Whether you are saving a nest egg for your future or putting money aside for offspring, an investment trust could be the right product for you. Our winners have proved they perform consistently well
Investment trusts can be a great way of getting access to a diversified portfolio of shares at low cost.
Managed on your behalf by an expert fund manager, investors can enjoy stock-market returns without the hassle and expense of researching, buy and selling the shares themselves.
Although performance isn’t guaranteed, if you’ve chosen wisely your money should grow at a faster rate than it would in a cash account and be protected from inflation.
This makes investment trusts a practical option if you want to save for the future – whether it is for your own nest egg or one you want to build for a child or grandchild. They can also be a savvy choice for investors who need an income from their savings.
In addition to the fact that investment trust managers can ‘gear’, that is borrow to invest, to boost returns in rising markets, they can also hold back as much as 15% of their income in their strongest years to help them deliver a rising income over time.
However just with conventional funds, there is a plethora of choice with trusts investing across different assets, regions, company types or themes and they will all have a different approach to risk. Some trusts will, of course, perform better than others too.
To help you make the right choices, Moneywise has teamed up with a panel of expert judges to hand-pick the best options across a number of popular sectors in the Moneywise Investment Trust Awards 2019.
These are not just the trusts that have performed best over the past year or so, instead we have selected winners and runners-up that have demonstrated they can perform consistently well and have the resources in place to carry on doing a good job for their investors.
UK ALL COMPANIES
Winner: Fidelity Special Values
Trust provider: Fidelity
Fund manager: Alex Wright
Total assets: £833.7 million
Market return over five years: 48%
Share price: 255p
Ongoing charges: 1.05%
Highly commended: Mercantile
“While the UK faces a number of headwinds, not least regarding uncertainty surrounding Brexit negotiations, the UK All Companies investment trust peer group is trading at one of the tightest discount levels in its history. The current peer group average discount is 8.6%, compared with a 20-year average of 10.2%,” says Emma Bird, judge and research analyst at Winterflood Investment Trusts.
This means that investors have to pay more to access the sector. However, our winner, Fidelity Special Values – which takes this award for the third year in a row – is so popular among investors that it is actually trading a premium of 1.5%. Nonetheless, our judges agreed it was worth paying extra to buy shares in the trust, with all but one voting it the top trust in the sector.
Commenting on our winner, Jason Hollands, judge and managing director at online investment service Best Invest and Tilney Wealth Management Group, says: “Alex Wright has done an outstanding job with Fidelity Special Values since being handed the portfolio in 2012. The trust invests across the market-cap spectrum – with significant exposure to small and medium-sized companies – and does so with an unambiguous, value-oriented, contrarian approach. In a period where large companies have outpaced small and mid-sized ones, this has not impaired the performance of the portfolio, which is testament to very strong stock selection.”
For the second consecutive year, our highly commended award goes to Mercantile, which has a discount of 8.6% – the average for the sector. This was the preferred choice of Ms Bird.
“Mercantile offers well-managed, low-cost, diversified exposure to UK mid- and small-cap companies through one of the largest and most liquid UK-focused investment trusts. Furthermore, its quarterly dividend offers an attractive yield of 3% and the progressive dividend policy has seen its dividend grow by 6.3% a year over the past 10 years. Its ability to continue to grow its dividend is supported by significant revenue reserves,” she explains.
UK EQUITY AND BOND INCOME
Winner: City Merchants High Yield
Trust provider: Invesco Asset Management
Fund managers: Rhys Davies, Paul Causer, Paul Read
Total assets: £179 million
Market return over five years: 29%
Share price: 182p
Ongoing charges: 1%
Highly commended: Henderson High Income
This is the smallest of the sectors we analysed in these awards, nonetheless it can be a helpful choice for investors wanting a combination of UK equities and fixed interest to manage risk. However, without any geographical diversification, the sector cannot be described as a home for ‘one-stop shop’ funds.
This year, our winner is City Merchants High Yield.
Patrick Connolly, judge and a certified financial planner at Chase de Vere, says: “This trust utilises the UK equity expertise of Invesco together with two of the most distinguished fixed-interest managers in Paul Read and Paul Causer. It pays a yield of over 5% a year, and the management team adopts a fairly flexible approach in terms of asset allocation. It should be a comparatively safe haven for those who want a high level of income.”
Henderson High Income takes runner-up position. Its second consecutive year in this position, after two years at the top of the pack, highlights it as a consistent and reliable choice for investors.
Ms Bird says: “Henderson High Income offers an attractive yield of 5.8%, which is fully covered by revenue. Its revenue reserves mean that shareholders have a reasonable degree of certainty that the dividend will be maintained or increased in the future.”
She does point out, however, that the level of gearing – around 27% of net assets – does increase its risk profile, but says this is mitigated to a certain extent by the level of diversification, both among bonds and equities, of the trust.
UK EQUITY INCOME
Winner: Finsbury Growth & Income
Trust provider: Frostrow Capital
Fund manager: Nick Train
Total assets: £1,519.5 million
Market return over five years: 70%
Share price: 805p
Ongoing charges: 0.67%
Highly commended: Lowland
“This is an important sector for both income- and growth-orientated investors and it boasts some of the best equity managers in the UK,” says Mr Connolly. “Investors are very much spoilt for choice as the sector has many top-quality investment trusts.”
It is Finsbury Growth & Income, however, that takes top spot for an impressive nine years in a row.
David Holder, judge and senior analyst at investment research firm Morningstar, says: “Finsbury Growth & Income is a standout choice for investors comfortable with a highly concentrated portfolio that can look markedly different from the FTSE All Share Index. It is run by an experienced manager Nick Train, who has shown a disciplined adherence to a well-structured approach since launch.”
“The crux of Mr Train’s investment philosophy lies in the belief that a highly concentrated portfolio of high-quality, cash-generative, strong, and easily understood business franchises will outperform the market and reduce volatility over the long term.”
He adds that investors do need to be comfortable with periods of short-term volatility, but points out that with Mr Train holding more than one million shares in the fund himself, his priorities are the same as his investors.
Taking runner-up position for the second year in a row is Lowland, another trust with an objective to deliver growth and income to investors.
Ms Bird says: “Lowland has a strong long-term performance record, with the fund benefiting from an experienced management team and a bias to mid- and small-cap companies. Indeed, it is this bias and a willingness to invest in recovery situations that differentiates it from its peers.
She adds: “Its value and mildly contrarian stance have proven a headwind in recent years; however, we believe that these same biases should see the fund perform strongly in the event of greater certainty surrounding the Brexit process, assuming that the UK economy remains on a reasonable footing.”
UK SMALLER COMPANIES
Winner: Henderson Smaller Companies
Trust provider: Janus Henderson Investors
Fund manager: Neil Hermon
Total assets: £735.3 million
Market return over five years: 66%
Share price: 853p
Ongoing charges: 0.41% (0.98% incl. performance fee)
Highly commended: BlackRock Smaller Companies
“This is a high-risk sector but one where long-term performance has been very strong,” remarks Mr Connolly.
“It is likely that smaller companies will continue to outperform over the long term, although there are some potential headwinds in the short term, not least the implications of the UK’s withdrawal from the EU.”
For investors who are able to take the higher degree of risk, our judges put Henderson Smaller Companies at the top of the pile for an impressive fourth year.
Mr Hollands says: “The Henderson Smaller Companies IT, managed by veteran Neil Hermon, has consistently delivered the goods, using a “growth at a reasonable price” approach. Mr Hermon looks for companies with strong cashflow generation and earnings momentum, while avoiding those more speculative situations where it is difficult to arrive at a sensible assessment of the valuation.”
Coming a very close second is BlackRock Smaller Companies for the third year in a row. This was the preferred choice of Adrian Lowcock, head of personal investing at Willis Owen.
“The investment process is rigorous and established,” he explains. “Initially the universe is screened for suitable liquidity (minimum market cap will generally be around £100 million) and then four key measures (model, management, money and momentum) are applied to the remaining stocks. Company meetings and broker input, together with a valuation and macro sanity check, complete the process.”
PROPERTY DIRECT UK
Winner: Standard Life Investments Property Income
Trust provider: Aberdeen Standard Investment
Fund manager: Jason Baggaley
Total assets: £369.3 million
Market return over five years: 61%
Share price: 87.7p
Ongoing charges: 1.8%
Highly commended: F&C Commercial Property
An investment trust can be ideal way to invest in commercial property: whether it’s a trust that buys office space, warehouses or retail and entertainment spaces. Such properties are not quick to sell, which can see managers of open-ended funds in hot water if too many investors want to cash in their holding.
Ms Bird says: “Given its inherent liquidity, commercial property is ideally suited to the closed-ended fund structure [investment trusts]. The benefits of the structure become particularly apparent during times of market stress, such as the aftermath of the EU referendum in 2016 when a number of open-ended property funds suspended redemptions.”
The award this year goes to Standard Life Investments Property Income, last year’s runner up.
Mr Connolly says: “This is a diversified ‘bricks and mortar’ property fund from an experienced and well-resourced management team. It is a core diversified holding paying an attractive income and investing across industrial, office, warehouse and retail property. It should continue to provide consistent returns.”
F&C Commercial Property – a favourite of Mr Hollands – came a close second.
He says: “F&C Commercial Property Trust gets my vote based on a combination of the tenant quality, unexpired lease profile of portfolio and the fact it pays monthly income. The portfolio is skewed to London and the South East, with the biggest development being the St. Christopher’s Place complex of restaurants, bars and shops close to [London’s] Oxford Street.”
Winner: Scottish Mortgage
Trust provider: Baillie Gifford
Fund managers: James Anderson and Tom Slater
Total assets: £7,980 million
Market return over five years: 145.42%
Share price: 499p
Ongoing charges: 0.37%
Highly commended: Edinburgh Worldwide
Global investment trusts, which are able to buy companies all over the world, have become a popular choice for smaller savers seeking a diversified portfolio of shares. And with the sector including some of the most successful and long-standing investment trusts, competition in this category is always tight.
The winner this year is Scottish Mortgage. A regular in the Moneywise Investment Trust Awards, this is the sixth year the trust has topped this category since 2011.
Mr Hollands is a big fan of the trust.
“Scottish Mortgage really is the poster child for the modern investment trust sector, despite its venerable brand. Unconstrained in approach, with holdings from the US to China, it scours the globe for fast growth companies.
“I also like the fact is has a meaningful exposure to unquoted companies. Despite a very active and selective investment trust, Scottish Mortgage also has very low ongoing fees. Over the long run, these will more than compensate for the small premium investors typically have to pay for Scottish Mortgage’s shares.”
By contrast, Edinburgh Worldwide makes its first appearance in the awards, coming in second place. However, while performance is impressive, our judges warn its focus on smaller companies means it’s not for the faint-hearted.
Mr Lowcock explains: “This is a higher-risk, smaller companies trust. The process is bottom-up and focused on initially immature companies with a market cap of less than $5 billion. In addition, given where it is in its evolutionary development, around a third of the portfolio is in companies that are not yet making a profit.”
GLOBAL EMERGING MARKETS
Winner: JP Morgan Emerging Markets
Trust provider: JP Morgan Asset Management
Fund manager: Austin Forey
Total assets: £1,219 million
Market return over five years: 85%
Share price: 895p
Ongoing charges: 1.02%
Highly commended: JP Morgan Global Emerging Markets Income
Trusts in this sector give investors exposure to emerging economies, such as China, India and Latin America. Yet although growth potential is good as middle classes develop in these regions, investors must be prepared for plenty of ups and downs as they will have discovered over the past year.
Mr Hollands says: “Emerging markets have certainly provided investors with a rollercoaster ride in recent years. After posting stellar returns in 2017, 2018 was something of an ‘annus horribilis’ for the sector, battered by Dollar strength, the escalating US-China trade war and the impact of overzealous measures to curtail Chinese credit growth.”
Our winner, JP Morgan Emerging Markets, scored maximum points with our judges and scoops up the award for the third year on the bounce.
Mr Hollands says: “JP Morgan Emerging Markets is a great core option for investors, which benefits from an extensive team able to put boots on the ground across these disparate regions.
“The trust has had a sizeable overweight to India, one of the brightest spots in the emerging markets firmament for some time, but has also progressively increased its exposure again to China. That could prove very timely with China once again ratcheting up stimulus measures and apparent progress being made in US-China trade negotiations.”
Proving its strength in the region, JP Morgan’s Global Emerging Markets Income fund takes runner-up position.
Mr Holder says: “This fund is attractive for those seeking income-oriented exposure to emerging markets. The manager is supported by the well-resourced wider team. The structured approach of assessing five-year growth, dividends, change in valuation, and currency allows fund managers to select stocks based on drivers that are appropriate for their particular product.
“This flexibility of investing in stocks with different yield characteristics gives the manager a better chance of achieving the dual objective of income and capital growth. This fund has always offered a genuine yield premium versus the index. The strength of resources and robust process continue to make this an attractive offering.”
Winner: Fidelity European Values
Trust provider: Fidelity
Fund manager: Sam Morse
Total assets: £1,133 million
Market return over five years: 62%
Share price: 223p
Ongoing charges: 0.93%
Highly commended: Jupiter European Opportunities
“The ‘doom and gloom’ sentiment surrounding European investments has been largely replaced with one of cautious optimism, although there are still headwinds including the possible fallout from Brexit, stunted economic growth, and high unemployment and debt in some countries,” says Mr Connolly.
A good choice for navigating these challenges is our winner Fidelity European Values.
Mr Connolly says: “This is a genuine stock-picking trust, where the manager seeks good value, cash-generative companies which are able to grow their dividends in the medium term. This approach produces strong long-term returns and also provides a good degree of protection in difficult market environments, which may be a useful characteristic as Europe faces some uncertainty ahead.”
Coming a very close second is last year’s winner Jupiter European Opportunities – the preferred trust of Mr Hollands.
“In this category, I feel there is a standout winner in Alex Darwall’s Jupiter European Opportunities Investment Trust. The manager pursues an unconstrained approach to selecting a concentrated portfolio of quality, growth businesses.
Mr Darwall looks for ‘special’ companies that offer superior, differentiated products and services that can deliver sustainable growth and retaining strong pricing power, throughout the economic cycle.”
ASIA PACIFIC EXCLUDING JAPAN
Winner: Schroder Asian Total Return
Trust provider: Schroders
Fund manager: King Fuei Lee, Robin Parbrook
Total assets: £319 million
Market return over five years: 119%
Share price: 354p
Ongoing charges: 0.97% (2.68% incl. performance fee)
Highly commended: Fidelity Asian Values
“Last year was an incredibly challenging period for Asian markets which faced the perfect storm of a deceleration in Chinese growth, pressure from a strengthening US Dollar and the escalating US-China trade war,” explains Mr Hollands. However, he notes that the category has a number of very strong contenders, which are well placed meet those challenges head on.
His favoured trust is our winner.
“In my view, the Schroder Asian Total Return edges it because of the very distinctive strategy it pursues of using a tactical derivative overlay to help protect capital. This has proved beneficial to investors during the turbulence of 2018, especially given the sizeable underlying exposure to mainland Chinese stocks.”
Taking runner-up position is Fidelity Asian Values.
Mr Lowcock says: “Manager Nitin Bajaj has an unconstrained approach to investing in the region and makes good use of the vast Fidelity Asia Pacific resources. His process involves identifying well-run companies in attractive industries at appealing valuations.”
Given the risks involved in this and other sectors that invest in emerging markets, Mr Connolly adds that investors should ensure they don’t become too exposed to the region.
“Investors need to be wary that they don’t duplicate exposure if investing in Asia alongside emerging markets trusts, particularly as both may have their largest weighting in China.”
NORTH AMERICA & NORTH AMERICAN SMALLER Cos
Winner: North American Income
Trust provider: Aberdeen Standard Investments
Fund managers: Ralph Bassett, Douglas Burtnick, Fran Radano, Charles Tan
Total assets: £445 million
Market return over five years*: 105%
Share price: 1430p
Ongoing charges: 0.98%
Highly commended: JP Morgan US Smaller Companies
“Despite a short-term pull back, the US stock market has been an ongoing story of success and long-term investors have been well rewarded. The US boasts the largest stock market and economy in the world and is home to many of the most successful and innovative companies, including the likes of Apple, Microsoft and Amazon,” says Mr Connolly.
This category combines two small AIC sectors – North America and North American Smaller Companies.
Our winner is the North American Income Trust, which takes the award for the third time since 2015.
Mr Connolly is a big fan.
He says: “This trust, which is managed by Aberdeen Standard, has performed superbly in recent years as its focus on large-cap, dividend-producing companies has been in demand from investors.
“This trust should be positioned to provide consistent long-term returns and pays an income of 2.8%, which is reasonable for the US market, although there is a danger that some of the underlying holdings are quite expensive and could be subject to shorter-term falls,” he says.
It was a very close call for runner-up, but JP Morgan Smaller Companies edged it for the second consecutive year.
Mr Lowcock says: “The philosophy of the team is to invest in companies that have a sustainable competitive advantage and are run by good and experienced management teams with a proven record of success. They look for companies that are trading at a discount to their fair value. The team is willing to run their winners and continue to hold them as they grow.”
MONEYWISE INVESTMENT TRUST GROUP OF THE YEAR
WINNER: JP Morgan
JP Morgan retains the award this year, winning the accolade for the fifth time since 2009.
Mr Connolly says: “JP Morgan is a very well-resourced investment company with strength in a wide range of areas and which is committed to their investment trust products.
“Its track records are usually based on consistency rather than ‘flash in the pan’ performance and so it should be well-placed to continue to perform well for investors in the future.”
The Association of Investment Companies provided Moneywise with the top performing investment trusts for 10 popular sectors, ranked over three years with five- and seven-year data also supplied. We then aggregated this data to create shortlists for each category. These shortlists were then passed over to our panel of independent judges. We asked them to vote for their top three in each category, taking into account factors such as value for money and suitability for Moneywise readers, in addition to performance.
Patrick Connolly, chartered financial planner, Chase de Vere
Emma Bird, research analyst, Winterflood Investment Trusts
David Holder, senior analyst, Morningstar
Adrian Lowcock, head of personal investing, Willis Owen
Jason Hollands, managing director, Best Invest and Tilney
• All data supplied by the AIC correct as of 8 March 2019 except performance data, which ran to 31 January 2019.