It has been a difficult year for investment trusts as a whole. Discounts have widened across various sectors and there have been a series of failed continuation votes and mergers. Yet some trusts have still done extremely well - relative both to the wider market and their peer group. In this article we shine a light on the biggest outperformers in some of the Association of Investment Companies’ most widely followed equity-facing sectors.

GLOBAL

The Global sub-sector is such a mishmash of investing styles and risk tolerances that you might not be comparing apples with apples when ranking trust versus trust. We all know that high inflation and interest rates have eaten into returns, while on the flip side, exposure to the year’s biggest trends - AI for example - 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 £240 million of assets, its heavy focus on large cap technology stocks has paid off brilliantly for shareholders this year as markets began peering into a future where rates start coming down, supporting the risk-on trade, which typically plays well for tech.

Capturing the AI tailwinds with tech giant Microsoft (MSFT:NASDAQ) and chip designer Nvidia (NVDA:NASDAQ), its number one and two portfolio positions, the managers may now be left with a diversification conundrum to solve. The tech pair’s soaring success in 2023 means they accounted for a staggering 52.4% of the portfolio at the end of November, which may be a little too focused for many investors.

Compare that to Alliance Trust (ATST), this year’s second best performing Global trust. It has a far more cautious investing reputation and this is evidenced in its own portfolio. Yes, Microsoft is also its largest position, and Nvidia is in the top 10, yet combine to represent just 6.3% of assets, a very different risk profile for shareholders. [SF]

GLOBAL EQUITY INCOME

Despite stubbornly high inflation, global equity funds able to diversify dividend income sources by geography faced competition from rising bond yields and higher interest rates on cash, yet winning strategies continued to win fans.

The second-best performing trust in the Global Equity Income sector was JPMorgan Global Growth & Income (JGGI). The sector’s biggest trust by assets, whose scale has been boosted by relatively recent mergers with Scottish Investment Trust and JPMorgan Elect, ‘JGGI’ is a popular best ideas portfolio targeting capital growth and an attractive dividend yield, thereby providing investors with the best of both worlds. Its strategy of investing in structural winners, among them Microsoft, Amazon (AMZN:NASDAQ) and Nvidia, with a portfolio balanced between defensive and quality stocks, allied to quarterly dividends, underpinned its popularity with investors in 2023.

Also generating positive returns were Invesco Select Trust - Global Equity Income (IVPG) and the Baillie Gifford-managed inflation-beater Scottish American (SAIN). Among the sector’s other funds, Murray International (MYI) and STS Global Income & Growth (STS) delivered negative share price total returns over the period. [JC]

NORTH AMERICA

The US has been one of the best performing regions in 2023 but not owning big technology companies has made a big difference to returns this year.

Managers not owning the so-called ‘Magnificent Seven’ have struggled to keep pace with the benchmark S&P 500 index. In general, investment trusts have seen a widening of their discounts to NAV (net asset value).

These two characteristics have defined performance for US focused managers with four of the seven listed trusts registering negative returns.

Top of the US trust table is JPMorgan American Investment Trust (JAM) which has delivered a 21% return in net asset value and 20% increase in total price return reflecting the premium to NAV moving to a slight discount.

The trust’s top holdings comprise six of the Magnificent Seven including Microsoft, Apple (APPL:NASDAQ), Alphabet (GOOG:NASDAQ), Nvidia and Meta Platforms (META:NASDAQ).

At the other end of the spectrum the North American Income Trust (NAIT) has delivered a negative total share price return of 6.9%.

Perhaps not surprisingly none of the magnificent seven appear in the top holdings. Instead, oil services and technology company Baker Hughes (BKR:NASDAQ) and insurer MetLife (MET:NYSE) are the two top positions. [MG]

EUROPE

There is a clear stand out in the AIC Europe sector. With a share price total return of 21.7% this year, Henderson European Focus Trust (HEFT) hasn’t just beaten its benchmark - which gained around 15% - but has beaten the rest of the field and stretched its three-year record of outperformance (which now stands at 68% against 55% for the sector).

Among the trust’s best performers were ‘capex supercycle winners’, manager Tom O’Hara tells Shares, including chip equipment manufacturing firms ASM International (ASM:AMS) and BE Semiconductor (BESI:AMS) and building materials firms CRH (CRH) and Holcim (HOLN:SWX).

O’Hara also credits ‘category killer’ Novo Nordisk (NOVO-B:CPH), which is in a high-growth phase with its diabetes and obesity drug franchise, and German sportswear company Adidas (ADS:ETR) which is a turnaround story under its new chief executive.

It wasn’t all plain sailing however, as the trust ‘navigated banks badly’, buying just before Silicon Valley Bank imploded in the US, which caused a run on the sector, and its bet on brewer AB InBev (ABI:EBR) suffered after the company gaffed on social media, although O’Hara still rates the stock for next year.

He also expects his capex supercycle plays to continue working in 2024 and for larger companies with strong balance sheets in general to win at the expense of smaller players. [IC]

UK EQUITY INCOME

While the broader UK indices have struggled to make ground in 2023 the income sector has outperformed as value investing has come back into vogue reflecting the higher interest rate backdrop.

Occupying the top spots on the performance ladder and the only two trusts to deliver double-digit price total returns are Liontrust managed Edinburgh Investment Trust (EDIN) and Redwheel managed Temple Bar (TMPL).

The performance of the former continues the strong track record delivered by fund managers James de Uphaugh and James Field since taking over management of the fund in March 2020.

NAV total returns of 73.3% are comfortably ahead of the FTSE All-Share return of 49.5%. Both managers have announced their retirement, but Field will continue managing the fund until February 2024.

Another seasoned Liontrust fund manager Imran Sattar will then assume the role of lead manager. He is expected to maintain the focus on investing in good quality companies with dividend growth potential.

Temple Bar just edges out Edinburgh Investment Trust. It is managed by value investors Nick Purves and Ian Lance who have over 50 years of investment experience and a working partnership spanning more than 13 years. [MG]

UK ALL COMPANIES

Aurora Investment Trust (ARR) has put in a robust performance this year, well ahead of its benchmark.

This showing reflects strong stock selection from manager Gary Channon who takes his inspiration from the teachings of Warren Buffett, Benjamin Graham, and Philip Fisher.

In addition, the trust benefited from November’s offer from Mars for the premium chocolatier Hotel Chocolat (HOTC) which saw the stock surge 171%.

Aurora has a 7.2% holding in the company. Channon said: ‘The history of this holding is a good example of our process, as we had followed the company for many years prior to its listing, continued that work and took the opportunity to invest when it stumbled.

‘Other individual price rises of note included our low-cost airlines, which were especially strong, posting [over] 20% gains. Barratt Developments (BDEV) rose 24%, with Bellway (BWY) also a strong performer.’

Another winner in this sector was Mercantile Investment Trust (MRC) which was lifted by its holdings in the software and services sector.

In contrast Henderson Opportunities Trust (HOT) was the worst performer falling 6.4%.

The trust was largely dragged down by exposure to UK smaller companies and AIM-listed stocks. [SG]

BONUS GIVEAWAY: FREE INVESTMENT TRUST E-BOOK FOR ALL READERS

Shares readers can download a digital copy of The Investment Trusts Handbook 2024 for FREE from Harriman House’s website.

The e-book contains comment from analysts, fund managers and investment writers about investment trusts and contains plenty of data and analysis.

There are sections covering individual trusts, how to analyse the universe as a whole and the names which performed the best in 2023.

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