it well for investors since the launch of BlackRock Frontiers.
The team’s process is thorough and disciplined, and while periods of volatility are to be expected, given this fund’s investment focus, Mr Vecht and his team have delivered.”
The trust targets countries enjoying rapid economic growth, including Pakistan, Vietnam and Nigeria.
By contrast, the runner-up in this category, JPMorgan Emerging Markets, is a more conventional trust in the sector, invested primarily in India, South Africa, Hong Kong and Taiwan. Mr Haynes argues it offers a great way to get well-diversified exposure to emerging markets.
He says: “This is a mainstream emerging markets trust that has a good long- term absolute and relative track record, and it has held up reasonably well in a very difficult 2015. It
has been managed by Austin Forey since 1994, supported by the trust’s extensive, well-resourced global emerging markets team.The emphasis is on stock-picking and a ‘growth at a reasonable price’ strategy.”
Trusts in this sector are popular buy and hold investments. However, although they might appear to offer access to a globally diversified portfolio of shares, Mr Connolly says investors need to understand a trust’s strategy and where it invests.
He explains: “There can be huge differences in the approach and geographical breakdowns between trusts, so there can be big differences between their performance figures.”
Our winner this year is Independent Investment Trust, which despite being in the global category is 85% invested in the UK, with the remainder mainly invested in China and the US.
Mr Connolly says: “This trust has performed exceptionally well in recent times. It was the clear top performer in the sector over the past year or so. It has a hugely experienced manager who has a very consistent long-term record.”
Runner-up for the second year in a row is Lindsell Train. Ms Tepes describes it as “a unique investment opportunity that has delivered some of the strongest and most consistent returns among all investment trusts”. It invests in the US, the UK, Japan and the Netherlands.
Property Direct UK
In recognition of the UK’s love affair with property and the important role it can play in diversifying an equity- stacked portfolio, we have introduced a new category dedicated to the sector this year.
“Property investments have performed well over the past few years, along with other mainstream asset classes,” notes Mr Connolly. “This sector has the scope to provide consistent returns, good diversification and an attractive income, so there are many good reasons for investors to hold property in their portfolios.”
The winner in this new category is F&C Commercial Property Trust. Mr Haynes says:“This trust has built up an impressive long-term track record relative to both its benchmark index and other trusts. It is a large, liquid trust with a well-diversified portfolio, both in terms of regions and sectors. F&C has a well-resourced and experienced team managing commercial property. I believe this is a solid choice.”
In the runner-up position is Standard Life Investment Property, which Mr Connolly describes as a good core holding. He says: “This is a diversified portfolio with a strong track record and relatively little volatility compared with others in the sector.”
Investment trust group of the year
For the third year in the row, the award for investment trust group of the year goes to Henderson, which won our UK equity and bond income and UK smaller companies categories, and also achieved a highly commended award in our Europe category.
Mr Haynes says:“When it comes to investment trusts, Henderson continues to provide several strong offerings. In 2015 I was particularly impressed by its UK equity offerings – in an extremely difficult economic climate – which range from the more cautious equity and bond offering of Henderson High Income to the more adventurous UK Smaller Companies trust.
“The group has a strong commitment to the investment trust sector, and it offers a comprehensive range of trusts across a wide range of sectors that merit consideration.”
All figures correct as of 25 February 2016.
This year our awards looked at 10 sectors: Asia Pacific Ex Japan, Europe, global, global emerging markets, North American (including North American smaller companies), property direct UK, UK all-companies, UK equity and bond income, UK equity income and UK smaller companies. Morningstar provided us with performance data for each sector over one, three and five years to 26 January 2016.
Trusts were ranked on three-year net asset value performance with income reinvested. We aggregated performance over each period to calculate the top trusts in each sector. With the help of Morningstar risk ratings, we created shortlists of the top-performing trusts, which we passed on to our independent judges.
We asked them to vote for their favourites based on: suitability for Moneywise readers, risk, manager ability, investment strategy, consistency, prospects, pricing and performance.
Our shortlist for investment trust group of the year was based on the number of times a group appeared in our category shortlists.
- Jackie Beard, director of manager research services, EMEA at Morningstar UK
- Patrick Connolly, certified financial planner at Chase de Vere
- Gavin Haynes, managing director at 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.
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.
The term is interchangeable with stock exchange, and is a market that deals in securities where market forces determine the price of securities traded. Stockmarket can refer to a specific exchange in a specific country (such as the London Stock Exchange) or the combined global stockmarkets as a single entity. The first stockmarket was established in Amsterdam in 1602 and the first British stock exchange was founded in 1698.
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%.
An increase in the general level of prices that persists over a period of time. The inflation rate is a measure of the average change over a period, usually 12 months. If inflation is up 4%, this means the price of products and services is 4% higher than a year earlier, requiring we spend and extra 4% to buy the same things we bought 12 months ago and that any savings and investments must generate 4% (after any taxes) to keep pace with inflation. Since 2003, the Bank of England has used the consumer prices index (CPI) as its official measure of inflation (see also retail prices 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.
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.
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.