MONEY
INVESTMENT TRUSTS
4
trustnetdirect.com
trustnetdirect.com
discounts widen, allowing you to
rebalance tactically when the price
works in your favour.
On the flipside, many fund
managers invite investment
through the share saving schemes
they run, which fail to deliver quite
the same value when they are
trading at a premium.
Stephen Peters, investment
analyst at Charles Stanley, explains
that in such pooled schemes,
investors often pay over the odds
if performance drops off, but the
premium remains high because of
the “lag”.
“It takes people a while to realise
sometimes. But why would you pay
£1.15 for £1 of infrastructure assets
in an automatic saving scheme?”
A lack of choice is another hurdle.
Take the US market: there are only
six trusts in the AIC North America
sector and three in the North
American Smaller Companies
sector, yet these represent more than
half of the world stock market.
“In many asset classes, there are
outstanding managers who don’t
run investment trusts and missing
out on their skills could be a
mistake,” Sketch said.
In other words, don’t limit yourself
to the closed-ended world – cast
your net a bit wider.
PERFORMANCE OF TRUST VS SECTOR AND INDEX OVER 10YRS
600%
Frostrow Capital LLP - The Biotech Growth Trust (512.85%)
500%
Nasdaq OMX Biothechnology (431.57%)
IT Biotechnology & Healthcare (357.31%)
400%
300%
200%
100%
0%
Jan 16
Jan 15
Jan 14
Jan 13
Jan 12
Jan 11
-100%
Jan 10
Of the 20 best-performing trusts
over 10 years, three are from the
AIC Biotechnology and Healthcare
sector. Frostrow’s Biotech Growth
Trust is the best performer in the
AIC universe over this time, with
returns of 512.85 per cent.
UK Smaller Companies trusts
also feature heavily, accounting for
four of the top-20 positions.
Nick Sketch, senior investment
director at Investec Wealth &
Investment, says the type of assets
that favour trusts generally offer
short-term uncertainty but appear
better at providing long-term gains
and inflation-protected income over
20-plus years.
Jan 09
together an investment portfolio
with a long-term horizon.
Generally speaking, the more
niche an asset class, the better
suited to the closed-ended
structure – trusts can handle levels
of liquidity risk that their openended counterparts shy away
from. They are not forced to hold
particular companies, exit positions
prematurely to liquidate assets, or
indeed hold more significant cash
buffers than might be desirable. As a
result, sectors such as infrastructure,
smaller companies, emerging
markets and healthcare and
biotech lend themselves better to
investment trusts.
Jan 08
recent retirement survey by
Trustnet Direct found that
one of the biggest regrets
among respondents was they hadn’t
made better use of investment trusts
over the long term.
The closed-ended structure of
trusts gives their managers the
freedom to construct their portfolio
with 100 per cent deliberation over
the stocks they hold, with a polite
disregard for liquidity requirements.
Add in to the mix their ability to
gear and the fact that they can
move from below to above the
value of their underlying assets
(and vice versa) and something of a
perfect storm appears when putting
Cockerill says one of the biggest
risks involved with holding
investment trusts over the long term
is a change of manager. While the
average manager tenure is around
three years on funds, they stick
around a little longer on investment
trusts – 45 per cent have been run
by the same person for at least 10
years, according to the Association
of Investment Companies.
“I imagine being in charge of an
investment trust is probably quite
good fun,” adds Cockerill, pointing
out they are not at the mercy of
asset flows.
It’s not just the punchier areas of
the market in which investment
trusts can serve a purpose, however.
For long-term core holdings, the
fact they trade at a premium or a
discount allows you to top up your
positions in quality assets when
Jan 07
A
Sam Shaw finds out why investment trusts are ideally suited
to anyone investing for the very long term
AS WITH ALL
INVESTMENTS, THE
LONGER THE TIMEFRAME,
THE MORE RISK AND
VOLATILITY YOU SHOULD
FEEL COMFORTABLE
TAKING ON
Jan 06
THE TEST OF TIME
He puts it simply: “As likely
portfolio term increases, so is the
degree to which a portfolio will
typically have exposure to assets
that are typically best held through
an investment trust.”
Adam Ryan recalls that when
his team picked up the BlackRock
Income Strategies Trust (know at
the time as the British Assets Trust,
run by F&C’s Phil Doel), one of
the proposals to the board was to
introduce a greater exposure to
alternatives, such as venture capital,
direct