How Money Observer's 2015 investment trust awards are won
12th May 2015 13:35
by Andrew Pitts from interactive investor
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Our annual investment trust awards seek to identify trusts that have not only performed exceptionally well in the past, but should continue to perform well in the future.
That is why we base our main awards on net asset value (NAV) rather than share price total returns, as this strips out the effects of movements in a trust's share price discount or premium to NAV. Where a discount narrows, for example, this is often unrepeatable for many years.
In addition, trusts are only considered if they have achieved above-average returns in their peer group in each of the past three years, so as to eliminate contenders that have only done well intermittently.
Repeat winners
Given this objective, it is encouraging that we see many repeat winners, and this year is no exception. and remain at the top of the contenders for best large trust. This is our most prestigious award because it has more than 100 contenders drawn from almost every sector.
The top two trusts in Europe, Japan and UK smaller companies are the same as last year, in some cases in reverse order.
retains the best global emerging markets trust award, and and are again highly commended in their sectors.
Most of our award winners have concentrated portfolios to ensure their best ideas make an impact; most have trimmed their costs, which enhances returns; and most deploy gearing, which should give them a long-term edge over their unitised counterparts.
Persistently good returns have been rewarded with minimal discounts to NAV or even premium ratings for a number of our award winners.
In this context it is encouraging that the boards of many award winners have committed to varying degrees of discount control during periods of market stress or poor demand. They include , , , Biotech Growth and Worldwide Healthcare.
The NAV total returns of all our award winners were ahead of the 37% gain from the FTSE All-Share index over three years, and most were well ahead of the 49% gain from the FTSE World index.
Biotech Growth more than trebled its NAV per share, Worldwide Healthcare and more than doubled theirs, and , , and all achieved gains of more than 90%.
Monthly stars
The second section of our awards - the Medals for Monthly Money - analyses monthly share price total returns over five years, a period which should be sufficient to iron out short-term fluctuations in discounts and premiums.
Here we broaden our award categories, drawing on pools of candidates from across a variety of sectors. The awards include global generalist (where contenders must have at least 70% of assets outside the UK); overseas smaller companies; overseas developed markets; UK equity (which includes all UK equity-focused trusts); and developing markets.
Many winners also appear in the sector-based awards, but this does show that from a wider pool of contenders, they are doubly worthy of our accolades.
Methodology: Individual trust awards
Sector-based awards
To identify the top-performing trusts, we rank trusts in the sector(s) under consideration according to the following weighted result: 40% for annual NAV performance to 1 February 2015, 30% for 2014, 20% for 2013 and 10% for the overall three-year NAV return to 1 February 2015.
In the private equity category, returns tend to flow through sporadically, so each year's performance is given equal weight.
In the high-income category, we have assessed trusts with a portfolio yield of 50% more than the FTSE All-Share index as at 1 February 2015.
To emphasise consistency, we favour trusts that have been in the top half of the peer group in each of the past three years.
Our three-year awards are based on NAV total returns because this reflects the skills of the manager more clearly than share price returns, where underlying performance is distorted by movements in the share price discount or premium to NAV.
Although we analyse NAV total returns for this section of our awards, the performance charts that accompany each of the awards sections measure the actual return to shareholders over three years to 1 March 2015. These are sourced from Interactive Investor.
Regular savings (Medals for Monthly Money) awards
The criteria is based on share price performance for monthly savings of £50 over five years, a period we consider sufficient to iron out fluctuations in discounts and premiums to NAV. Contenders must have had a minimum £50 million market capitalisation at the start of the review period on 1 February 2010.
A number of sectors are taken into consideration for each of these awards. For example, Best Overseas Smaller Companies Trust assesses any trust with an overall mandate to invest in smaller companies from a variety of AIC sectors, including Asia Pacific excluding Japan, European smaller companies and North American smaller companies.
In contrast, the award for best globally diversified trust stipulates a current minimum asset allocation of at least 70% invested outside the UK, which renders many contenders in the global and global equity income sectors ineligible for this award.
Qualitative aspects
The final judging process for the above categories also includes qualitative elements. Typically, these include:
- The trust manager's tenure
- Share liquidity and the size of the company
- Conformity of the company's strategy broadly with retail investors' expectations
- Reasonable diversity in the underlying portfolio
Methodology: Premier Group Award
The Premier Group award is open to management groups with a diversified range of trusts. We include the returns of all the trusts managed by the group for at least three years, or those that retained the investment manager in the event of a switch. The contribution of each trust is calculated on the same weighted three-year basis as for the sector-based awards.
The qualifying investment trust management groups for this year's awards are Aberdeen, Baillie Gifford, BlackRock, F&C, Fidelity, Henderson, JPMorgan, Invesco Perpetual and Schroders.
Performance and other data
We are indebted to the Association of Investment Companies for supplying the performance figures for the awards. The AIC, in turn, referenced data supplied by Morningstar, as at 1 February 2015.
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.