Investors should look through the Brexit noise and consider consistency of performance after research has found that the UK smaller company sector has performed well.
Research conducted by the Association of Investment Companies (AIC) has found that among its member investment companies, UK smaller companies-focused trusts are the most consistent performers.
The AIC explains that consistency of performance is determined by benchmarking an investment company’s discrete annual share price total return against the overall sector. The most consistent performers, therefore, are picked from the investment companies that consistently outperform this benchmark each year.
Of the top 20 most consistently performing investment trusts in the past 10 years, the UK smaller companies sector makes up a quarter of the list. The AIC says that this might come as a surprise to investors when considering the current uncertain economic and political climate around Brexit.
Annabel Brodie-Smith, communications director of the AIC, explains: “Concerns about Brexit and a UK economic slowdown are ever-present, but UK investment companies, and particularly the UK smaller companies sector, have performed consistently well.”
This consistency comes despite nearly two years of anxiety over the British economy in the wake of the EU referendum.
Topping the list was Lindsell Train Investment Trust managed by Michael Lindsell and First 50 manager Nick Train, whose Finsbury Growth & Income Trust (FGT) – one of Moneywise’s First 50 Funds for beginner investors – came second for most consistent performance. While Lindsell Train is a global-focus investment company, FGT is UK equity income oriented.
Overall, UK-focused trusts make up a third of the list (seven out of 20). This is followed by the global equities sector with four.
Nick Train, manager of Finsbury Growth & Income Trust (FGT) explains that consistency in investing is key to his fund’s success: “The performance of FGT over the 17-plus years of our responsibility makes us proud, but it also surprises us, a bit.
“What we have done and will continue to do is simple – so simple that you might wonder about its efficacy. We take big positions in what we analyse to be exceptional companies then we hold the positions for a long time, preferably forever. We have found that if you own good companies for long enough then good things tend to happen for investors.
Peter Ewins, manager of F&C Global Smaller Companies – another of Moneywise’s First 50 Funds for beginner investors – adds: “It’s pleasing that smaller company shares have delivered consistently strong returns in recent years across most global markets.
“These returns have been driven by a general equity market re-rating but also by solid underlying earnings growth over a protracted period of time. The fact is that in many markets, smaller companies are more exposed to faster growing parts of the economy, and the sector skew has played a part in helping small caps to beat larger stocks over the last decade.”
But Ms Brodie-Smith caveats: “Investors should bear in mind that performance is just one criteria to consider when researching investment companies and they also need to look at other criteria including portfolio composition, gearing, discounts and charges. Investors usually focus on the latest top performers, but consistent long-term past performance is key when considering potential investment companies.”
See the table below for the investment companies that have performed most consistently in the last 10 years:
|Rank||Company||AIC sector||No. of times above Overall Weighted Average||Volatility of Return||% Share price total return over 10 years to 30 April 2018|
|Overall Weighted Average||-||-||133.63|
|2||Finsbury Growth & Income*||UK Equity Income||9||16.18||307.49|
|3||F&C Global Smaller Companies*||Global||9||16.38||297.39|
|4||Invesco Perpetual UK Smaller||UK Smaller Companies||9||17.70||301.73|
|5||JPMorgan US Smaller Companies||North American Smaller Companies||9||19.84||350.44|
|6||Montanaro UK Smaller Companies||UK Smaller Companies||8||20.91||175.64|
|7||Mid Wynd International Inv Tr PLC||Global||8||20.94||243.04|
|8||Dunedin Smaller Companies||UK Smaller Companies||8||21.83||233.66|
|9||TR Property||Property Securities||8||21.99||220.27|
|10||Herald||Sector Specialist: Small Media, Comms & IT Cos||8||22.04||331.58|
|11||Edinburgh Dragon||Asia Pacific - Excluding Japan||8||22.15||151.38|
|12||Schroder Oriental Income||Asia Pacific - Excluding Japan||8||24.02||220.34|
|13||Standard Life UK Smaller Companies||UK Smaller Companies||8||24.92||387.26|
|14||Polar Capital Technology||Sector Specialist: Tech Media & Telecomm||8||25.45||501.83|
|15||BlackRock Smaller Companies||UK Smaller Companies||8||26.37||409.79|
|16||Baillie Gifford Shin Nippon||Japanese Smaller Companies||8||27.15||645.42|
|17||Electra Private Equity||Private Equity||8||34.07||237.71|
|18||JPMorgan American||North America||7||12.75||254.67|
|19||Standard Life Equity Income||UK Equity Income||7||15.52||148.70|
|20||JPMorgan Elect Managed Growth||Global||7||16.17||151.34|
* Denotes a member of Moneywise First 50 Funds for Beginners. Source: AIC using Morningstar