Investment trust awards 2017: Premier award

Winner: Baillie Gifford

Our Premier Group award goes to the management group whose investment trusts have achieved the highest average net asset value (NAV) total returns over the past three years. To win, most of those trusts must do well within their sectors, and it helps if they are in regions or sectors that have been rewarding over the period.

The 2016 devaluation of sterling meant that it was beneficial for a group’s trusts to have overseas remits, particularly if they had a relatively high exposure to the US and Japan, which have been the strongest markets in sterling-converted terms.

Three of Baillie Gifford’s four global trusts have a near-50 per cent weighting in the US, and unusually it manages two Japan trusts, both of which have achieved award-winning performances within their sector. All of which helped the Edinburgh-based partnership edge past Fidelity International, which had pushed Baillie Gifford into the runner-up position last year.

Baillie Gifford is the industry’s third-largest investment manager, with assets of more than £8 billion under management in seven trusts. BG focuses exclusively on investment management and its trusts were its prime focus from its debut in 1908 until the 1980s. Although trusts now account for only 5 per cent of assets under management, they remain a prominent shop window for its growth-oriented investment philosophy and its bottom-up investment approach based on rigorous in-house research.

Scottish Mortgage (SMT) is the oldest of Baillie Gifford’s trusts, and has gone from strength to strength since James Anderson took charge in April 2000 and gradually whittled the portfolio down to 75 long-term, high-conviction holdings. Its impressive returns, which have attracted a large following of investors, have encouraged the board to effectively adopt a zero discount policy, enabling it to issue enough new shares to make it by far the largest equity-oriented trust, with total assets of over £5 billion.

As winner of this year’s Best Global Trust award, Scottish Mortgage made a significant contribution to the partnership securing our Premier Group award, as did Scottish American (SCAM) trust’s success in the global income category.

Baillie Gifford claims its partnership structure encourages a long-term and collaborative approach to investment, which has been key to its success. The partnership’s commitment to the trusts it manages was demonstrated by its March 2015 decision to put Charles Plowden and his ‘global alpha’ team in charge of Monks (MNKS) after several years of disappointing returns. Plowden is one of Baillie Gifford’s senior partners.

Click the table below for a larger version.

Highly commended: Fidelity International

After two years as Premier Group winner, Fidelity International has slipped back to highly commended status. Fidelity China Special Situations (FCSS), which is its largest trust, was once again its top performer, with three-year NAV total returns of 87.5 per cent. Manager Dale Nicholls remains focused on the continuing growth in consumption by China’s expanding middle class, and thinks China continues to offer good value.

Fidelity Asian Values (FAS) has also performed impressively since Nitin Bajaj took charge in April 2015 and raised its exposure to medium-sized and smaller companies. As a result it wins this year’s Best Asia Pacific Trust award. Fidelity Japanese Values (FJV) has started to make similarly encouraging progress since the experienced medium to smaller company specialist Nicholas Price took charge in September 2015, and looks one to watch.

However, Fidelity’s average returns were again weighed down by Fidelity European Values (FEV), which has been unimpressive since Sam Morse took charge in 2011. We continue to think it might benefit from a different approach.

The UK-focused trust Fidelity Special Values (FSV) was disadvantaged by sterling devaluation, so it is not surprising it was the laggard of the group. Alex Wright produced sparkling returns for about 18 months after taking charge in September 2012, then went off the boil for a couple of years. But FSV’s returns have picked up encouragingly since the EU referendum, thanks to Wright’s brave move into banks, oil and other cyclical sectors.

Fidelity bases its bottom-up investment approach on its proprietorial research. Most of its managers started their careers in its research department.

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