I’ve been investing, in some shape or form, for over three decades now and I don’t think any year has been as remarkable as 2020.
There’s a lot of recency bias at play, no doubt, but have we ever seen two such extremes in share prices, with both massive gains and massive losses?
Crises of markets past
I was in nappies during the savage market crash of the early 1970s, which sounds like it was a distinct advantage.
And I don’t recall much about the crash of 1987 either. I was holding a collection of the standard privatisation shares at the time — namely British Gas, British Telecom, and BAA.
Back then I just collected my dividends twice a year and probably checked their share prices about as often.
In the mid-90s I became a much more active investor but I don’t remember much of a split market during the Asian Crisis of 1997-98.
Return information was harder to get hold of in those days with the Internet in its infancy. I think the most up-to-date information I got back then as a private investor was via Ceefax, which provided selected share price updates every couple of hours.
The bear market of 2000-3 did see a noticeable split, if I recall, with technology and biotech being trashed and traditional ‘value’ shares doing pretty well. However, that was a much more drawn-out process compared to 2020.
The global financial crisis of 2007/08 knocked everything down but financials were the hardest hit and in many cases have never recovered.
I’m still amazed to see banks like Lloyds trading at much the same share price now that they did in March 2009, which was the nadir for global markets.
Around the world
That’s enough nostalgia, though.
For context, as I write this, global markets are up around 10% for the year in sterling terms with dividends reinvested (what’s left of them, anyway).
Remarkably, most major markets are now positive for this year.
Europe as a whole is flat but ahead if you exclude the UK.
The US is up 15%, China up 30%, and Japan up 9%.
The UK is down some 13%. Only Russia (down 20%) and Brazil (30%) have fared worse.
How trusts have done
It’s a decidedly mixed picture for the investment trust sector.
The AIC’s excellent interactive statistics resource tells me the average trust is up 15% over the last year. Take off a few per cent for the rally at the tail end of 2019 and let’s call it 10% for so far in 2020. That’s much the same return as world markets.
However, this is a market-cap weighted average and the fact that many of the biggest trusts, like Scottish Mortgage, have had a bumper year makes a huge difference.
When you look at a straightforward average then the investment trust sector has actually lost 3% so far in 2020. There are 146 trusts in positive territory but 196 underwater. Only about 80 trusts would have beaten a global tracker.
Drilling down into the individual sectors reveals why many individual trusts have struggled.
There are 65 companies in the various UK equity sectors, making up about a fifth of all investment trusts. However, their collective market cap of £17.5bn is only a tiny bit larger than Scottish Mortgage’s £15bn. That certainly surprised me.
There are around 40 property-related trusts, most of which are focused on the UK and that have seen their share prices slump this year.
Debt trusts (about 30 in total) have also been a tough place to make money.
However, add the property and debt sectors together and they only amount to £17.5bn, the same as all the UK trusts.
To put it another way, the market cap gain of Scottish Mortgage so far in 2020 pretty much cancels out all the losses made by the 130 odd trusts in the UK, property and debt sectors.
This year’s top 20 gainers
Here are the best-performing investment trusts as of 16 November:
|Investment trust||2020 YTD|
|Baillie Gifford US Growth Trust||90.0|
|JPMorgan China Growth & Income||85.4|
|Fidelity China Special Situations||68.6|
|Golden Prospect Precious Metals||66.7|
|Baillie Gifford European Growth||56.8|
|Baillie Gifford China Growth||55.5|
|JP Morgan Japanese||51.9|
|Baillie Gifford Shin Nippon||47.1|
|Polar Capital Technology||37.8|
|Montanaro European Smaller Companies||32.9|
Asia (especially China), tech and biotech are the three themes running through most of these winners. That’s no real surprise to most folks I suspect.
Golden Prospect deserves a mention for leading the commodity sector this year. As the name suggests, it specialises in gold and precious metals miners.
When the gold price surged through $2,000 in the summer, this trust was up 135% for the year but it’s slipped back somewhat since. Despite its gains, it still sits on a discount to net assets of 25%.
Hedge fund Pershing Square, run by Bill Ackman, is another one-off on the list. It rose 50% in 2019 and has repeated the feat, more or less, in 2020.
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Ackman bet that markets would fall when the pandemic began but has profited from the recovery since as well. With a market cap of around £6bn, it’s the third-largest trust after Scottish Mortgage and 3i.
Baillie Gifford’s incredible year
JPMorgan has three trusts in this top twenty, which is admirable, but Baillie Gifford accounts for eight.
As well as the trusts that carry its name, Baillie Gifford also runs top-performer Pacific Horizon, Scottish Mortgage, Edinburgh Worldwide, and Monks.
Baillie Gifford’s open-ended funds have also done exceptionally well as many of them mirror the strategies used by its investment trusts. Of its 23 open-ended equity funds, 22 have enjoyed a positive return this year.
Old trusts, big trusts
Another notable theme across this top twenty is that many of them are of significant size and have been around for a long time.
Golden Prospect is the smallest at £30m but the next smallest are Augmentum Fintech (£190m), Montanaro European (£250m), Baillie Gifford China Growth (£260m), and International Biotechnology (£320m).
After that, we’re up to around £500m, which is the level many commentators regard as the minimum necessary to attract interest from wealth managers and give a trust a better chance of long-term viability.
Eight of the top twenty now have a market cap in excess of £1bn so should have no worries on that front.
Most of these trusts have been around for at least a decade. And where they haven’t, you can sort of trace back their history back a bit further.
Baillie Gifford US Growth joined the market in 2018 but seems closely linked in style terms to the open-ended Baillie Gifford American fund, which is now over twenty years old.
Pershing Square IPO’d in 2014 but it existed as a limited company for a long time prior to that.
Augmentum Fintech was another 2018 newbie but started life as a partnership in 2009 with RIT Capital Partners as the sole investor.
Even in sectors that have struggled this year, there have been some notable winners.
Triple Point Social Housing REIT and Aberdeen Standard European Logistics Income in the property sector are both up 28%.
RDLZ Realisation, a debt trust in the process of winding down, is up by the same amount.
Private equity trusts have seen their discounts widen this year with investors trying to get ahead of potential falls in their net asset values. But HgCapital has still been able to make headway, with its tech focus seeing its shares rise 21%.
Impax Environmental Markets, now valued at over £1bn, has had another good year, recording a 27% gain. Although we have a rash of renewable energy infrastructure trusts, few managers seem to want to focus on equities in this area.
Emerging markets have had to play second fiddle to developed markets for a long time now. However, thanks to Asia’s good performance this year, they have kept up pretty well.
The more established emerging market trusts have seen some nice increases and new-ish trusts that have struggled have been among the best performers.
Fundsmith Emerging Equities is up 17% after its portfolio was streamlined and Terry Smith trimmed his involvement.
Mobius Investment Trust has risen 19% although that only takes its back to its IPO price of late 2018.
Nick Train has had a difficult year, by his own admission and by his very high historical standards.
Lindsell Train Investment Trust is up 12% with its 10-year return slumping to a mere 620%. It’s still the fifth best-performing trust of the last decade. UK-focused Finsbury Growth & Income is down 2%.
Those with a year to forget
The two trusts that used to be run by Woodford protege Mark Barnett have come back a bit now they are under new management.
Perpetual Income & Growth, which has been formally merged with Murray Income since I collected all these numbers, was down 19%. Edinburgh Investment Trust, now run by Majedie, was 12% in the red.
The old Woodford Patient Capital Trust, now Schroder UK Public Private, had a brief recovery at the end of 2019 but it’s down 28% this year and still sits at a 40%+ discount. I suspect it’s going to be a while longer before we know whether this trust can urned around or not.
And Temple Bar, a well-known UK equity income trust that also changed its manager this year, is down around 35%. But it was down 60% at one point in March.
The three worst-performing trusts of 2020 have been propping up the performance tables for some time.
JZ Capital Partners, an illogical mix of US property and micro-caps, has had difficulty with its sums and has fallen 72%.
KKV Secured Loan, a high-yield leasing trust that provides various types of plant and equipment to a wide range of industries, has fared even worse. It’s changed both its name and manager while its shares have slumped 82%.
Worst of all, though, is the aircraft leasing trust DP Aircraft I. It’s a tenth-bagger with a loss of 92%. It owns a single aircraft whereas other trusts of this type usually own several (these other aircraft leasing trusts have fallen in price this year as well but not quite as dramatically).
Many commentators have highlighted the fact that the pandemic has accelerated trends that were already underway.
And that seems to be true for investment trusts as well. The top 20 list for this year almost looks like one that covers a five-year period, such are the size of the gains.
I think 2021 could be an equally fascinating year for stock market nerds like myself.
Can the tech titans and disruptors continue to forge ahead now that widespread vaccine relief could be just a few months away?
Will the UK finally enjoy a long-overdue day in the sun once the final shape of Brexit is revealed?
And will we see beaten-down trust sectors rally due to waves of consolidation that narrow their discounts?
All of the above could even be true but I think I’ll leave precise forecasts to other folks.
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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