Global equity income investment trusts have been among the worst performers of the past 12 months relative to open-ended funds, new data shows.
A comparison of trust share prices with open-ended net asset values (NAVs), conducted by Winterflood, found that global equity income companies were the worst performers in aggregate.
This was largely due to the sharp switch in sentiment seen with regard to the £1.1bn Murray International Trust run by Bruce Stout.
But Winterflood also noted that “most members of the [global equity income] peer group” had underperformed in the past 12 months, though the Scottish American trust was a notable exception.
In aggregate, share prices in the sector trailed the NAV performance of their unit trust equivalents by 10.5 percentage points in the year to the end of February.
Simon Elliott, head of investment research at Winterflood, noted that while Murray International historically traded at a considerable premium to its peers, the trust had more recently suffered from positions in emerging markets and an underweight to the US.
He said: “Its long-term track record is good but has suffered in recent years as a result of being overweight emerging markets, while being underweight developed markets, particularly the US. This underperformance has held the peer group back, especially as it has been accompanied by a derating in the share price.”
But the research does not consider the NAV of the closed-ended vehicles, which can often be a better indicator of a fund manager’s skill, since managers have limited control over the supply and demand of shares in the trust trading on an exchange.
Anthony Leatham, head of investment trust research at Peel Hunt, said: “While I would agree that comparing open-ended fund returns with the share price returns is the fairest representation of the investor experience, the NAV performance is also a relevant measure of performance and one that I would place reliance on when comparing manager skill across open- and closed-ended funds.”
Some analysts noted that widening discounts in the global equity income space might represent a buying opportunity, given the travails of trusts in general at the start of 2016.
The FTSE Equity Investment Trusts index fell by 2.2 per cent during the first three months of the year, compared with a decline of 0.4 per cent for the FTSE All-Share, according to Winterflood. The broker added the sector did not fully participate in the market bounce seen in the second half of the quarter.
Sarah Godfrey, investment companies analyst at Edison, said: “It’s a fact of life that trust discounts tend to widen in times of heightened investor risk aversion, exacerbated by falling markets. Many investors view this as an opportunity to buy shares more cheaply in the expectation of a recovery in due course.”
Murray International in particular has attracted attention at the start of 2016, in part because its relative performance has begun to improve.
Analysts at Stifel handed the trust a buy recommendation in February, saying a yield that was then in excess of 6 per cent – combined with its discount to NAV – made it attractive.
They were also reassured by the trust’s decision to begin buying back shares in January.
The move may have been partly responsible for the upturn in the global income trust sector’s fortunes witnessed in early 2016: the sector’s share price return of 0.8 per cent for January and February exceeded the 0.6 per cent NAV return recorded by open-ended funds.
