2020 was a year of very strong gains for growth and technology stocks as loose fiscal and monetary policy converged with accelerated digitisation in response to the Covid-19 lockdowns, changing the way people lived and worked.
This is evident amongst the list of top performing investment trusts of 2020, which is dominated by growth strategies and technology funds.
Baillie Gifford US Growth made a total return of 133.45 per cent in 2020 while the trust in second place, the £691.5m Pacific Horizon Investment Trust, made 128.58 per cent.
Top 25 performing investment trusts of 2020
Source: FE Analytics
However, since November, when the news of three viable Covid-19 vaccines were announced, there has been something of a reversion to the neglected value strategies of last year.
Market leadership has switched from growth stocks, which have dominated for the past decade, towards value – which until recently had been plagued by lacklustre returns. This has caused the relative performance of funds and trusts to go into reverse this year.
FE Analytics shows that 37 per cent of trusts which were top quartile in 2020 have dropped into the bottom quartile in 2021’s first quarter. These include Baillie Gifford US Growth and Pacific Horizon, the strongest performers of 2020.
Having said that, there have been some trusts that have stayed top quartile throughout, building on the success of last year.
Trustnet wanted to see which trusts had managed to maintain strong performance relative to their sector peers, especially as the reversion had hit those top performers of 2020 so drastically.
Of the 98 trusts that were top-quartile in 2020, 28 have managed to remain in the top quartile over 2021 so far. The 28 trusts have been ranked below in order of 2021 total return, of which eight have made double-digit returns year-to-date.
Top quartile investment trusts over 2020 and 2021
Source: FE Analytics
The first to mention is the £36.1m Geiger Counter trust, which is the only fund that appears in both top-25 performing investment trusts across 2020 and 2021. After making a total return of 78.71 per cent last year, it has made 38.27 per cent in 2021-to-date.
Managed by Rob Crayfourd and Keith Watson, Geiger Counter invests primarily in the securities of companies involved in the exploration, development and production of energy, predominantly in the uranium industry.
Uranium mining equities rose strongly in early February 2021 and, despite giving back some early gains, the net asset value (NAV) of the trust ended that month up 31.6 per cent.
Two UK smaller companies trusts make the top five of this list, the first of which is the £106.2m Premier Miton UK MicroCap trust, managed by Gervais Williams and Martin Turner.
In February alone, the NAV of the trust rose to 10.38 per cent, compared to a 1.98 per cent return on the FTSE AIM All-Share index.
UK equities are in a period of outperformance, as the dual-headwinds of Brexit and Covid have been lifted. Within this, Williams believes small and micro-cap companies have the scope to even outperform the overriding trend.
“The strategy for this trust tends to select stocks with abnormal cash paybacks over the short and medium term, which contrasts with many others, that tend to select for companies with plentiful forecast growth, in the hope that they may grow to become a unicorn over time,” said the manager.
While Williams’ fund has made 37.07 per cent so far this year, the £107.4 River and Mercantile UK Micro Cap trust has made 23.26 per cent and is fourth on this list. This is almost equal to the return of 27.22 per cent made in 2020.
The trust is overweight healthcare, energy and financials, while being underweight industrials, consumer discretionaries and technology.
In January, the trust announced a compulsory redemption of its shares under its redemption mechanism. According to Winterflood Research, this is used periodically to return capital to shareholders in order to return NAV to around £100m and, following a period of strong performance, the fund’s NAV had increased to £117m.
Therefore, £15m was returned to shareholders at a redemption price of 253.35p per share, broadly in line with the NAV as at 15 January.
The £671.9m Standard Life Private Equity Trust is another top quartile example across 2020 and 2021 year-to-date.
Sitting in the IT Private Equity sector, the fund provides investors with a globally diversified portfolio of private companies, across different sectors, maturities and underlying investments. It has made 10.66 per cent in 2021, after making 19.78 per cent in 2020.
The only IT UK All Companies trust to make the list is Henderson Opportunities Trust, run by James Henderson and Laura Foll.
Henderson Opportunities Trust positioning as at 31 October 2020
Source: Janus Henderson Group
As the positioning in the chart above shows, the trust has a large proportion in FTSE AIM stocks and shares the view of considerable valuation opportunities in the UK small-cap space.
“There is a valuation opportunity in small-caps and if it is not corrected by the market there will likely be further corporate activity, and investment trusts are well placed to take advantage of this,” said Foll.
The trust has made a total return of 9.77 per cent since the start of the year and remains in the top quartile of its sector.
The £121.5 Mobius Investment Trust is also worth nothing, making a total return of 27.48 per cent in 2020. Up 5.3 per cent in 2021, the trust, which launched in 2018 is run by emerging market veterans Mark Mobius and Carlos Hardenberg.
February saw a return of volatility to global markets amidst concerns over stronger than expected growth and a higher inflation outlook.
Mobius said: “Despite these developments, we believe that emerging markets are set for a strong year with earnings recovering steadily, valuations remaining low, and many emerging markets currencies undervalued.
“The portfolio is geared to profit from behavioural shifts in the wake of the pandemic.”
Finally, the £537.6m Schroder Asian Total Return Investment Company is run by FE fundinfo Alpha Manager Robin Parbrook. Parbrook and co-manager King Fuei Lee have built an investment process on a foundation of highly active, valuation-sensitive stock selection.
This is substantiated by quantitative economic models which predict impending market corrections in the underlying countries, allowing them to apply hedges to the portfolio to limit the exposure to the downside.
With a total return of 35.59 per cent in 2020, the trust has made 3.07 per cent in 2021 so far.