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Revisiting five of our favourite investment trusts
We are big believers that investment trusts can be useful vehicles for investors as many have a solid long-term track record and pay a steady stream of growing dividends.
In this article we take a look at some of the investment trusts highlighted as Great Ideas in Shares over the past year and how they’ve performed.
12% IN 11 MONTHS
It may be the world’s oldest investment fund but F&C Investment Trust (FCIT), formerly called Foreign & Colonial, looks to have learned some new tricks which have helped it deliver the top performance among our investment trust selections with a 12.1% gain since April 2018.
The strong showing was achieved against the backdrop of highly volatile global markets, partly thanks to an outsized exposure to US markets which held up better than most. Amazon is the top holding at 2.2% of the portfolio.
The popular fund, which has £4bn in assets, also has the flexibility to invest in companies that aren’t listed on a stock market and in private equity, with these areas managed by third parties.
Steered by the experienced Paul Niven since 2014, we continue to think its focus on sustainable business models backed by strong cash flow and at attractive valuations will prove a long-term winner.
BOOSTED BY A RECOVERY IN UK STOCKS
We added Keystone Investment Trust (KIT) to our Great Ideas portfolio in December, viewing an 11.3% discount to net asset value (NAV) as very attractive and on the basis value investing would finally swing back into fashion.
Shares in Invesco-run Keystone, managed by contrarian investor James Goldstone, have since advanced 8% as the UK equity market rebounded from a disappointing December 2018.
Sentiment towards the trust will also have benefited from January’s better-than-expected Christmas trading results from Next (NXT) and Tesco (TSCO), two of the larger underlying holdings. While there is still a wide 10.9% discount on the trust, a positive resolution to Brexit could trigger a bounce for UK equities which remain Keystone’s focus.
Research by Professor Hendrik Bessembinder found a mere 90 firms accounted for half of the value created on the US stock market between 1926 and 2016. Investment trust Scottish Mortgage (SMT) is currently working with the research author to see if the same principle applied to non-US markets and its client service director Catharine Flood says initial findings confirm the same pattern.
This is relevant because Scottish Mortgage takes high conviction stakes in companies with the top 30 holdings in its portfolio accounting for nearly 80% of its assets.
‘We look for the best businesses with the potential to do something extraordinary,’ says Flood. ‘And a company addressing a significantly large market and which keeps getting larger is a good place to look for returns.’
We said to buy Scottish Mortgage during the stock market sell-off last October and the shares have since risen by 3.5%. High exposure to technology-led businesses can make the shares volatile but ups and downs shouldn’t put you off owning this superb investment trust for the long term. You just need to be patient.
THE IMPORTANCE OF QUALITY
The quality of a company has become even more important against a backdrop of central banks reducing monetary stimulus, says Lucy Macdonald, portfolio manager at Brunner Investment Trust (BUT).
‘Earnings are slowing down and we’re seeing it everywhere. You therefore need to look for companies with the ability to grow. You also want good quality companies and ones that have a competitive advantage, good returns and management you can trust to allocate capital wisely,’ she adds.
Growth and income-focused Brunner has spread its wings over the past year or so to have a more global focus including investments in healthcare firm Cooper Co, health insurer United Health and jewellery seller Richemont where Macdonald says luxury goods are ‘surprisingly stable’.
The fund manager clearly has a knack for picking stocks given Brunner’s shares are up by 4.9% since we said to buy last November.
INDIAN TRUST STRUGGLES
Our bullish call on JPMorgan Indian Investment Trust (JII) made in June 2018 is down nearly 7% following a volatile share price ride since last summer.
By far the biggest of the dedicated India specialist trusts by total assets, JPMorgan Indian has a five-year track record of outperforming the benchmark but struggled last year as a result of not holding strongly performing heavyweights Reliance Industries, Hindustan Unilever and Infosys.
A more recent GDP growth slowdown in India (Q4) and the India-Pakistan crisis are hardly helping to foster positive sentiment. Nevertheless, we still believe the trust is worth owning, offering exposure to one of the world’s most exciting long-term growth markets with a focus on the exciting financials theme, while trading at an attractive 11.5% discount to NAV.
DISCLAIMER: Keystone Investment Trust has a holding in AJ Bell which is the owner of Shares magazine. The authors of this article also hold shares in AJ Bell.