The investment trusts that proved reliant in face of market turmoil

When markets are reeling, it can be interesting, and potentially rewarding, to check the merits of actively managed funds bucking the trend. Several trusts among our cohort of 2018 Rated Funds are doing just that.

In the first quarter of 2018, the FTSE All-Share index shed 6.9 per cent and the FTSE World ex UK was down 4.2 per cent (in sterling terms). Although three months is a short period over which to monitor any outperformance, it is interesting to note that 51 of the 62 Rated trusts (highlighted in our statistics overleaf) for 2018 are performing better than the All-Share.

Several outperformers are not directly exposed to equities, such as the two UK property trusts F&C Commercial Property and Picton Property Income. Both are marginally in positive territory, but in the latter case this is due to a tightening in its discount to net asset value (NAV), putting the trust on a small premium, while Picton’s discount to NAV has slipped a little over the quarter.

Nonetheless, it is the dividend yield that investors are most interested in with these two, and this is a shade above 4 per cent. That is also true of two more income-oriented outperformers: the debt specialist TwentyFour Select Monthly Income and Bluefield Solar Income (both yielding more than 6 per cent). With interest rates on cash set to stay low and equity markets weak, all four trusts will continue to find support from yield hungry investors.

BlackRock Frontiers and Pantheon International, a private equity fund of funds, are also uncorrelated to mainstream equities. The BlackRock trust, which invests in very immature emerging markets, also has an income mandate. Despite its shares being quoted on a 4 per cent premium, its yield is still a healthy 3.1 per cent. The trust has a history of outperformance when mainstream markets are weak, and this time is no different.

-Shares are falling on the back of good news

Note also that despite a persistently high premium (currently 7.2 per cent), new investors continue to pay extra for the expertise behind Japanese smaller companies specialist Baillie Gifford Shin Nippon. It not only leads the performance pack over the quarter, but has an outstanding record over seven years, turning a £100 investment into £593.

Some valuations on this and other equity oriented trusts are looking a little rich in the current volatile markets. Nevertheless, increased interest in investment trusts over the past five years from private investors – who are more likely to stay the course than the institutional investors that once dominated trust registers – should provide some support to lofty valuations.

Should volatility in equity markets stay with us in 2018, don’t be surprised to see some of the more highly rated trusts – especially those that could be geared into falling markets – lose some of their share price lustre. 

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