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Moving Apart

Moving Apart

Trustnet magazine, Issue 68, December 2020
Cherry Reynard

This year saw a stark divide between the winners and losers, but nowhere was this more apparent than the investment trust universe, writes Cherry Reynard

This year has been a tumultuous one and the investment trust industry has reflected its highs and lows.

Despite the challenging conditions, it managed to increase its assets to £209.3bn in 2020, up from £201.8bn in 2019. IPO activity was weak, with just £440m raised for new trusts during the year, but secondary fundraising was robust at £5bn. Average discounts dipped as low as 11.4 per cent in March, but were back up to 7 per cent at the end of December, only a little shy of long-term averages.

Beneath the surface

This relatively robust picture masked vast disparities between individual trusts, with more than 100 percentage points separating the best and worst performers in the IT Global sector alone. Investors focused firmly on: technology that enabled the world’s mass home-working experiment; Asia, which got a handle on the virus faster than anywhere else; and hedge funds. At the other extreme were the unloved markets of the UK and Latin America. Peter Walls, manager of the Unicorn Mastertrust, says the trend was clear: “If a trust was heavily into technology and weighted to the US, it did reasonably well, and if it wasn’t, it didn’t.”

This favoured certain fund groups and thematic trusts. James Carthew, head of investment trusts at QuotedData, says: “It was a fantastic year for the Baillie Gifford trusts – notably Scottish Mortgage, which holds Tesla, but also Pacific Horizon. Allianz Technology and Polar Capital Technology stood out, as did China trusts. Healthcare and biotech also performed well.”

More surprising was the strong performance from gold funds, which benefited from another cut in interest rates, while hedge fund Pershing Square rose on a bet against markets.

Breaking up is hard to do

At the opposite end of the table, it was a grim year for UK trusts. Thomas McMahon, senior analyst at Kepler, says: “As well as the impact of the pandemic, concerns about Brexit also weighed on the UK market.”

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