Investment trusts have experienced challenges this year, with discounts remaining wide across various sectors and some consolidation occurring. However, certain trusts have performed well compared to both the wider market and their peer group. This article highlights the top performers across four of the Association of Investment Companies’ most widely followed equity-facing sectors.

GLOBAL

An investment remit that allows managers to scour the globe for the best investment ideas is an attractive proposition but don’t expect the Global sub-sector to be neatly packaged – it’s a mishmash of investing styles, risk tolerances, costs and benchmark comparisons, which may leave investors comparing apples with tractors when ranking trust versus trust.

We all know that high inflation and interest rates have eaten into returns for growth stocks, while on the flip side, exposure to the year’s biggest trends – AI, cloud computing, ecommerce, gold, bitcoin etc – to a greater or lesser degree has massively tilted performance.

Take this year’s top performer, Manchester & London (MNL). A relatively small trust with around £360 million of assets, its heavy focus on large cap technology stocks has paid off brilliantly for shareholders this year, just as it did in 2023, when it also led the sub-sector performance rankings.

As markets began peering into a future where rates start coming down, cutting the cost of capital and supporting the risk-on trade, which typically plays well for tech stocks, it added a huge tailwind to structural shifts, such as AI. It is a theme captured successfully by the trust, which has eyebrow-raising bets on tech giants Nvidia (NVDA:NASDAQ) and Microsoft (MSFT:NASDAQ), worth 61.5% of the fund combined, perhaps too concentrated for the average investor.

You might argue that number three Scottish Mortgage (SMT) faces a similar diversification conundrum given its hefty stakes in private companies like Elon Musk’s SpaceX, although it has a far more spread portfolio, albeit exclusively in high growth stocks.

Given the heavy risk-on showing in performance, it is a little surprising that Brunner Investment Trust (BUM), a far more conservatively run trust, sits second. Yet manager Allianz Global Investors too has a firm commitment to long-run growth themes, such as AI, digital health and rising retail investors independence, illustrated by big calls on TSMC (TSM:NYSE), Microsoft, UnitedHealth (UNH:NYSE) and Charles Schwab (SCHW:NYSE).

Spare a though for the once popular Lindsell Train Investment Trust (LTI), which continues to lose its way, and is the sub-sector’s sole negative performer in 2024. The shares have lost roughly 60% in three years as retail investors dump the stock in their droves. [SF]

GLOBAL EQUITY INCOME

Rate cuts in the New Year should stoke renewed investor interest in the Global Equity Income sector, outshone by sectors such as Growth Capital, Private Equity and Technology & Technology Innovation in 2024 as the US market continued to dominate, driven by the AI theme.

Nevertheless, four of the Global Equity Income sector’s seven constituents delivered respectable double digit total returns, including the simplified and relaunched Invesco Global Equity Income (IGET), which benefited from robust performance and a new 4% dividend target which drove demand for the shares. And the Troy Asset Management-steered STS Global Income & Growth (STS), which outperformed its benchmark in the half to 30 September with a boost from tobacco giant Philip Morris (PM:NYSE) and delivered an 11.6% return, with share buybacks keeping the trust’s NAV (net asset value) discount in check.

Leading the pack with a 37.5% gain was the self-managed and highly concentrated British & American (BAF), whose NAV was enriched by a share price surge at biggest holding Geron Corporation (GERN:NASDAQ), a California-based biotech specialising in therapeutic products to treat cancer.

Hot on its heels with a 21.7% gain was JPMorgan Global Growth & Income (JGGI), which combines ideas in both the growth and value styles and whose popularity reflects the managers’ track record of picking winning stocks using their high-conviction, bottom-up research process. JPMorgan Global Growth & Income built on its record of outperformance in 2024 whilst benefiting from selective exposure to AI beneficiaries including Nvidia, TSMC, Meta Platforms (META:NASDAQ) and Microsoft. Demand for the shares remained strong, allowing the company to issue new stock at a premium to NAV. As it swells in size, the trust is becoming a natural ‘home’ for other funds, not just internally but also externally where trustees are looking for a change of manager. [JC]

UK ALL-COMPANIES

Top of the pops in the UK All-Companies trust table this year comes Henderson Opportunities Trust (HOT), run by the ever-dependable duo of James Henderson and Laura Foll.

For the year to 10 December, Henderson Opportunities returned 22.4% thanks to an eclectic mix of financial, mining and property holdings.

Both Barclays (BARC) and HSBC (HSBA) feature in the trust’s top three, while Anglo American (AAL) and Rio Tinto (RIO) make the top six and Springfield Properties (SPR) and Shaftesbury Capital (SHC) help round out the top 10 list.

In the runner-up position was Fidelity Special Values (FSV), run by the equally reliable Alex Wright and Jonathan Winton, with a 17.4% return for the year.

The managers take a contrarian, bottom-up, stock-picking approach, looking for companies which are unloved but are entering a period of positive change which hasn’t been picked up by the market.

Having first identified the downside risk, the duo then assesses the potential upside return and where each company is in the market cycle in order to build a diversified portfolio.

There are typically three stages to each investment, and on average it takes 18 months for a company to move through this cycle although obviously each company is different.

The top contributors to the trust’s outperformance were its overweight positions in construction group Keller (KLR) and savings and insurance firm Just Group (JUST), which make up 3.5% and 2.4% of the fund against just 0.1% each of the All-Share, along with positive turns from FTSE stalwarts NatWest (NWG) and Imperial Brands (IMB).

The team also highlights their underweight of oil giant BP (BP.A) – which makes up 3.2% of the All-Share but is completely absent from Special Values – as a further positive top five contributor. [IC]

UK EQUITY INCOME

Leading the gainers is value-orientated investment trust Temple Bar (TMPL), followed by Diverse Income Trust (DIVI) and CT UK High Income Trust (CHI) which have all returned double-digit growth.

Temple Bar’s returns can be attributed to strong portfolio performers including ITV (ITV), up 18% this year, and NatWest up 87%.

It benefits from the investment experience of managers Nick Purves and Ian Lance who have more than 50 years’ worth between them.

Another company to beat its benchmark is CT UK High Income Trust. The trust has also managed to grow annual dividend payments for 11 years in a row.

It currently invests in 40 stocks with more than 75% of its assets in FTSE 100 shares. Helpful considering the FTSE 100 has enjoyed its best year since 2021 with an 11.4% total return.

Struggling in comparison to peers are Finsbury Growth & Income Trust (FGT) , Schroder Income Growth Fund (SCF) and Dunedin Income Growth Investment Trust (DIG).

It comes as no surprise that Finsbury Growth & Income, managed by Nick Train, has fared less well this year due to the weak performance of major holdings, including drinks maker Diageo (DGE) and Burberry (BRBY). Burberry’s shares have fallen 30% year-to-date due to weaker demand for its luxury goods, especially in China. [SG]

DISCLAIMER: Steven Frazer owns shares in Scottish Mortgage referenced in this article. Sabuhi Gard owns shares in HSBC and JPMorgan Global Growth & Income referenced in this article.

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