Investment trusts in 2015: which returned 50pc for investors?

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Investment trusts backing the world's small companies were the big winners in 2015, although an exotic minnow buying Indian real estate is ending the year as the best performer oversall.

Three of the five the best performing sectors were for trusts specialising in small companies – in Japan, Europe and the UK. The other two spots taken by the wider Japan sector and UK All Companies.

According to the latest figures from the Association of Investment Companies (AIC), the stand out performer among mainstream trusts was Lindsell Train, which invests globally and returned 56.4pc for anyone buying its shares at the start of the year.

Lindsell Train has a wide mandate. Managed by Nick Train the trust invests in global shares of all sizes. Favoured shares include AG Barr, the maker of soft drink Irn-Bru. Another is Nintendo, the game maker behind Super Mario Bros.

Anyone thinking of buying now has to consider the premium, which is extremely high at 38pc. Investors who buy today will be paying this amount more than the underlying assets of the portfolio are worth.

It is not at the top of charts, however, and the chances are that not a single British investor took a punt at the start of the year on the trust in number one position.

Yatra Capital is a highly specialist trust invests imainly in Inidan residential developments. It has made share price gains of 56pc in 2015, according to the AIC numbers.

But the reason for the share price rise is not down to a property boom taking place in India. Instead, the trust is in the process of selling down its property investments and then returning cash to shareholders, and this has greatly influenced the price.

It had been trading at a huge discount of 46pc a year ago, but this has fallen as investors have been able to withdraw money. Investment trust analysts warn investors to steer clear, though, describing the trust as “illiquid” and “far too exotic” to buy.

The rest of the top ten

Other top performers for the year are more mainstream, with funds that shop for smaller company shares dominating.

Three of the five top performing sectors, listed below, invest in smaller companies. The figure stated is for the average fund in each sector.

  1. Japanese Smaller Companies 24.6pc
  2. European Smaller Companies 21.1pc
  3. Japan 20.6pc
  4. UK Smaller Companies 18.1pc
  5. UK All Companies 15.1pc
Trust name Sector Return
Yatra Capital Property Direct – Asia Pacific 56.4%
Lindsell Train Global 52.5%
SVM UK Emerging Fund UK Smaller Companies 42.6%
Oryx International Growth Global Smaller Companies 42.3%
Northern Investors Company Private Equity 38.8%
Baillie Gifford Shin Nippon Japanese Smaller Companies 35.6%
JPMorgan MidCap UK All Companies 33.5%
British & American UK Equity Income 31.6%
JPMorgan European Smaller Companies European Smaller Companies 29.2%
Standard Life UK Smaller Companies UK Smaller Companies 28.4%

Source: AIC. Based on share price total return from January 1 to November 30.

The worst performers

At the bottom end of the table are funds that mainly invest in commodities. The plunging oil and gold price has soured returns.

Thankfully, given their specialist nature, most investors will have avoided these names, or only have a small amount of exposure.

Trust name Sector Loss
Alpha Pyrenees Trust Property Direct – Europe -89.2%
Global Resources Sector Specialist: Commodities & Natural Resources -73.4%
Candover Private Equity -46.6%
Geiger Counter Sector Specialist: Commodities & Natural Resources -44.7%
Better Capital 2012 Private Equity -43.9%
Baker Steel Resources Sector Specialist: Commodities & Natural Resources -41.7%
New City Energy Sector Specialist: Commodities & Natural Resources -37.7%
Global Fixed Income Realisation Hedge Funds -37.1%
JPMorgan Brazil Country Specialists: Latin America -35.5%
Macau Property Opportunities Property Direct – Asia Pacific -33%

Source: AIC. Based on share price total return from January 1 to November 30.

Why does an investment trust trade on a discount or premium?

Since an investment trust is a company in its own right, investors simply buy shares at the prevailing price.

This price is more or less based on the underlying assets bought by the management team but varies with demand. If an investment trust is popular, it will trade on a premium, meaning investors are effectively paying more than the underlying assets are worth.

An investment trust that trades on a discount gives investors the chance to buy shares at a bargain price.

What else makes an investment trust different from a unit trust or Oeic?

Investment trusts have several characteristics that set them apart from unit trusts.

One of the main differences is that investment trusts can borrow money against the assets the portfolio owns. This practice, known as "gearing", is used when the fund manager is confident about beating the stock market because it tends to enhance any gains.

But if the fund manager gets it wrong and his holdings fall in value, the losses will be exacerbated.

Dividend reserves are another advantage in an investment trust's armoury. This allows companies to tuck away 15pc of their income for a rainy day, which is why investment trusts tend to produce superior dividend growth in the long run, ahead of unit trusts, which do not have this luxury.

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