Ian Cowie: the 10 best-performing trusts over past three decades

This research might help long-term investors keep short-term worries in perspective, writes our columnist.

Stock markets have suffered shocking setbacks so far in 2022, with some of the world’s biggest share price indices plunging by 20% or worse into ‘bear market’ territory. That makes it topical and important for investors to remember long-term returns from equities.

Short-term speculators can seek comfort elsewhere. But this column is intended for long-term investors, like me, whose main objective is to accumulate capital over a working lifetime to generate income in retirement.

So, exclusively for readers of interactive investor, the Association of Investment Companies (AIC) has drilled down into data from independent statisticians Morningstar to identify the 10 top-performing investment trusts over the past 30 years. You won't find financial facts like these on the telly.

Perhaps surprisingly, the 10th and ninth positions are both held by a fund manager whose investment style has recently fallen from favour. Rising inflation and interest rates have made Baillie Gifford’s focus on growth - or ‘jam tomorrow’ - shares leave a sour taste in many investors’ mouths now Mr Market prefers dividend income and ‘jam today’.

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Despite this recent about-turn, Pacific Horizon (LSE:PHI) and Scottish Mortgage (LSE:SMT) - which have shrunk £1,000 into £850 and £680 respectively over the last year - remain in the top 10 among all investment trusts over 30 years.

Pacific Horizon has turned £1,000 into £37,430, while SMT has made the same sum soar to £39,800. No wonder many long-term shareholders in these AIC ‘Asia Pacific’ and ‘Global’ sector trusts are inclined to hang on and hope for a return to form. That may explain them continuing to trade at modest discounts to their net asset values (NAVs) of less than 7%, despite neither yielding as much as 0.5% income.

Canadian General Investments (LSE:CGI) in the ‘North America’ sector is closer to my wallet. I am a shareholder in CGI - although not, sadly, over the last 30 years when CGI turned £1,000 into £40,470. Unlike Pacific Horizon and Scottish Mortgage, CGI pays decent dividends and trades at a double-digit discount; yielding 2.5% income, on shares priced 29% below their NAV.

Investment trusts focused on Continental corporate tiddlers hold seventh and sixth places. JPMorgan European Discovery (LSE:JEDT) and The European Smaller Companies Trust (LSE:ESCT) grew £1,000 into £40,820 and £42,840 respectively. So much for ‘Little Englander’ notions that all European businesses are basket cases. Both these investment trusts yield around 1.6% income and trade on discounts of 15% and 16% to their NAVs respectively.

Moving into the top half of our top 10 for long-term investors, TR Property (LSE:TRY) has built £1,000 into a sky-scraping £43,710. This earns it fifth place overall, while continuing to yield 3.6% and trading nearly 10% below its NAV.

Back to the Continent but with assets allocated to bigger businesses, Fidelity European Trust (LSE:FEV) ranks fourth with a share price total return of £45,950 over the last three decades. Here and now, it yields nearly 2.3% and trades 7.8% below its NAV.

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Bronze medal goes to ICG Enterprise Trust (LSE:ICGT), in the AIC’s ‘Private Equity’ sector, which ranks third overall with a total return of £49,980 on £1,000 at outset. Investors more interested in the present and the future than the past might note that ICGT yields nearly 2.5% income and trades at an eye-stretching 36% discount to its NAV.

Silver medal or second place is earned by Rights & Issues Investment Trust (LSE:RIII). This ‘UK Smaller Companies’ sector star has delivered big returns of £78,090 on the same starting investment as the rest.

Its dividend yield is modest at 1.5% but a discount of just over 11% may tempt bargain-hunters, although it is worth pointing out there will soon be a change in management. Its longstanding fund manager – Simon Knott – who has managed the trust for nearly 40 years, is retiring in September. The investment trust, which has been self-managed under Knott, will be moving to Jupiter.

Gold medal goes to HgCapital Trust (LSE:HGT), another investment trust in the AIC’s ‘private equity’ sector. This is the top-performing investment trust since June 1992, with a stratospheric share price total return of £80,710 on £1,000 at outset. Readers seeking value today need not fear they have left it too late because HGT still yields just over 1.8% dividend income and trades at a 13% discount to its NAV.

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Nick Britton, head of intermediary communications at the AIC, told me: “Investment companies have richly rewarded investors who have stuck with them over the long term.

“At the heart of this success is the closed-ended structure, which gives fund managers a fixed pool of capital and removes the need for them to sell investments when investors want to cash in. This allows managers to take a truly long-term view rather than being carried along on the ebb and flow of changing fashions. 

“The list of top-performing investment companies over 30 years suggests that investments in private equity or smaller companies can pay off handsomely in the long run. However, the most important thing is to have a well-balanced, diversified portfolio which is right for an investor’s individual circumstances.”

To be fair, some of the returns described above should be attributed to the illusory uplift of inflation. But the Bank of England reckons the real value - or purchasing power - of £1,000 in 1992 is £1,782 today.

So all of the AIC’s top 10 investment trusts have delivered spectacular real returns over a working lifetime. While the past is not necessarily a guide to the future, this analysis might help long-term investors keep our short-term worries in perspective.

Ian Cowie is a freelance contributor and not a direct employee of interactive investor.

Ian Cowie is a shareholder in Canadian General Investments (CGI) as part of a globally diversified portfolio of investment trusts and other shares.