A ranking of the best and worst performers among investment companies this year (and, indeed, over longer periods) has some intriguing characteristics — intriguing as much for the absences and anomalies as for the names that appear in it.
Not on a list of winners and losers compiled for The Times by the Association of Investment Companies, for example, are some longtime favourites of smaller investors: Finsbury Growth & Income Trust, Caledonia, Alliance Trust and City of London are all missing. That’s not to say necessarily that they’ve let their investors down, of course.
Among those that feature, a strikingly strong performance since the beginning of January can sometimes turn out to be an anomaly. Adamas Finance Asia, a specialist growth capital investor, has shot the lights out for shareholders since the beginning of the year after it repositioned its portfolio. The vehicle has generated a 41.03 per cent total return for shareholders for the year to May 18, according to the AIC. That makes it the fourth best performer in a league table that is led by Life Settlement Assets, a highly esoteric £107 million vehicle that invests in policies issued by life insurance companies, making money when they don’t pay out.
This is just as well for Adamas as, assessed over three and five years, it has lost 74 per cent. In fairness, the Aim-listed business is small and invests in unlisted businesses, which are hard to value and can record large movements either way.
This year so far has been good for hedge fund investors and trusts heavily weighted with technology stocks, but bad for private equity and property. And as a whole, the investment company sector has performed well, not only during the recent turmoil. Figures from the AIC compiled using Morningstar data show that the sector collectively has lost 11.8 per cent since the beginning of the year, against a 21.4 per cent drop in the FTSE all-share index. Over five years, trusts and other vehicles have gained 32.32 per cent, against a drop in the all-share of 13.3 per cent over the same period.
So how well have some of the individual funds performed?
Among the standout successes is BH Macro, which invests substantively all its assets in a $3.2 billion master fund managed by Brevan Howard, a hedge fund investor set up in 2002. The fund, which bets on future movements in interest rates, currencies, oil and other assets, prides itself on generating a performance that is not tied to the fortunes of the stock market and it tends to do well when equities are falling. BH Macro’s dollar-denominated shares returned 42.08 per cent during the year to May 19, making it the third best performer over the timeframe.
Those investors happy to have little insight into the precise nature of BH Macro’s investments, and content not to receive dividends, have done well out of the holding, which has generated substantial returns of more than 130 per cent over five years.
Less opaque, and a better long-term performer than BH Macro, is Edinburgh Worldwide. This FTSE 250 trust specialises in backing entrepreneurial businesses, mainly listed, at an early stage. It has benefited hugely from the early enthusiasm of its manager, Baillie Gifford, for Tesla, the electric car company, and Ocado, the technology-driven grocery delivery group, which account for a respective 3.7 per cent and 4.5 per cent of its £752 million portfolio.
The trust, also heavily invested in the biotechnology, software and healthcare sectors, has returned 21.77 per cent since January. It has done well over three and five years, too, and over the past decade its share price has risen nearly fourfold. However, it doesn’t pay dividends.
Worldwide Healthcare pays a dividend, but, with a yield of less than 1 per cent, that is not the reason that investors buy its shares. It’s the capital growth, which is impressive.
This investment trust was launched in 1995 and invests in biotechnology and pharmaceuticals companies and other healthcare and equipment providers, most of them in North America. Its portfolio is managed by Orbimed Advisors, a privately owned healthcare investment specialist that is the largest of its kind worldwide.
The AIC’s figures show that Worldwide Healthcare has generated a total share price return, a measure that assumes that all dividends are reinvested, of 13.1 per cent since the beginning of the year.
That’s obviously not as high as the others, but investment trusts build much of their reputation on their track record. The trust has been resilient over three years, strong over five and measured over a decade has returned more than 500 per cent.
Life in the world of bricks and mortar, on the other hand, has been tortuous, and for BMO Commercial Property it has been a stinker. Founded in 2005, the real estate investment trust aims to provide shareholders with income and capital growth by investing in commercial property in the UK. A fifth of its £1.3 billion of assets are retail properties, a further nearly 10 per cent is in retailing warehouses and just under 42 per cent is offices. Just over a third of its properties are in London’s West End, including Christopher’s Place in W1.
Although its other holdings are well diversified, the trust has suffered from a perfect storm of adversity. It is exposed to a crisis-hit retail sector, large parts of which are shut as a result of the coronavirus pandemic. It has suffered a marked drop in rental payments by tenants after the government relaxed the rules governing arrears, and the market fears that property values will collapse after the crisis.
BMO Commercial Property’s total share price return has slumped by 45.5 per cent this year. It is by no means the worst performer — Jon Moulton’s Better Capital, which is delisting, has lost 80 per cent — but it must be uncomfortable. Over three and five years it has lost value, but over ten has gained about 8 per cent.
While the trust, along with others in the hugely uncertain commercial property sector, probably should be avoided, investment trusts in general are a solid bet, tending as they do to outperform the wider market.
They come in multiple shapes and sizes, tailored to investors’ preferences, from logistics to supermarket property. While any prospective investor should be mindful of how their trust is likely to perform over the long run — and probably look for some dividend income along the way — they are an attractive place for your money, particularly when held for years.
Advice Sector buy
Why While their specialisms gain and suffer in line with market trends, they tend to beat other markets over time
