One of my favourite pieces of investment trust research is the AIC’s millionaires list. It shows how much you would have had if, since April 1999, you had invested your full ISA allowance into the same trust each year and reinvested any dividends you received.
I like it because rather than just showing pure total return figures, it’s a better reflection of the way most of us invest, regularly putting away money each year come rain or shine.
Starting in 1999, it’s also a fairly close match for my own investing career.
And I’d much rather hold a trust for at least 10 years, rather than flicking back and forth between styles, so it also suits my sloth-like investment strategy.
For some reason, the latest version of this list isn’t on the AIC website so I’ve reproduced it in the table below:
Investment company ISA millionaires
|Investment company||AIC sector||% return|
Apr 99 to
31 Jan 21
|Biotech Growth||Biotech & Healthcare||2,321||£1,901,581|
|Allianz Technology||Technology & Media||1,713||£1,837,161|
|Pacific Horizon||Asia Pacific||3,348||£1,778,352|
|JPMorgan China G&I||China||2,561||£1,767,284|
|Edinburgh Worldwide||Global Smaller||958||£1,574,323|
|Polar Capital Technology||Technology & Media||1,314||£1,553,346|
|HgCapital Trust||Private Equity||2,605||£1,552,220|
|BlackRock Throgmorton||UK Smaller||1,490||£1,363,990|
|Baillie Gifford Shin Nippon||Japanese Smaller||1,286||£1,331,163|
|Worldwide Healthcare||Biotech & Healthcare||2,315||£1,311,467|
|BlackRock Smaller||UK Smaller||1,311||£1,256,713|
|International Biotechnology||Biotech & Healthcare||2,044||£1,246,089|
|Oryx International Growth||UK Smaller||988||£1,243,074|
|Montanaro European Smaller||European Smaller||1,111||£1,208,138|
|Aberdeen Standard Asia Focus||Asia Pacific Smaller||3,123||£1,198,211|
|Schroder Asia Pacific||Asia Pacific||1,531||£1,113,545|
|JPMorgan Smaller||UK Smaller||1,327||£1,110,979|
|JPMorgan Emerging Markets||Global Emerging Markets||1,608||£1,104,132|
|Standard Life UK Smaller||UK Smaller||693||£1,101,928|
|Rights & Issues||UK Smaller||1,549||£1,051,067|
|Aberdeen New Dawn||Asia Pacific||1,983||£1,049,646|
|Scottish Oriental Smaller||Asia Pacific Smaller||2,839||£1,043,496|
|JPMorgan Euro Smaller||European Smaller||1,687||£1,040,997|
|Invesco Asia||Asia Pacific||1,045||£1,027,966|
|JPMorgan US Smaller||N. American Smaller||1,216||£1,009,865|
The list comes with this very sensible warning:
Whilst it’s always fun to dream of becoming an ISA millionaire and have that ‘what if’ moment, it’s important not to put all your eggs in one basket. No one can tell which will be the best-performing investments in future and it’s important to have a diversified portfolio that suits your long-term needs.
What if indeed
It’s easy to gawp at big numbers like this, as Finumus warned us in his recent Monevator guest post on the individuals who have become ISA millionaires.
And I also have to get past my own ‘what if’ moment.
I owned four of these trusts in the late 90s and early Noughties but sold out to invest elsewhere (Pacific Horizon, Polar Capital Tech, Worldwide Healthcare, and Schroder Asia Pacific).
Although I only had a small amount invested in each, I suspect I would have built up my positions over time had I decided to keep hold of them.
I belatedly bought back into Worldwide Healthcare last year but own just over half the number of shares I sold way back in 1999!
To be fair to my younger impulsive self, I also sold half a dozen other trusts over this period which didn’t do nearly as well and therefore don’t appear on this list.
Putting the numbers in context
Had you invested your full ISA allowance each year since 1999 you would have put in a hardly insignificant total of £246,560. So these trusts have therefore at least quadrupled your imaginary contributions.
It’s also worth remembering that a lot of trusts haven’t been around long enough to be included in these calculations.
The list contains 28 trusts but according to the AIC’s statistics pages, only 110 of the 392 on its database have been around since April 1999.
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So we are missing all the alternative asset trusts and all but a handful of venture capital trusts and private equity trusts.
I think the only non-equity trusts that have been around long enough to be included are TR Property and City Merchants High Yield, although the former invests in property shares so you could say it’s kind of a hybrid.
[Update — Thanks to Jonathan in the comments below for reminding me of being wary of survivorship bias when looking at figures like these. The AIC notes there were 333 trusts in the year 2000 so the 28 trusts in this list represent less than 10% of the trusts in existence when ISAs began.]
Growth has an in-built advantage
The calculation method also favours trusts that had stronger returns in the 2010s than the 2000s as their gains would have mostly been made once more money had been invested.
You can see this from the list with Edinburgh Worldwide at nearly £1.6m from a 958% total return but Scottish Oriental Smaller with just over £1.0m despite a 2,839% total return.
So there’s a strong overlap between the best performers of the last 10 years and this list, particularly in the top half of the table.
What’s more, the ISA allowance was just £7k for the 2000s, jumping to £10k in 2010, £15k in 2014, and finally £20k in 2017. Again that rewards the late bloomers.
This all helps ‘growth’ trusts dominate the list. Despite the fact that the start point of 1999 works against them a little, being just a year before the dot-com crash, little money would have been invested when ‘value’ trusts were in the ascendence.
Finally, to put the total return figures in perspective, they vary from 10% a year (Standard Life UK Smaller’s 693%) to 17.5% a year (Pacific Horizon’s 3,348%).
And since April 1999, UK markets have returned about 175% (4.6% pa) and world markets in the region of 350% (7% pa). UK inflation has been around 80% (2.7% pa).
What’s worked best?
Rather than picking out individual trusts, I think lists like this are more useful when it comes to identifying broad themes that have worked well for a long period of time.
We then need to ask ourselves whether there’s a good reason to think these themes can continue to outperform.
Smaller companies have been the most dominant theme, with 13 out of the 28 trusts investing in the market’s tiddlers.
And there are small-cap representatives from each of the six sub-sectors: Global, the UK, North America, Europe, Japan, and Asia Pacific, suggesting this trend isn’t a regional one-off.
I’ve long been a fan of this sector and of the small-cap effect, so I think there’s good reason to think this is a trend with legs. I also think small caps, which tend to be more illiquid and less scrutinised by analysts, can work well within the structure of investment trusts.
Sector-wise, technology and biotech/healthcare are the two obvious winners.
However, sector specialisation is a minority sport for investment trusts with commodities the only other sector of notable size. The other three — financials, infrastructure securities, and environmental — are newer and more sparsely populated.
There are probably some other sectors — privatisation perhaps — that have disappeared over the last 20 years although it’s hard to see technology and healthcare going the same way, given their size relative to the wider market.
It’s a similar story when it comes to regional focus. Asia Pacific/Japan is the clear winner but then there are nearly twice as many trusts that focus on this region as those that specialise in the Americas and Europe combined.
Management firms of note
Baillie Gifford has five names on the list with three of those very near the top.
JPMorgan also has five, though, and Aberdeen Standard has three. The latter’s funds have struggled a bit of late but their focus on Asia has worked in their favour.
BlackRock and Orbimed have two apiece with the remainder made up of ten separate managers with one entry each.
Lindsell Train is notable by its absence however Lindsell Train Investment Trust just misses out as it was launched at the start of 2001 (it’s up around 1,900% since then).
Finsbury Growth & Income’s UK large-cap focus probably meant it didn’t quite make the £1m mark. I think Finsbury is up around 700% since Nick Train took over at the end of 2000.
Somewhat surprisingly around half of these trusts have changed management firms over the last two decades. These are the ones I found but I may have missed some less obvious changes:
- OrbiMed took over Biotech Growth in 2005.
- Baillie Gifford has run Edinburgh Worldwide since 2003.
- Among the tech trusts, Allianz has been in place since 2007 while Polar Capital took over in 2001 after the trust’s management team defected from Henderson.
- JPMorgan’s trusts came from its takeover of Fleming in 2001.
- BlackRock took on Throgmorton in 2008 in place of AXA. BlackRock Smaller Companies also came under its watch that year when BlackRock merged with Merrill Lynch.
- Aberdeen Standard has run Standard Life Smaller since 2003
- Montanaro took over Montanaro European Smaller Companies in 2006.
According to the Investment Trust Handbook, many of these trusts had the same managers for the whole 22-year period since ISAs were introduced:
- Simon Knott at Rights & Issues (since 1984)
- Katie Potts at Herald (1994)
- Austin Forey at JPMorgan Emerging Markets (1994)
- Hugh Young at Aberdeen Standard Asia Focus (1995)
- Matthew Dobbs at Schroder Asia Pacific (1996)
- Georgina Brittain at JPMorgan Smaller (1998)
- Francesco Conte at JPMorgan European Smaller (1998)
Six more managers at Scottish Mortgage, HGCapital, International Biotechnology, Standard Life UK Smaller, Biotech Growth, and JPMorgan China Growth & Income have served more than 15 years.
To underline the risk of choosing a long-tenured manager, two of them (James Anderson at Scottish Mortgage and Matthew Dobbs) have recently announced their retirement.
Again, you could say that this is a circular argument as the best managers are the ones most likely to keep their jobs. Perhaps we need to look for trusts where the managers have 10 years or more in charge but are still a decade or so away from normal retirement age?
But it’s good to see that three of the JPMorgan trusts have managers that predate its acquisition of Fleming and that have stuck around for 20 years afterwards.
I covered an earlier version of this list in a post two years ago and it’s useful to see what’s changed.
In short, quite a lot!
Only an additional £40k in ISA contributions has been added over this time but the range has gone from 19 trusts generating £700k to £1.07m to 28 trusts generating £1m to £2.5m.
That’s a big hike up and another reminder, although surely we don’t need one, of the power of compounding.
Only one trust broke the £1m barrier last time and now they are 28 in that camp.
Last year’s soaring tech sector has pushed all the trusts with this focus up the list whereas Asian trusts have mostly slipped down in the pecking order.
The best performer in the 2019 list — Aberdeen New Thai with £1.07m — doesn’t even make the top 28 this time around.
Other trusts to have departed due to lacklustre recent returns are TR Property, Acorn Income, BMO Global Smaller Companies, and Invesco Perpetual UK Smaller.
In true pop-pickers style, I should mention that Pacific Horizon, JPMorgan China G&I, and Edinburgh Worldwide are the highest new entries.
And JPMorgan had no trusts in the list last time while Baillie Gifford only had two. This demonstrates just how quickly these lists can change when you tweak the end points.
There are two ways to look at this, I think.
Two years is nothing in investment terms, so you could argue that the fact the list has changed so much means we should pay it little attention.
Or you could argue that it’s been such an unusual period, with returns varying much more than they would normally do. Therefore, we should focus on the fact the majority of the 2019 list is still present and that the main themes of smaller companies, tech, biotech/healthcare, and Asia continue to dominate.
The truth is probably somewhere in between. If this list is repeated in future years then how it evolves over time should also be illuminating and highlight the more consistent performers.
How open-ended fund compare since ISAs began
This study focused on total returns from 6 Apr 1999 to 15 March 2021 (a slightly later end-date) rather than the annual contribution method used by the AIC.
The top 10 open-ended funds returned between 1,358% and 3,513% with Marlborough Special Situations taking the top spot (this fund was run by the highly respected Giles Hargreave from 1998 up until the start of this year when he took up more of an advisory role).
Seven smaller company funds, two China funds, and a biotech specialist make up the top 10 so there are definitely some common themes with the list of closed-end funds.
The Trustnet article also contained this table looking at the performance of the average small-cap fund and the average all companies fund over the main regions:
Source: Financial Express
Again, it’s small caps that have delivered that extra oomph in all regions across the globe. The fact that Europe and North America are neck and neck over this long period is interesting, though.
The top 10 best-performing investment trusts ranged from 2,203% to 3,307% with Gresham House (more of an asset management firm I would have said) and Primary Health Properties the only entries in Khalaf’s study not included on the AIC’s ISA millionaire list.
Although the best-performing open-ended fund beat all the investment trusts, the second-placed open-ended fund generated 1,902% and wouldn’t have made it into the closed-end top 10.
It’s more anecdotal evidence that investment trusts tend to have the edge over their much better-marketed open-ended cousins.
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