Out of more than 500 investment trusts only a handful have consistently outperformed their peers for three years straight, data from Trustnet has revealed.
Markets have been incredibly varied over the past few years, with the themes and sectors driving returns shifting amid several different top-down headwinds.
Although most portfolios and managers claim that they can deliver outperformance in any market environment the past three years have proven how difficult that actually is.
Going back to 2019, this was arguably the last ‘normal’, pre-Covid year, when a investors still enjoyed the low interest rates and ultra-loose levels of quantitative easing that had enabled growth stocks to continuously climb higher for the past decade.
The coronavirus outbreak in March 2020 was the first major shift in that market dynamic. The subsequent global lockdown sent markets into free-fall and the sharpest bear market in history.
Growth stocks led the immediate post-Covid rally, thriving on the government and central banks support being pumped out. However, once a viable Covid vaccine was found later that year markets immediately shifted into a recovery trade and since then growth stocks have struggled to maintain their previous momentum, giving way to value for the first time in years.
Performance of MSCI ACWI Growth vs MSCI ACWI Value over the past 10yrs and six months
Source: FE Analytics
Since then, inflation has become a growing issue and the full economic impacts of the pandemic came to the fore last year once the fiscal and monetary support had been removed.
As a result, central banks began the first major tightening policies in a decade, raising interest rates off the floor in an attempt to combat inflation.
Eclipsing this though has been the outbreak of war in Europe between Russia and Ukraine. The initial invasion of Ukraine caused markets to spiral yet again with the exception of a few sectors, namely gold, commodities and oil.
The 2021 and 2022 market dynamic is now opposite to what investors were dealing with in 2019, with much higher levels of volatility, generational high inflation and a more divided macroeconomic picture.
Given all of this, Trustnet looked at which investment trusts had managed to outperformed their peers in 2019, 2020, 2021 and year-to-date, having already looked at the closed-ended side.
Focusing on equity sectors only four portfolios that achieved this: Gulf Investment Fund, JPMorgan American, JPMorgan Global Growth & Income and Law Debenture Corporation.
Source: FE Analytics
Since the start of 2019 the JPMorgan American trust has made the highest returns of the four (99.83%). During that time the average IT North America trust made 82.7% and the S&P 500 made 76.8%.
On the surface the trust may appear to be a typical, growth and technology-internet biased portfolio, investing in the characteristics most associated with the US stock market.
However, it has a blended approach to growth and value, allowing the trust to outperform in such a challenging market, according to Kepler Trust Intelligence analyst, David Johnson.
This style blend has protected the trust from taking the full brunt of the recent sell-off in growth stocks, which has caused many of its peers to fall from top to bottom quartile year-to-date.
The growth-value split is managed by dividing the portfolio into two separately managed allocations, which are run by Timothy Parton and Jonathan Simon respectively.
Johnson said that historically the trust has had a “slight tilt” towards growth stocks at 52% of the portfolio, but “the team currently have their strongest conviction in value names, with nine of JAM’s 10 largest overweight positions being in value stocks”.
Moving onto the other JPMorgan trust highlighted (JPMorgan Global Growth & Income), the portfolio has made 83% since 2019, well ahead of the IT Global Equity Income sector 47.7% and the MSCI ACWI benchmark’s 54.7%. Johnson described the trust as “core style of global-equity investing”.
He said its managers, Helge Skibeli, Rajesh Tanna and Timothy Woodhouse, were able to run a more “flexible” mandate than the rest of their peers because the trust pays out a 4% annual dividend by tapping into both its revenue and capital.
“This means that the managers have the ability to navigate the market as they see appropriate, maximising total return rather than being hamstrung by the need to generate income,” Johnson said.
The analyst noted that the trust has moved away from its historic growth bias in the past 18 months over concerns about valuations, “which they believe have become overly stretched in certain sectors”.
To fill this gap they have turned to some of the “more modestly valued re-opening winners”, such as financial and semi-conductor stocks.
The trust is due to merge with the Scottish Investment Trust to create a £1.2bn company. Johnson commented that the merger should be a “huge benefit to existing shareholders”, boosting liquidity and “improving the fee profile for the trust”.
The other two trusts in the study were Law Debenture and Epicure Managers Qatar Gulf Investment Fund.
The former is a member of the IT UK Equity Income sector and the latter runs in the IT Global Emerging Markets universe.
Starting with the Law Debenture trust, which recently celebrated its 132nd birthday, having launched in 1889, it is run by James Henderson and Laura Foll of Janus Henderson.
The trust has managed to navigate the torrid time UK income has had during Covid, when many of the go-to options were forced to cancel or reduce dividends to shore up balance sheets during lockdown. UK dividends have now recovered though, according to the latest Link UK Dividend Monitor, despite the heightened inflation and war in Ukraine.
The portfolio itself is split into two parts: investing in a single private business, Independent Professional Services (IPS) and the rest in predominately UK listed equities, which is overseen by Henderson and Foll.
The IPS portion played a key role in maintaining the trust’s outperformance, according to Kepler analyst John Dowie, having made more than a third of the trust’s portfolio income in the three years prior to 2020, “providing Henderson and Foll increased flexibility in their portfolio construction and stock selection”.
Dowie said that it was this flexibility that enabled the trust to outperform long-term.
The final trust was the Gulf Investment Fund. When UK equity income crashed during the height of the pandemic many investors sought out new sources of income, and the emerging market space piqued a lot of interest, with its high growth potential versus developed markets.
As its name states, the trust invests in sectoral growth trends within the Gulf Cooperation Council (GCC) economies, namely Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates.
The region is synonymous with oil, which has rocketed in value over the past two years, which may explain some of the trust’s strong performance. Since the start of 2019 to date it has made 148.2%, well ahead of the sector average (16.2%).
| Name | Sector | Fund Size(m) | Fund Manager | Yield | OCF | IT Net Gearing | IT Pub. NAV Discount |
| Qatar Gulf Investment Fund | IT Global Emerging Markets | £85.50 | 2.13% | 1.55% | 0.00% | 3.26% | |
| JPMorgan American | IT North America | £1,442.90 | Timothy Parton, Jonathan Simon | 0.93% | 0.34% | 4.85% | -0.05% |
| JPMorgan Global Growth & Income | IT Global Equity Income | £737.10 | Timothy Woodhouse, Helge Skibeli, Rajesh Tanna | 3.55% | 0.53% | 0.00% | 3.37% |
| Law Debenture Corporation | IT UK Equity Income | £990.90 | James Henderson, Laura Foll | 3.67% | 0.55% | 17.85% | 2.44% |