I largely focus on funds that either have a UK or global remit, with a few themes on the side. But here I’m looking at investment trusts that specialise in a single region or country.
Early in my investing career, I bought quite a few trusts of this ilk.
Asia Pacific funds were all the rage in the 1990s and I was lured in.
I held Pacific Horizon, Schroder Asia Pacific, and Foreign & Colonial Pacific (now Witan Pacific) for a few years.
TR European Growth, which specialises in smaller companies on the Continent, was another purchase I made.
I even ventured into single-country funds with Fleming Indian (now JPMorgan Indian).
These were all fairly small positions that I built up through various monthly savings schemes. Apart from TR European Growth, I sold them all in 1997 and 1998, directing the cash into a few individual shares instead.
I’m not able to track how I did with those shares (and their subsequent replacements) but I do know that sticking with those funds would have been a pretty smart move.
The Witan fund has been the worst performer, up some 300% (hence the manager switch from F&C in 2005, I suspect).
Schroder Asia Pacific and Pacific Horizon have both been ten-baggers, while the Indian fund is up some 15 times.
In annual terms, that’s between 11 and 13% for the best three performers. It just shows you how wealth can truly compound given enough time (and if you have the patience).
Demonstrating a little more patience, I held on to TR European Growth until 2005. But it’s quadrupled since then, equivalent to an annual return of about 10% these past 15 years.
What’s on offer?
That’s enough self-flagellation and what could have been.
Time for a table…
Regional and country-specific investment trusts make up about 15% of all funds.
As you might expect, they are a little smaller than the average investment trust, typically with £400m in assets versus around £600m for other funds.
On a few other measures:
- Charges — regional funds tend to be a little cheaper: 1.0% versus 1.3%
- Yield — regionals yield more than country-specific: 2.6% versus 1.4%
- Gearing — regionals tend to more lightly geared: 5% versus 8%
- Discounts — regionals currently have smaller discounts: 6% versus 9%
- Returns — country-specifics have had the edge: 207% versus 181% over the last 10 years.
Drilling down a little further in the areas covered:
I’ve added the global weighting for each region using a global index tracker as the data source. It’s always helpful to know the size of the pond you’re fishing in.
North America is just the US and Canada of course, although the US market is about 18 times larger than its Canadian cousin.
This region has surprisingly few trusts focusing on it, given its large size, and two of them are primarily Canadian funds.
Such is the dominance of the US market, though, I guess most people invest in it via global funds.
I was a little surprised there is as much invested in European funds as there is in Asia Pacific, given the relative growth rates of these two regions. Perhaps proximity plays a part here.
Latin America is largely an afterthought for investment trusts, it would seem. The main fund here, BlackRock Latin American, has only returned some 25% over the last 10 years, so you could argue we haven’t been missing much.
And while there is no specific sector for the Middle East and Africa, which is a similar size to Latin America in stock-market terms, there is a £100m fund called Gulf Investment (mostly Saudi Arabia, Qatar, UAE, and Kuwait) in the Global Emerging Markets sector.
I would guess that there is little investor demand for dedicated funds covering these last two regions, and what there is can be soaked up by global emerging market/frontier market funds.
There are only seven countries that have dedicated funds (although you could add in Canada for those two North American funds I mentioned earlier):
Japan is the world’s second-largest stock market and it accounts for nearly half of all country-specific trusts. It even has its own smaller companies sub-sector.
The BRICs (remember that term?) of Brazil, Russia, India, and China make up most of the remainder.
Weirdly, 3 trusts specialise in the tiny Vietnamese market, with a combined size that matches the 2 Chinese funds.
Both VietNam Holding and VinaCapital Vietnam Opportunity have produced very respectable 10-year returns. Vietnam Enterprise has over £1bn in assets and has been going since 1995 but only listed in London in 2016.
The 3 Vietnam funds have very high charges, though. While they all have tiered management fees, Holding and Enterprise start at 2% and Opportunity starts at 1.5%.
Although the list of countries covered by investment trusts looks on the light side, when you look down the global tracker weightings, there aren’t many obvious omissions.
France, Germany, Switzerland, and Australia account for between 2% and 3% of global markets each, but there’s not much else over the 1% mark.
The test of time
There’s a high risk of fad investing when you concentrate on a particular region or country, so it’s useful to see which trusts have been around the block for a few business cycles.
Half the regional funds have been listed for 25 years or longer, with JPMorgan American dating back to 1881!
My former holding of Witan Pacific is the next oldest (listed in 1907) so longevity doesn’t always translate into the best returns.
Only Baillie Gifford US Growth, BlackRock North American Income, and Gabelli Value Plus+ have less than a 10-year record among the regional funds.
The country-specific trusts are a little younger as a group. Although nearly half have been around for more than 25 years, only two predate the 1980s (Aberdeen Japan: 1969 and JPMorgan Japanese: 1927).
Five country funds are yet to hit their 10th birthday, and both Ashoka India and AVI Japan are less than two years old.
Stepping up the risk scale
I consider these trusts a step up the risk scale compared to most of my current holdings.
In fact, the country-specific funds are probably two steps up, as they are often heavily weighted to just a few sectors (e.g. the Russian market has a weighting of around 50% in energy stocks).
That said, the vast majority of the regional funds have been reasonably steady performers this past decade. Only Baring Emerging Europe and BlackRock Latin American have been duds, although the early signs for Gabelli Value Plus+ aren’t that encouraging.
European Opportunities, managed by Alexander Darwell, is perhaps the standout regional performer, given its chosen market. The North American funds have all done well in absolute terms, but they have had a massive tailwind.
Standouts from the country-specifics are arguably Baillie Gifford Japan and Baillie Gifford Shin Nippon, although the latter has struggled this past year.
Country funds can be feast or famine
Performance among the country-specific funds is a lot more variable, as you would expect.
JPMorgan Russian Securities offers the most extreme example. It’s up 42% over the past year and 229% over the last five. But it’s up just 97% over the past 10 years.
Go back 20 years, though, and according to The Investment Trust Handbook 2020, JPMorgan Russian is the best-performer of all trusts, up an amazing 2,750% (about 18% a year).
The next slot is taken by Aberdeen New Thai, closely followed by two regionals: Aberdeen Standard Asia Focus and Scottish Oriental Smaller Companies (all these are up some 15% a year on average).
Recent lame duck, BlackRock Latin American, sneaks into the top ten (12.5% a year).
The 2020 Handbook also has a 30-year table, where just one of the Canadian specialists appears.
While I definitely should have had a lot more patience with my own early choices from this group, I don’t particularly feel the need to take the plunge again. But that’s more down to a desire to gradually reduce the risk I feel I’m taking with my portfolio.
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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