Investment Trusts: Are you on to a winner?
Winners and losers in the investment trust sector have changed considerably in the last 10 years.
The year so far has been a good one for investors, marking the best first quarter for equity markets in more than a decade.
But when it comes to picking out the best vehicles in which to invest, it can be as difficult as successfully backing the winning horse at the Grand National.
Simply opting for the biggest fund, or indeed the longest running, is not always the best choice. However, according to research from Canaccord Genuity on the 25 largest investment trusts, which looks at their 10-year records compared with relevant indices and similar open-ended funds, 22 have outperformed key benchmarks over the past decade, with an average compound outperformance of 3.3 percentage points.
Furthermore, all 16 equity focused investment companies have outperformed the equivalent open-ended fund sector average over the past 10 years, by a simple annualised mean of 4.3 percentage points.
The investment trust sector is often seen as a collection of old favourites, but of the 25 largest nine were launched in the past 10 years
Some of the larger equity-focused trusts are also paying an income to match the sector’s considerable capital growth. In March, Alliance Trust, the biggest of Canaccord Genuity’s 25 picks, unveiled its biggest dividend hike in 20 years – a 2.577p per share dividend - representing a bumper 7.2 per cent annual increase.
In its annual statement, Katherine Garrett-Cox, chief executive, said the trust’s bumper dividend was fully covered by last year’s earnings.
“We have generated returns well ahead of the sector as a whole and, crucially for our long term investors, we have been able to grow the dividend by more than 7 per cent.”
This success is also not being lost on IFAs ahead of the implementation of the RDR at the start of next year, in spite of widespread scepticism about whether the vehicles will gain ground.
The RDR rules require that advisers consider all types of investments, including closed-end funds, as alternatives for their clients if they wish to retain their coveted independent status. As Alan Brierley, analyst at Canaccord Genuity, puts it: “The growing recognition of this superior long-term record bodes well for the investment company sector with the introduction of the RDR looming.”
Furthermore, Mr Brierley notes, these 25 largest closed-end funds – which retail investors typically find easier to buy and sell than their smaller peers _ feature a growing number of alternative strategies which can be hard to access in the form of an open-ended vehicle. These alternative strategies, he notes, can be useful in diversifying investors’ portfolios.
“A key feature of the past decade has been the growing prominence of the alternative investment sub-sectors of hedge funds, private equity, infrastructure, property and debt,” he says.