Investment Trusts - May 2012

Published by FTAdviser | May 08, 2012

Shares in the average UK Growth investment company delivered a total return of 9 per cent in the three months to March 31 2012, compared with a 5 per cent increase for investment trusts overall.

The average UK Growth and Income investment company was up by 3 per cent in the same time frame.

Charles Luke, manager of the Murray Income trust, says: “While the news may be viewed as a double-dip recession, growth in the UK has been sub-par in the past three years. The scale of austerity and debt problems in mature economies means the economic environment is likely to be challenging for some time to come.

“However, many companies are in good financial shape and are exposed to markets that are growing. While earnings may moderate, corporate balance sheets are sufficiently robust to continue to reward investors with growing dividends.”

Dividends are an area in which investment trusts have particularly strong track records. According to data on AIC members, 46 per cent of those in the UK Growth and Income sector with a 20-year history or longer have been able to raise their dividends each year for 20 years or more. Some 58 per cent of AIC members in that sector with a 10-year history have been able to raise dividends for at least each of the past 10 years.

Annabel Brodie-Smith, communications director at the AIC, adds: “It’s worth remembering that healthy companies can do well through the good times and the bad, and it’s a fund manager’s job to help identify which companies those might be.

“The growth figures really do emphasise the importance of having a globally diversified, balanced portfolio and taking a long-term view. Indeed some investments made during recessions can turn out to be the most fruitful.”

The F&C investment trust, which is listed in the AIC Global Growth sector, holds 37 per cent of its assets in the UK. Manager Jeremy Tigue claims there are contrasts to be drawn between the UK growth numbers and the profits of multinationals listed in developed economies overall.

Mr Tigue says: “The former shows how developed economies are struggling to recover from the global financial crisis and the latter how companies with good products are making huge strides, particularly in emerging markets – Apple’s sales in China have trebled in the last year.”

However, Andrew Bell, chief executive of the Witan investment trust, which holds 43 per cent of its assets in the UK, sounds a note of caution.

“These preliminary numbers are likely to be revised, but it is clear that the UK economy has been stagnating over the past few quarters. A weak performance by manufacturing is not a huge surprise given the low state of confidence at the start of the year – this should improve, as momentum seems to have bottomed outside Europe.

“Sterling needs to remain weak to assist an export revival so recent gains against the dollar look out of place. The stockmarket is range bound at present, pulled between a modest valuation and fears over the outlook for earnings. If the revival in the US continues and oil prices come further off their recent highs then hopes for a sustained pick up in growth will revive allowing a resumption of the new year rally. This appears more likely than a general relapse, but equities will remain twitchy until the outlook becomes clearer.”

Jenny Lowe is features editor at Investment Adviser.