How the 2017 investment trust tips performed

It paid to go for growth in 2017, so far as the investment trusts picked by our experts were concerned. Of the nine trusts which achieved share price total returns (SPTRs) of more than 30 per cent, six were among the 11 trusts in the Adventurous Growth or the Core Growth categories.

In contrast, only three of the 13 selections in the Income & Growth and Core Growth & Income categories achieved SPTRs of more than 30 per cent. They were TR Property Trust (TRY), which benefited from its substantial exposure to European property companies, CC Japan Income & Growth (CCJI), which is a promising recent addition to the Japanese sector, and Bankers IT (BNKR), which has proved itself one of the more reliable performers in the AIC global growth sector.

The impressive gains achieved by our experts’ most rewarding choices are testament to the way that tightening discounts and gearing can enhance the share price returns on closed-ended funds in a rising market.

Nearly all the top performers saw their SPTRs rise much faster than their net asset value total returns (NAVTRs) over the past 12 months. This was particularly true of TR European Growth Trust (TRG), which saw a 41 per cent NAVTR transformed into a 63.3 per cent SPTR, as investors’ growing confidence in Europe’s economic recovery resulted in its double-digit discount being all but eliminated.

However, investors should note that most of these trusts now have more scope for discount widening than discount tightening, and the former can happen quite quickly if markets go off the boil or a trust runs into difficulties, as has happened in spades at Ranger Direct Lending (RDL).

Top performers gear

All nine top performers also employed a measure of gearing, which should accelerate portfolio gains in a rising market but can turn sour in less exuberant times. It is therefore interesting that trusts such as Monks IT (MNKS), Jupiter European Opportunities (JEO) and Baillie Gifford Japan (BGFD) have lowered their gearing over the past 12 months, indicating that their managers are becoming more cautious about the outlook.

Only TR European Growth and the similarly oriented JPMorgan European Smaller Companies (JESC) have fully maintained their gearing, signalling that their managers are still finding plenty of attractively priced shares. The latter currently trades on a much more forgiving discount than TRG, and has therefore been preferred to TRG by two of our experts for 2018.

Jean Matterson of Rossie House Investment Management was responsible for selecting TRG, Monks, Baillie Gifford Japan, and TR Property Trust for 2017. She also nominated Standard Life Equity Income (SLET) and ICG Enterprise (ICGT), which were among the better performing trusts in the AIC UK equity income and private equity sectors respectively. She was therefore last year’s star contributor.

Tim Cockerill of Rowan Dartington also put up a strong showing with his selections of Bankers, JPMorgan European Smaller Companies and Schroder UK Mid Cap (SCP), which has picked up encouragingly since Jean Roche joined Andy Brough as co-manager in September 2016. Cockerill also nominated Edinburgh Dragon (EFM), which was the better of the two Far East ex Japan tips. Fidelity Asian Values (FAS), the other one, had a quiet year because its manager Nitin Bajaj has been very cautious about the outlook.

John Newlands did well to select BlackRock Throgmorton (THRG), BlackRock Frontier Markets (BRFI) and Tritax Big Box Reit (BBOX). THRG and its sister BlackRock Smaller Companies Trust were two of the most rewarding UK equity trusts in 2017;BR Frontiers was the best of our experts’ emerging market selections; and Tritax Big Box, which is the only listed vehicle dedicated exclusively to investing in very large UK logistics warehouses, was the most rewarding of the direct property selections. Launched four years ago, it has expanded rapidly and now has gross assets valued at £2.5 billion.

Peter Hewitt of F&C (now part of BMO Global Asset Management) joined Jean Matterson in selecting Monks, which both have kept on their roster for 2018 despite its much tighter rating. Hewitt is also staying loyal to Personal Assets Trust (PAT). 

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