Page 26 - DIY Investor Magazine - Issue 26

THE BEST PERFORMING INVESTMENT TRUSTS OF 2020
I’ve been investing for over three decades and I don’t think any year has been as remarkable as 2020; there may be a lot of recency bias at play, 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 a distinct advantage.
I don’t recall much about the crash of 1987 either; I was holding a collection of the standard privatisation shares at the time — British Gas, British Telecom, and BAA – and collected my dividends twice a year and checked their share prices about as often.
In the mid-90s I became a much more active investor but don’t remember much of a split market during the Asian Crisis of 1997-98.
With the Internet in its infancy, Information was harder to get hold of then; the most up-to-date information I got as a private investor was via Ceefax, which provided selected share price updates every couple of hours.
I recall the bear market of 2000-3 saw a noticeable split, with technology and biotech being trashed and traditional ‘value’ shares doing pretty well; but 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; some banks like Lloyds trade at much the same share price now that they did in March 2009, the nadir for global markets.
AROUND THE WORLD
Enough nostalgia; as I write, global markets are up around 10% for the year in sterling terms with dividends reinvested (what’s left of them).
Remarkably, most major markets are now positive for this year; Europe as a whole is flat but ahead if you exclude the UK, US is up 15%, China up 30%, and Japan up 9%.
The UK is down 13%; only Russia (down 20%) and Brazil (30%) have fared worse.
HOW TRUSTS HAVE DONE
It’s a 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% so far in 2020, much the same return as world markets.
However, this is a market-cap weighted average; the fact that many of the biggest trusts, like Scottish Mortgage, have had a bumper year makes a huge difference.
A straightforward average shows the investment trust sector has actually lost 3% so far in 2020 - 146 trusts are in positive territory but 196 underwater; only about 80 would have beaten a global tracker. Drilling down into individual sectors reveals why many individual trusts have struggled.
The 65 companies in the various UK equity sectors make up about a fifth of all investment trusts, but their collective market cap of £17.5bn is only a bit larger than Scottish Mortgage’s £15bn; that surprised me.
There are around 40 property-related trusts, most focused
on the UK, that have seen their share prices slump this year; debt trusts (around 30) have also been a tough place to make money and added together the property and debt sectors only amount to £17.5bn. Put another way, the market cap gain of Scottish Mortgage in 2020 pretty much cancels out all the losses made by the 130-odd trusts in the UK, property and debt sectors.
DIY Investor Magazine | Dec 2020 26