60% gain for 2013's top investment trust tip

We cannot judge our experts' investment trust tips until the end of the calendar year, so there could yet be an upset. However, they have put in a great performances in the 12 months to 1 December 2013.

In almost every instance, this has been assisted by a tightening share price discount to net asset value (NAV). As a result, shares in Scottish Mortgage, Fidelity Special Values, Utilico Emerging Markets, Scottish Oriental Smaller Companies and Standard Life UK Equity Income are now trading at close to NAV, if not above.

This means it will be more difficult to achieve accelerated returns in future, while share prices could fall faster than NAVs, should there be a nasty market setback.

Some of 2013's tips have been retained for this year's Money Observer investment trust selections, whereas some have been replaced. Find out more by reading: Five tips for growth and income investors and Six alternative and balanced investing tips.

Charles Cade, who heads the closed-ended funds team at Numis Securities, had a particularly good year with his selections. He made Fidelity Special Values his growth tip because he believed Alex Wright's appointment as manager in September 2012 would galvanise returns. It has achieved the best returns of all the tips.

Increase smaller company exposure

Wright greatly increased the trust's exposure to smaller companies, which have had an excellent year. His contrarian approach has also worked well, with UK-oriented companies such as housebuilders, and selected retail and media companies providing a number of winners.

Significant gearing also paid off, as did short positions in a number of companies Wright thought overvalued. Cade's speculative growth choice was Impax Environmental Markets, which also topped its sector.

The trust invests internationally in companies it expects to capitalise on cleaner and more efficient delivery of basic services in sectors such as energy, waste and water. Cade picked it because he expected environmental stocks to pick up following a difficult period. Once again his thinking proved correct.

His third choice was Schroder Real Estate Investment Trust, which is running second among the income choices. As Cade expected, refinancing its debt acted as a catalyst for a considerable narrowing of its discount.

Standard Life UK Equity Income Trust is a smidgeon ahead of the Schroder vehicle. It was picked by John Newlands, Brewin Dolphin's head of investment trust research, on the grounds that its new manager, Thomas Moore, had done well to shift the trust's centre of gravity towards the mid-capitalisation section of the market.

In this respect, it is not dissimilar to Fidelity Special Values. Its performance has been less spectacular, but it has been in the top quartile of the competitive UK growth and income sector, and Moore has not been burdened with a lot of extra money to manage. It could therefore prove more sustainable.

Size is no obstacle

Newlands almost always produces at least one very successful tip for us, and in 2013 he produced two. His other high scorer is Throgmorton Trust, the only pure UK smaller-companies trust to make the list. Like other smaller-company trusts, its discount has been contracting, but at 12.2% it remains reasonably wide.

Scottish Mortgage Trust has once again proved size is no obstacle to outstanding performance. With a market capitalisation of £2.5 billion, it has overtaken Alliance Trust as the largest trust bar 3i, and its share price total returns over the past 12 months have been the best in the global growth sector.

Some commentators were worried it might suffer from manager James Anderson's decision to take a six-month sabbatical. But his long-term approach meant this was less problematic than it might have been.

Scottish Mortgage was picked by Keiran Drake at Winterflood Securities, who pointed out that important themes in the portfolio include the growth of China's global influence and technology. Amazon, Baidu and Tencent were among its most rewarding holdings last year.

Drake was less successful with JPMorgan Global Emerging Markets Income. Its NAV returns have bettered most other global emerging market specialists over the past year, but the sector has been out of favour with investors.

None of our experts picked a frontier markets trust, which have performed better. But Jean Matterson, at Rossie House Investments, backed Utilico Emerging Markets Trust, which has continued to make respectable progress.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.