Trusts losing out to open-ended peers this year – with one exception
Investment trusts that back European shares are performing better than their sister funds this year, writes Sam Benstead.
7th September 2023 09:26
by Sam Benstead from interactive investor
Investment trusts are having a difficult time in 2023, with the FTSE All-Share Closed End Investment index posting a 2% drop year-to-date. This compares with a near 3% rise for the FTSE All-Share index and a 10.1% rise for the MSCI World index of large global shares, including dividends.
A key reason for the poor performance is the widening of trust discounts, which hit their widest discounts since the financial crisis of 2008 in spring this year and have not yet begun to narrow.
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Investment trusts are listed on the stock exchange, so the value of the shares can diverge from the underlying value of the assets that a trust owns. In times of market stress and poor sentiment, discounts tend to widen, while they narrow when investors are feeling optimistic. They can also use gearing, or borrowing, to amplify returns as well as losses, which can affect investor sentiment as well.
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The typical global trust is now on an 11% discount, while UK All Companies trusts are on 13% discount on average and UK Smaller Companies are on a 15% discount, according to data from Morningstar.
This trend has meant that investment trusts and their open-ended sister funds have performed differently this year.
Of 10 pairs of similarly managed trusts and funds analysed by interactive investor, trusts have performed best in four cases so far in 2023. All data, sourced from FE Fundinfo, is to 1 September 2023.
The winning trusts this year are Fidelity European Trust versus Fidelity European, JPMorgan European Discovery versus JPM Europe Smaller Companies , Henderson European Focus versus Janus Henderson European Focus and Finsbury Growth & Income, which was only just ahead of Lindsell Train UK Equity.
The big theme is therefore that Europe trusts are performing well this year. This is in response to rising European shares. The STOXX Europe 600 index of its largest shares is up 7% this year. This compared with a flat return so far for the FTSE 100 index.
Therefore, Europe trust discounts have narrowed as investors have flocked to the winning sector.
The biggest gap has been between Henderson European Focus Trust, which is up 15.4% this year, and Janus Henderson European Focus (the fund), which is up 10.5%.
Investment | Premium/discount (%) | Return: YTD (%) | 1yr (%) | 3yr (%) | 5yr (%) | 10 yr (%) |
11.7 | 25.7 | 42.1 | 69.0 | 206.5 | ||
7.9 | 15.1 | 33.0 | 48.4 | 159.2 | ||
-1.0 | 0.9 | 2.5 | 2.9 | 128.0 | ||
-3.5 | -1.7 | 0.8 | 6.5 | 137.5 | ||
4.9 | 6.9 | 12.0 | 14.6 | 122.3 | ||
4.3 | 6.6 | 15.7 | 19.2 | 127.8 | ||
15.4 | 22.2 | 43.1 | 46.5 | 159.6 | ||
10.5 | 16.0 | 33.4 | 43.8 | 152.8 |
FE Fundinfo, 1 September 2023. Past performance is not a guide to future performance.
The six trust/fund pairs where the fund has had the upper hand this year are: Merchants Trust compared with Allianz UK Listed Equity Income, Troy Income & Growth versus Trojan Income, abrdn UK Smaller Companies Growth versus abrdn UK Smaller Companies, Edinburgh Worldwide compared with Baillie Gifford Global Discovery, Fidelity Special Values versus Fidelity Special Situations, and Henderson Smaller Companies compared with Janus Henderson UK Smaller Companies.
The biggest gap was between Edinburgh Worldwide, down 15% this year, and Baillie Gifford Global Discovery, down 5.1% this year. The smallest gap was between Troy Income & Growth and Trojan Income where just 0.2 percentage points separate them this year.
Investment | Premium/discount (%) | Return: YTD (%) | 1yr (%) | 3yr (%) | 5yr (%) | 10 yr (%) |
-1.0 | 3.3 | 78.4 | 40.1 | 87.5 | ||
-2.0 | 1.1 | 51.6 | 29.8 | 79.0 | ||
1.8 | 0.4 | 6.2 | 3.7 | 58.9 | ||
2.0 | 0.1 | 5.6 | 2.7 | 55.9 | ||
-9.5 | -12.7 | -18.4 | -14.0 | 67.4 | ||
-7.5 | -10.8 | -16.7 | -7.2 | 85.9 | ||
-15.0 | -20.2 | -45.9 | -24.7 | 109.9 | ||
-5.1 | -18.3 | -42.9 | -19.5 | 104.2 | ||
-2.9 | 4.6 | 59.1 | 12.1 | 100.3 | ||
0.6 | 3.5 | 46.0 | 11.5 | 79.3 | ||
-12.3 | -10.3 | -0.5 | -8.8 | 85.7 | ||
-6.3 | -9.9 | -0.7 | -8.1 | 76.7 |
FE Fundinfo, is to 1 September 2023.Past performance is not a guide to future performance.
However, the data tells a different story when looking over longer time periods. Seven of the 10 trusts beat their sister funds over 10 years, and over five years five trusts did.
Over the long term – 10 years or more – investment trusts usually have the upper hand over funds, mainly due to their ability to gear and their fixed pool of assets.
These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. 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.
Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.