Investment trusts outperform in market rout

Investment trust outperformance: green arrow overtaking red arrow

Investment trust broker Stifel says the UK-listed investment trust sector outperformed the FTSE All Share index by around 2 per cent between July and September, shedding 5 per cent compared to a loss of 7 per cent from the latter.

'The trust sector underperformed the FTSE All Share prior to mid-August, however after this period investment companies saw less accentuated declines during the "Great Fall of China".

This was partially attributable to alternative investments such as renewable energy, infrastructure and private equity holding up better than general equities,' says Stifel.

The broker says that mid-cap, smaller company and alternatives trusts saw the largest price rises over the summer.

TOP INVESTMENT TRUST PERFORMERS

JPMorgan Mid Cap saw the biggest price gain, with shares increasing by 11 per cent between July and August thanks to strong results from several key holdings. Stifel says that the merger of Paddy Power with Betfair allowed the trust to perform particularly well in August.

North Atlantic Smaller Companies, JPMorgan Smaller Companies and Harry Nimmo's Standard Life UK Smaller Companies also performed well in a tough market, returning 9 per cent, 6 per cent and 7 per cent in share price gains respectively during the third quarter.

This is a particularly significant result for Nimmo's trust, which was the second to worst performing UK smaller companies trust in 2014 with a share price loss of more than 15 per cent compared to an average loss of 5 per cent from the sector.

Stifel says that alternative investments such as GCP Infrastructure, ICG Longbow Senior Secured Debt and GCP Student Living proved their low correlation to equity markets and also saw positive returns over a tumultuous quarter.

Three private equity funds also appeared among the 15 top-performing trusts during the period, with Money Observer Rated Funds Electra and Pantheon as well as F&C Private Equity returning 3 per cent, 2 per cent and 5 per cent respectively in share price terms.

COMMODITIES AND EMERGING MARKETS TUMBLE

The largest price fallers over the third quarter were predictably invested in commodities and emerging markets. Topping the fallers list is BlackRock World Mining, which saw a price decline of 29 per cent over the three months to 30 September, following a collapse in commodity prices that began in June 2014 and has yet to trough.

Several Asian and emerging market funds were ranked within the 15 largest price fallers over the third quarter, with Money Observer Rated Fund Templeton Emerging Markets declining by 23 per cent due to its overweight exposure to both China and commodities.

The trust also held 12 per cent of total assets in Brazil, which was one of the weakest emerging markets as a result of the Chinese renminbi devaluation fueling fears about a lack of demand for Brazilian commodities.

Stifel says that the downgrade of the country's sovereign debt to junk status by S&P also played its part in sending the share prices of trusts invested in the region tumbling. BlackRock Latin American, which had 46 per cent of total assets exposed to Brazil at 31 August, was also weak, with a decline of 21 per cent.

Other notable fallers include biotechnology trusts, namely Biotech Growth and International Biotechnology, which saw their price decrease by 19 per cent and 16 per cent respectively over the third quarter as US presidential hopeful Hilary Clinton called for a cap on the cost of new drugs in late August.

The biotechnology sector has also seen rich valuations recently, posting some of the strongest share price gains of the past three to five years, which may also have prompted investors to take profits now.


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