And the winner is...
Winner: Baillie Gifford
Baillie Gifford wins our Premier Group award for the fourth year in succession, with benchmark-beating performances from all seven longstanding investment trusts that qualified for inclusion.
The standout performer was the giant Scottish Mortgage (SMT), which retains our best Global Growth Trust award, with smaller company-oriented Edinburgh Worldwide (EWIT) producing the second-best returns. Monks (MNKS) has also done well within the global growth sector since its 2015 overhaul.
Scottish American (SAIN) has retained the best Global Equity Income award and, like all BG’s trusts, puts a lot of emphasis on capital growth, as its managers contend this is critical to long-term income growth.
Pacific Horizon (PHI) has achieved some of the strongest three-year returns in the Asia ex Japan sector, and the two Japanese trusts have both done well over three years despite disappointing returns recently.
All Baillie Gifford’s trusts are managed on an unconstrained, bottom-up basis, as demonstrated by active shares of between 83% and 99%. Active share indicates how a portfolio differs from a benchmark index.
All managers invest on a five-to-10-year view, with only Pacific Horizon’s annual portfolio turnover exceeding 20%. All trusts make use of gearing. Also, all have trimmed their ongoing charges, with SMT’s down to 0.37%, and most have used share issuance and buybacks to keep their share prices reasonably close to net asset value. This activity was paused while markets were exceptionally volatile, but is expected to resume once they are more settled.
As a result several trusts have far higher share capital than three years ago, which has contributed to a substantial increase in funds under management, as has good performance.
All of the above factors helped the firm secure the mandates for Baillie Gifford UK Growth Trust (BGUK) and Baillie Gifford European Trust (BGEU) in 2018 and 2019 respectively, and to launch Baillie Gifford US Growth Trust in March 2018. The group’s regional trusts now offer growth-oriented coverage of all the world’s main equity markets.
The NAV returns of half Baillie Gifford’s trusts proved impressively resilient through the big March sell-off, and none were particularly hard hit.
As long as governments and central banks help to keep businesses afloat, the undoubted short-term challenges “will not make a significant difference to whether great companies will be successful on a 10-year view,” says James Budden, director of marketing and distribution.
He adds that trust managers have therefore been spending their time reviewing holdings to make sure “they are all still good growth companies”, encouraging company management to stay resolutely fixed on the long term, and watching for opportunities to buy or increase holdings in companies they admire at temporarily depressed prices.
Growth focus has served investors well
Note: The chart shows each trust’s share price total return and the relevant sector average over three years to 31 January 2020
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JP Morgan Asset Management is our highly commended investment trust group, having been well up the rankings in 2017 and 2019 but slipped further than Baillie Gifford in 2018. JP Morgan offers by far the widest choice of trusts, including large and smaller company specialists in the UK, US, Europe and Japan, income and growth specialists in emerging markets and Europe, and trusts that focus on India, China and Russia.
JPMorgan Emerging Markets, US Smaller Companies and Asia Growth & Income trusts all won the award for their respective sectors, while its American and Smaller Companies trusts were both highly commended. The latter achieved the highest net asset value total return of all JPM’s trusts over the past three years, followed by JPMorgan China Growth & Income and Russian Securities trusts.
JP Morgan’s fund managers are supported by a worldwide network of investment professionals, many of whom are fluent in a variety of languages. They include 40 in both the UK and Europe, 37 in the Far East, and 100 covering emerging markets. Another 24 managers are dedicated to covering the US market.
The group has been to the fore in ‘enhancing‘ the yields of some trusts by financing them partly from capital. This has allowed the likes of JPMorgan Global Growth & Income and Asia Growth & Income trusts to maintain a growth-oriented investment approach while paying more attractive yields, but could pose problems after the slump in asset prices.
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