We highlight the closed ended funds that shone in the shocking year of Covid

From a human standpoint, 2020 has proved a shocker of a year, with the unforeseen pandemic wreaking havoc on health and the associated lockdowns precipitating a global economic downturn that may take years to battle back from.

Yet paradoxically, 2020 has been anything but negative from a markets perspective, with equity indices roiled by the onset of the crisis then recovering strongly with a boost from considerable government and central bank stimulus.

Also driving some impressive returns from the investment trust sector were themes such as technology, the resurgence of China from the virus, as well as increased spending on healthcare. Many companies and funds also profited as the pandemic accelerated shifts to e-commerce, remote working, cloud computing and the increased use of artificial intelligence.

THE TOP PERFORMING INVESTMENT TRUST

Shares has crunched the data from FE Fundinfo, from the market close on 31 December 2019 to 9 December 2020, to reveal 2020’s best performing investment trusts.

Leading the pack with a stunning 126.2% gain was Pacific Horizon Trust (PHI) managed by Ewan Markson-Brown and deputy manager Roderick Snell, its stellar performance reflected in a wide 17.8% share price premium to net asset value (NAV) according to the Association of Investment Companies’ (AIC) website, having traded at a discount not so long ago.

Seeking out the big winners, those growth stocks that can generate asymmetric returns, in the Asia Pacific region (ex Japan) and Indian sub-continent, Pacific Horizon’s significant outperformance of the MSCI All Country Asia ex Japan index continued during 2020 despite the backdrop of a global pandemic and ongoing US/China trade disputes.

The trust benefited from the accelerated growth of the online economy (e-commerce, cloud and gaming) catalysed by Covid-19, which boosted leading holdings including SEA, South East Asia’s biggest e-commerce and online gaming company, Chinese online shopping giant Alibaba, delivery platform Meituan Dianping and Chinese ERP software company Kingdee.

IN SECOND & THIRD PLACE WERE…

Stripping out venture capital trusts (VCTs), the next top performers were another two trusts from the stable of Edinburgh-based fund management group Baillie Gifford, namely the Baillie Gifford US Growth Trust (USA) and Scottish Mortgage (SMT), up 112.8% and 94.5% respectively.

Guided by Gary Robinson and Helen Xiong, Baillie Gifford US Growth focuses on what the managers believe are America’s exceptional growth businesses.

Most of its holdings benefited from virus-related lockdowns in 2020, notably Amazon, Zoom and also Shopify, which runs tools across a platform that makes going digital easy for retailers, and other consumer-facing businesses, Netflix and Peloton. A holding in Elon Musk-steered Tesla also generated spectacular returns for investors in the trust.

FTSE 100 trust Scottish Mortgage aims to give investors a way to access the world’s most exciting growth companies and enjoyed yet another strong year.

Co-managers James Anderson and Tom Slater identify companies, enabled by technology, which they believe have the potential to be much greater in size in the future thanks to having a proposition which is scalable and could be market-leading in time.

This year, Scottish Mortgage has benefited from its focus on tech companies, disruptive businesses and a relatively high weighting in Chinese domiciled companies.

HONOURABLE MENTIONS

Those themes of China, growth and tech also drove the handsome returns generated by JPMorgan China Growth & Income (JCGI), boasting a five-star Morningstar rating, and the Walter Price-managed Allianz Technology Trust (ATT).

Douglas Brodie-bossed Edinburgh Worldwide (EWI), yet another trust managed by the highly-rated Baillie Gifford, and the Dale Nicholls-steered Fidelity China Special Situations (FCSS), were hot on their heels in performance terms.

Other trusts to reward investors with very healthy returns included Biotech Growth Trust (BIOG), up more than 60% amid positive sentiment towards the biotechnology and healthcare sector, and JPMorgan Japanese (JFJ), an impressive long-term performer relative to the benchmark and competing trusts, which delivered a 55.6% positive return.

It would be remiss not to give a shout out to Pershing Square (PSH), the trust providing access to the stock picking acumen of Wall Street hedge fund manager Bill Ackman; strong returns drove a meteoric share price rise that was ultimately rewarded with promotion to the FTSE 100.

THREE TRUSTS TO BUY FOR 2021

JPMorgan Emerging Markets (JMG)
Share price: 128.6p

Though the discount to net asset value has narrowed from a 12-month average of 8.2% to 4.4%, this is still a savvy time to take a position in JPMorgan Emerging Markets (JMG).

Strategists and fund managers expect emerging markets to outperform in 2021 driven by China, a weaker US dollar and with globalist Joe Biden ensconced in the White House.

This augurs well for the generalist emerging markets fund managed by Austin Forey, who has proved his ability to deliver good levels of outperformance. We also like the fact the trust boasts a five-star Morningstar rating and is invested in quality growth companies.

Many of these are globally diversified, which should lend the portfolio resilience should trade tensions and spats persist or if the global recovery disappoints. Among the top 10 names are Tencent, Taiwan Semiconductor, Alibaba, Ping An Insurance and MercadoLibre.

Fidelity Special Values (FSV)
Share price: 232p

Should the recent value rally continue and international investors look favourably on at least some clarity on the relationship with the EU and UK either way, this would be positive for Fidelity Special Values (FSV).

The trust has delivered a 10-year annualised total share price return of 9.8% (according to Morningstar) when value has been out of favour.

Managed by Alex Wright and Jonathan Winton with a contrarian style, the fund invests in ‘unloved companies with potential for positive change’ and typically has a bias towards medium and small-cap companies and value.

A negative return was generated during our period in review, unsurprising given its style was out of favour until recently, though the focus on fundamentally cheap but unloved stocks could prove a tailwind in 2021.

In the October factsheet, Wright was said to remain ‘excited by the numerous opportunities he is finding and the fact that he is not having to compromise on quality’, his enthusiasm reflected in the trust’s increased gearing. Wright was said to be favouring life insurers, specialist retailers and housing-related businesses which are benefiting from strong demand.

Montanaro European Smaller Companies (MTE)
Share price : £15.30

An impressive outperformer worth considering for 2021 is Montanaro European Smaller Companies (MTE), which aims to achieve capital growth by investing principally in Continental Europe’s smaller corporate fry.

Since its August 2006 launch, the trust has materially outperformed the benchmark MSCI Europe ex UK Small Cap Index, with strong returns finally being recognised by the wider market.

Lead manager George Cooke’s unwavering focus on only the highest quality, structurally growing companies leaves Montanaro European Smaller Companies well positioned for the remainder of the pandemic – the portfolio includes many of the beneficiaries of the shift to home working and investment in healthcare fostered by the Covid crisis.

It also means the trust is capable of capitalising on the recovery, with sentiment towards small caps turning more positive. 

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