While it might not be top of your checklist, a little knowledge about who runs each investment trust that you own can be useful.
For starters, larger management groups should be in a better position to find a suitable replacement if the talented individual running your investment trust were to leave.
They may even charge less, as their resources can be spread over many different investment trusts.
On the flipside, you could argue that larger firms might suffer more from groupthink and could be less flexible about their investment approach, having to follow stricter, internal guidelines.
It’s hard for a single company to be a specialist in every single field of investment. If you are adopting a thematic approach, then picking a variety of managers with expertise in individual areas like biotech, emerging markets or smaller companies, might pay dividends.
Spreading the risk
Diversification is a vital component of any investment strategy. And I must confess that I like to spread my portfolio over a number of different managers, as well as by investment strategy.
While investment trusts are run as single entities, meaning problems in one trust shouldn’t directly impact another that is managed by the same firm, it feels like a sensible precaution to take.
Eggs, baskets and all that.
Single-trust managers dominate
What is a little surprising is the large number of fund managers that only run a single investment trust.
Indeed, out of 401 investment trusts covered by the AIC, 156 are run by companies that only look after a single investment trust (although, in some cases, these management groups operates other types of funds as well as a single investment trust).
And this isn’t something that’s confined to smaller funds. Many of the largest investment trusts have one of these single-minded managers. In terms of assets, some 42% of the industry is run by one-trust firms.
You might think that this is a relatively recent phenomenon, spurred by the likes of Neil Woodford and others leaving to set up their own fund management groups.
But looking at data from 2007, single-trust managers were commonplace, although the rise of alternative asset funds in recent years has perhaps made the trend even more pronounced.
Here are the investment trust industry’s top dogs, in terms of the number of funds managed…
Largest trust groups (4 funds or more)
| Manager | Assets £bn | Number of funds |
|---|---|---|
| Baillie Gifford | 12.5 | 9 |
| J.P. Morgan | 10.4 | 21 |
| Aberdeen Standard | 9.5 | 23 |
| BMO Global | 9.5 | 10 |
| Janus Henderson | 6.3 | 13 |
| FIL Investments | 4.0 | 5 |
| Frostrow Capital | 3.9 | 5 |
| Invesco | 3.7 | 9 |
| BlackRock | 3.3 | 9 |
| Schroder | 2.6 | 6 |
| Jupiter | 1.3 | 5 |
| Octopus Investments | 1.0 | 4 |
| Foresight Group | 0.9 | 4 |
| Gresham House | 0.5 | 5 |
| New City | 0.4 | 4 |
| Albion Capital | 0.4 | 6 |
| Downing | 0.3 | 5 |
| Mobeus Equity Partners | 0.3 | 4 |
| Maven Capital Partners | 0.2 | 5 |
| Puma Investments | 0.1 | 4 |
Source: theaic.co.uk
Movers and shakers
The top fund groups from more than a decade ago are largely the same, although the running order has shifted a little and there have been some name changes.
Aberdeen has merged with Standard Life, Henderson joined up with Janus Capital, and Fidelity is now called FIL. Foreign & Colonial was acquired by Bank of Montreal (BMO) in 2014, although it only recently changed the name of many of its trusts from F&C to BMO.
Baillie Gifford, thanks in no small part to the success of Scottish Mortgage, claims the top spot in terms of assets managed. It was fourth back in 2007.
Frostrow Capital is a new-ish kid on the block, created in 2007 to take over the running of Finsbury Worldwide Pharmaceutical (now known as Worldwide Healthcare Trust). It’s since added Finsbury Growth & Income (managed by Nick Train), Biotech Growth, Pacific Assets and Menhaden. It also provides services for the likes of Augmentum Fintech, Fundsmith Emerging Equities and Witan.
Octopus and Foresight have both seen their assets surge, due largely to Octopus Titan and Foresight Solar.
Gresham House seems keen to expand as well, launching Gresham House Energy Storage last year and taking over the running of the two Baronsmead venture capital trusts.
In terms of those slipping down the ranks, Invesco is perhaps the most notable, with the number of funds it runs dropping from 16 to 9.
The bottom of the table is dominated by VCT managers (Albion, Downing, Mobeus, Maven, Puma) so these names may not be familiar to most people.
Largest single-company managers
Here’s a similar list, but this time just looking at those that run a single fund…
| Manager | Assets £bn |
|---|---|
| 3i Group | 8.3 |
| Amedeo Air Four Plus | 3.4 |
| RIT Capital Partners | 3.3 |
| Pershing Square | 3.3 |
| Willis Towers Watson | 2.8 |
| Franklin Templeton | 2.3 |
| Amber Infrastructure | 2.0 |
| Caledonia Investments | 1.9 |
| 3i Investments | 1.8 |
| Tetragon | 1.6 |
| HarbourVest | 1.4 |
| Pantheon Ventures | 1.4 |
| Syncona | 1.4 |
| Riverstone International | 1.3 |
| Sequoia | 1.2 |
| Primary Health Properties | 1.2 |
| Dragon Capital | 1.1 |
| Pharmakon | 1.0 |
| Genesis | 1.0 |
There are a number of newer funds here alongside stalwarts such as 3i Group. Amedeo is a leasing fund (no, I didn’t know it was that big either) while Pershing Square is a hedge fund.
There are also many well-known funds in this table that are less immediately obvious:
- Willis Towers Watson (Alliance Trust)
- Amber (International Public Partnerships)
- Franklin Templeton (Templeton Emerging Markets)
- 3i Investments (3i Infrastructure)
- Dragon Capital (Vietnam Enterprise)
- Pharmakon (BioPharma Credit).
What’s in a name?
Even with the larger groups, there are often a number of funds that carry the house brand while others have something more unique.
Here’s a selection:
- Aberdeen Standard: Dunedin Income Growth, Edinburgh Dragon, Murray Income, Murray International, North American Income, and Shires Income.
- Allianz: Brunner and Merchants
- Baillie Gifford: Edinburgh Worldwide, Monks, Pacific Horizon, Scottish American, and Scottish Mortgage.
- BMO: European Assets, F&C Commercial Property/Investment Trust/UK Real Estate, and TR Property.
- Invesco: City Merchants High Yield, Edinburgh Investment, Keystone, Perpetual Income & Growth, and Temple Bar.
- J.P. Morgan: Mercantile
- Janus Henderson: Bankers, City of London, Lowland, and TR European Growth
The tale of TR
The two TR funds (Property and European Growth) highlight some of the confusion that can arise.
TR stands for Touche Remnant, which was originally part of the accounting firm Touche Ross (now known as Deloitte). Touche Remnant became a separate company in 1974, was bought by Societe Generale in 1989, and then sold to Henderson in 1991.
TR Property split away from Henderson in 2004, opting to follow its two fund managers who left to join Thames River Capital. That firm was then taken over by F&C in 2010, which was itself taken over by BMO in 2014.
At least I think that’s what happened!
All the while, TR Property has continued on its merry way, generating excellent returns for its shareholders in the process. There’s certainly something to be said for the structure of investment trusts!
The manager or the firm?
The individual that runs an investment trust rather than the fund management group is much more important in my eyes. That’s because they are the ones making the decisions as to where to allocate capital and in what proportion.
I prefer managers who have been in situ for some time, and that have demonstrated a level of both consistency and outperformance when it comes to results.
But I’m also conscious that luck plays a big role in investment success, so I also look for some humility and consistency of message as well. A pragmatic approach and lack of complexity are also important. It sounds a bit airy-fairy, I admit!
The day-to-day running of an investment trust is fairly routine, however, and I don’t think the process differs greatly from one firm to another.
Of the top 10 groups, I think I’ve owned trusts run by all of them at some stage, with the exception of Fidelity, and not formed any firm favourites.
It’s also worth remembering that the boards of investment trusts have the power to change managers, should they deem the incumbent to be falling short. And many of them exercise that power.
There’s arguably a greater level of risk when you choose a fund run by a single-trust manager, as there tends to be with any company that has a single customer. But in many sectors, a manager that specialises in that particular area might make all the difference.
Disclaimer
Please note that I may own some of the investments mentioned above -- you can see my current holdings on my portfolio page.
Nothing on this website should be regarded as a buy or sell recommendation as I'm just a random person writing a blog in his spare time and I am not authorised to give financial advice. Always do your own research and seek financial advice if necessary!
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