Money Observer has been publishing annual investment trust tips for 12 years. Our aggressive and defensive tips have included rewarding selections, even during bear markets, as the table below demonstrates.

What’s not immediately apparent is that some selections have more than justified their retention over several years, despite setbacks along the way. 

British Empire Securities & General Trust, for example, was on the roster from 1999, when its shares were priced at 136p and on a 15.5 per cent discount to net asset value, to 2005, when they were at 380p and at a premium. Similarly, Atlantis Japan Growth Fund beat the rest of its sector into a cocked hat during its seven-year tip tenure up to the summer of 2006, during which it achieved a share price total gain of 97 per cent. 

More recently, BlackRock Latin American Trust has achieved a 122 per cent share price total gain since we started backing it five years ago, despite a steep fall in 2008 and a 20 per cent retreat from the peak in late 2010. Our five-year support of BlackRock’s smaller companies specialist, Mike Prentis, has been rewarded with some of the best returns in the sector, although last year’s switch from BlackRock Smaller Companies to Throgmorton Trust (which Prentis also manages) proved premature. 

Each year’s selections run for 12 months to close of play on 31 July. An aggressive and a defensive choice is made for each sector. Some of last year’s aggressive selections proved particularly vulnerable to mounting worries over US and European debt. There were sharp reductions in the gains on Pantheon International Participations, Edinburgh Worldwide, Jupiter European Opportunities and Herald Investment Trust. However, these four trusts achieved creditable absolute returns and performed strongly in their sectors. 

Other trusts that deserve a special mention, because of their excellent one-year returns, are Lowland Investment Company, which outperformed every other mainstream UK trust, and Baillie Gifford Shin Nippon, which was by far the best of the Japanese trusts. Both were new additions to our roster last year. They hold their places because their managers have demonstrated skill over several years and believe there is still value to be found in carefully selected companies. 

James Henderson, who manages Lowland, is one of the most tried and tested value-oriented fund managers at Henderson Global Investors. John MacDougall, who manages Shin Nippon, is part of Baillie Gifford’s Japanese team, which has produced some of the best long-term results in its sector. Shin Nippon’s sister trust, Baillie Gifford Japan, has been included among our tips on several occasions. 

Standard Life UK Smaller Companies was an even bigger winner last year, both in its sector and in absolute terms. It joined our defensive roster three years ago, not long after its expensive long-term gearing had been paid off and manager Harry Nimmo had been given permission to concentrate on his 50 or so best ideas. It has subsequently delivered a share price total gain of 122 per cent, nearly double the average for its sector. 

The UK smaller companies sector has been one of our most successful over the years, with recent successes preceded by early winners such as Eaglet. On the defensive side, readers were handsomely served by Aberforth Smaller Companies from 2001 to 2003, when the trust’s value-oriented approach helped it ride out the bear market far better than most. It is back on our list for the coming year. Invesco Perpetual UK Smaller Companies featured from 2005 to 2008, during which time its share price total return was the fourth best in the sector. 

Our selections generally include a mix of boutique managers and larger investment houses. British Empire, Atlantis Japan Growth and Eaglet are all managed by boutiques, as is Ruffer Investment Company, which has been our defensive global choice for the past three years. Its strong resilience in the 2008 setback means its three-year returns are among the best in the global sectors, despite its recent lethargy. We hope it will justify its place again this year. 

Another early success on the boutique front was Aurora Investment Trust, managed by James Barstow at Mars Asset Management, and the trust was our aggressive UK mainstream selection. His strong backing for UK housebuilders and Irish equities worked well, lifting the shares from 96.5p in 2002 to 190p three years later. It was then dropped because relative performance was on the slide, and it subsequently suffered several difficult years. But it was back on song during the 2009/10 stock market rally. 

Hansa Trust A shares achieved much the best return in the UK mainstream sectors for the three years that it featured in our selections. As with other boutique choices, we were encouraged by its managers’ substantial personal stake in its success. We let it go in summer 2006 because we feared its premium rating might prove unsustainable, but its current wide discount has encouraged us to add it back in. 

Turning to the larger investment houses, we started backing Baillie Gifford’s global team in 2004, because we liked its increasingly concentrated, globally integrated approach and emphasis on growth companies. We picked Edinburgh Worldwide because it seemed to epitomise this approach, and it was well up the global sector during its seven-year tenure, with a total return of 143 per cent. However, Scottish Mortgage Trust has performed even better, so it has taken its place.

Other teams we have regularly backed include Invesco Perpetual for UK mainstream equity selections, because Neil Woodford and Mark Barnett are fund managers we respect for their research-based, bottom-up, unconstrained approach, as well as their collegiate spirit. Aberdeen Asset Management is another we favour for exposure to the Asia-Pacific region because of its strong emphasis on value and on quality companies with shareholder-friendly business practices. 

Both groups tend to be at their best in difficult markets, so their trusts have generally appeared on our defensive roster. AAM has produced more winners for us, including Aberdeen Asian Smaller Companies from 2003 to 2005, during which time its shares rose from 146.5p to 254p, and Aberdeen Asian Income, which was the only Asia-Pacific ex Japan trust to achieve a positive return in 2007 to 2008. 

JPMorgan has featured most frequently in our emerging markets coverage, where JPM Emerging Markets proved a slightly dull defensive selection for several years, but JPM Russian Securities was a wonderfully rewarding tip from 2005 to 2006. JPM European Fledgling has appeared a couple of times in the European sector, justifying its place with a 29 per cent gain in 2005 to 2006. We should have had the courage to back it more consistently given its strong long-term returns. On the other hand, we should have steered clear of JPM Japanese Smaller Companies, which featured three times but never lived up to our hopes. 

We have often returned to trusts and managers that have done well for us in the past, and last year we returned to Jupiter European Opportunities. Alex Darwall’s high-conviction approach achieved an above-average 82 per cent share price total return during his trust’s tenure as our defensive European choice from 2002 to 2005, but we moved on because we wanted to include SR Europe, which has an unusual multi-asset, absolute return approach. It topped its sector with a 43 per cent share price gain during its first year on the roster, but it was subsequently disappointing. 

Another Jupiter trust that has resurfaced among our selections is Philip Gibbs’s Jupiter Second Split Trust. We included four split capital trusts a year until 2005 and some – such as Jupiter Split zero dividend preference shares, JPMorgan Income & Capital capital shares and Smaller Companies Dividend Fund ordinary income shares – performed handsomely, but a couple were disasters. The geared structure of most split capital trusts means making the right choice between defensive and aggressive options is vital. 

We cut back on our split capital choices because the sector was contracting and we wanted to accommodate a separate section of tips for emerging markets and specialist trusts. The latter can include split capital vehicles, so the capital shares of Aberforth Geared Capital & Income were our aggressive choice from 2008 to 2010. They fell 42 per cent in the first year, but those who bought in summer 2009 made a 60 per cent gain. 

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Notes: Each performance period starts and ends with closing prices on 31 July. Performance is share price total return. **Where trust names have been changed, but the manager and mandate have remained the same, we have used the current title.

To see how the 2011 Investment Trust Tips are performing, click here: http://www.moneyobserver.com/portfolio/investment-trust-tips-2011-portfolio