Regular readers will be aware that I do love a good global investment trust. But I wanted to see how well they have performed relative to world markets over the very long term.
Most performance stats cover a maximum of ten years but I’ve managed to get some data going back to 1992.
You might argue that the investing world has changed immeasurably over that timeframe, so going back that far has limited value.
And the managers running many of these trusts certainly have changed over the years.
I think only one of the trusts I looked at for this exercise has had the same lead manager throughout. That’s Peter Spiller at Capital Gearing, although Lord Rothschild only retired from RIT Capital Partners last year.
Going back almost three decades means we can see how these trusts have fared over several bull and bear markets.
It also provides some indication as to how consistent they’ve been and which ones may be living on past glories.
Selecting my victims
But using such a long timeframe does rule out some popular trusts from the Global sector.
For example, Lindsell Train Investment Trust started up in 2001 — it’s been the best performer over the last decade.
Manchester & London has been going since the early 1970s but wasn’t listed between 1982 and 1997.
To ensure I still had a decent number of trusts to examine, I also looked at other sectors such as Global Equity Income and Global Smaller Companies.
This added in trusts like Scottish American, Murray International, JPMorgan Global Growth & Income, and BMO Global Smaller Companies.
A few trusts with a global outlook have moved to the Flexible sector in recent years, so I also included Personal Assets, Capital Gearing, Caledonia, Hansa, and RIT Capital Partners.
That got me to twenty trusts, which seemed like a reasonable sample size.
I left out the Global Emerging Markets sector as that seemed too narrow an investment focus, plus a few lower-profile members of the Flexible and Global Smaller Companies sectors (Aberdeen Diversified I&G, Henderson Alternative Strategies, and North Atlantic Smaller Companies).
I currently own four of the twenty trusts by the way: RIT, Caledonia, JPMorgan Global Growth & Income, and Murray International. I used to own F&C in the 1990s.
Average annual returns for 20 global trusts
|RIT Capital Partners||22.3%||10.6%||9.1%||-12.5%||12.6%|
|Mid Wynd International||12.6%||6.6%||15.2%||2.6%||11.3%|
|BMO Global Smaller Companies||14.7%||6.6%||14.8%||-22.9%||10.6%|
|JPMorgan Global G&I||17.4%||3.2%||12.0%||-6.5%||9.9%|
|Scottish Investment Trust||15.5%||2.3%||9.2%||-8.6%||7.9%|
A few notes on the above…
There was a fair amount of spreadsheet wrangling involved in producing these figures. I believe the numbers are reasonably accurate but I wouldn’t treat them as gospel.
These are all share price returns that assume dividends are reinvested when they are received.
As I looked at share price returns from January 1992, the 1990s column is two years short of a full decade.
Global markets fell around 17% in 1990 and then made up those losses in 1991, so including these two years might have reduced the total average total returns by about half a percentage point.
The figures shown for 2020 are up to 22 May and therefore aren’t annualised figures like the other columns.
The total column shows average annual returns from January 1992 to 22 May 2020.
The world index is quoted in sterling and includes both developed and emerging markets.
I’ve had to do some reverse engineering to get the world index figures for the 1990s and 2000s from a few different sources, so the 15.0% and 2.5% figures might be a little off. However, I’m happy the total average annual figure of 8.8% is pretty accurate.
How would a global tracker have performed?
Back in the early 1990s, global trackers essentially didn’t exist.
I think the iShares World ETF was introduced in September 2009 was one of the first made available to ordinary investors.
The world index makes a pretty good proxy for what you could have got from a global tracker, although you probably need to knock off a little for costs.
Costs of 0.3% a year seems a reasonable estimate to me, so that suggests that a global tracker could have returned around 8.5% a year over the same period.
As with all such studies, it’s difficult to roll back time to make sure you have a full data set.
Ideally, you would want to include everything that would have been considered a mainstream global investment trust in the early 1990s.
But trusts get wound down, taken over, or change their mandates.
Survivorship bias is the posh term for such things.
I remember one old global trust — Electric & General — having owned it during the 1990s. It’s still limping on but as a much smaller open-ended fund.
And I suspect there are quite a few others that aspiring global investors of the early 1990s may have considered.
This certainly needs to be borne in mind when you look at these figures. The trusts that have survived since 1992 are most likely to have been the best performers.
Narrowing trust discounts
The fact that investment trust discounts have narrowed over the last few decades needs to be considered, as this has flattered their share price returns a little.
If we assume the average discount has narrowed from 10% to 0%, then this has probably added around 0.3 percentage points a year to overall performance.
I don’t think we’ll see a similar effect over the next few decades, although you can never know for sure.
Scottish Mortgage is the standout
This table makes it clear just how well Scottish Mortgage has performed since the early 1990s.
A lead of 1.4 percentage points a year over second-placed RIT Capital Partners may sound small, but over the period we’re looking at it’s the difference between turning £1,000 into £40,000 or £29,000.
And if we go down to Witan, at just over 5 percentage points lower than Scottish Mortgage, your initial £1,000 becomes ‘just’ £11,000.
Plenty of great performers
Even assuming we have some major survivorship bias issues here, 15 of the 20 doing as well or better than world markets is a pretty big thumbs up for global investment trusts I feel.
Only one — Majedie — has underperformed by more than one percentage point a year.
My goal is to beat global markets by two to three percentage points a year over the long term. It’s a stretch goal admittedly, but this table illustrates how tough it could be to achieve.
Six of these trusts did better than world markets by two percentage points a year or more.
But only two managed to beat world markets by more than three percentage points.
The family offices
Six of these trusts have a wealthy family behind them who have been major shareholders for decades:
- RIT — Rothschild family (own 21%)
- Caledonia — Cayzer (49%)
- Hansa — Salomon (roughly 25-30% but with voting control)
- Witan — Henderson (1%)
- Majedie — Barlow (53%)
- Brunner — Brunner (29%)
There is a great summary of different approaches these trusts take in this 2019 FT article.
You could make a case for the likes of Personal Assets, Capital Gearing, AVI Global (formerly known as British Empire), and Scottish Investment Trust being cut from a similar cloth. All of these are self-managed with a clearly stated approach.
We could be heroes
Many of these trusts have very long-term records of increasing their dividends.
Ten of the twenty appear on the AIC’s latest dividend heroes list, with between 36 and 53 years of consecutively rising payouts.
There is a big gap after that, though. Murray International is the next most consistent, with 15 years of rising dividends.
The remaining trusts all have a decade or less of consecutive increases.
Consistency is elusive
Many of these trusts have followed world market returns fairly closely. By that, I mean that their best two decades were the bull markets of the 1990s and 2010s, but they didn’t return that much in the 2000s.
Five trusts managed to beat global markets in all three decades: Scottish Mortgage, Monks, Bankers, JPMorgan Global Growth & Income, and F&C.
This demonstrates how hard it is to consistently beat the index, just in case anyone needed reminding!
Another thing that stood out to me was that despite long-term good performance, the recent performance of these trusts has been less impressive.
Nine of the ten returned less than global markets in the 2010s. And thirteen have underperformed in 2020, although that’s looking at less than five months (a highly eventful five months of course!)
Five trusts did worse on an absolute basis in the 2010s than they did in the bear-infested 2000s: RIT, AVI Global, Caledonia, Capital Gearing, and Hansa.
Hansa’s fall from grace has been by far the most spectacular, with returns dropping from 14.1% a year in the 2000s to 4.3%.
Hansa’s investment in the Brazilian shipping business, Ocean Wilsons, has been a key factor in its rise and fall. It was a major holding in 1999 (a high single-figure percentage) and then rose tenfold during the 2000s, eventually making up nearly 40% of Hansa’s net assets.
Ocean Wilsons’ share price has struggled for a long time. It’s lower now than it was at the end of 2009 although it still makes up more than 20% of Hansa’s assets.
Other trusts, like Personal Assets and Capital Gearing, have taken a very bearish view on equity valuations for ages and, as a result, kept large chunks of their portfolios in bonds.
Even though bonds have done well as global interest rates continued their decline, equities have done even better.
The likes of RIT, Caledonia, and Murray International have lagged as they have been underinvested in the US over the last decade. RIT and Murray have preferred Asia while Caledonia has a large UK weighting.
The 1990s were easy for investors
It’s easy to forget just how good stock market returns were in the 1990s.
The UK inflation rate averaged around 3% from 1992 to 2000, so real returns were in the order of 12% for world markets, roughly twice as high as the long-term average.
Mid Wynd, the worst performer from these twenty trusts in the 1990s, returned 12.6% a year!
In the 2000s, only one trust (Hansa) managed to beat that figure.
Of course, we need to be wary of reading too much into past performance. Nevertheless, I found these figures pretty enlightening.
Three of the trusts I hold personally (RIT, Caledonia, and Murray) have good long-term records but their returns over the last two decades have been remarkably similar. Maybe there is a case for me mixing things up a little more?
In some cases, as the managers and major shareholders of these trusts have got older, their outlooks have become ever more bearish.
There’s nothing wrong with that of course. I just need to decide if it fits in with the way I want to invest.
In terms of combining both good recent performance and good long-term performance, Scottish Mortgage, Mid Wynd, Monks, and Bankers are the standouts for me. Bankers is the only one I’m yet to review in detail, so that’s one for the ‘to do’ list.
The likes of F&C, Alliance, Brunner, and Witan have all had their moments in the past, but don’t really seem sufficiently differentiated to me right now.
Alliance and Witan have appointed a range of different managers to look after parts of their portfolio in recent years, but with mixed success, I think it’s fair to say.
AVI Global, Scottish Investment Trust, and Majedie do offer something a little different, albeit with more of an old-fashioned value approach. I’m not sure that appeals to me either.
Scottish American might be another global trust I’d consider, though.
Its performance has improved markedly since Baillie Gifford took over in 2004 and a couple of interviews with its managers that I’ve come across recently seem to tick the right boxes.
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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