Investigating investment trust performance AIC Seminar Knutsford 11 June Nick Britton Head of Training AIC

Transcription

1 Investigating investment trust performance AIC Seminar Knutsford 11 June 2015 Nick Britton Head of Training AIC

2 Comparing well over the long term Return on 100 Average investment trust Average openended fund 1 year 3 years 5 years 10 years 20 years Source: Morningstar (share price total return on 100 to end of April 2015)

3 Where have trusts beaten funds? Source: Canaccord Genuity (to 31/3/2015)

4 How much outperformance? 250 sectors where investment trusts outperformed Outperformance of ITs, % points year 5 years 10 years sectors where open-ended funds outperformed Source: Canaccord Genuity (to 31/3/2015)

5 Apples vs apples

6 Out of 18 pairs of sister funds with the same manager/mandate: 2 open-ended funds outperformed compared with 16 investment trusts Source: FE Trustnet/Morningstar/AIC (NAV total returns in five years to 31/5/15, based on original research in 2013 by Canaccord Genuity)

7 Sister funds Difference in % points, past five years Fund outperforming investment trust Investment trust outperforming fund Source: FE Trustnet/Morningstar/AIC (NAV total returns in five years to 31/5/15, based on original research in 2013 by Canaccord Genuity)

8 How have they done it (and is it repeatable?) Discounts narrowing? Gearing? Closed-ended structure?

9 Discounts narrowing

10 Yes, discounts have narrowed Why? Source: Morningstar (ex VCTs)

11 A typical buy-back policy Investment trust buys back own shares at a discount Shares are cancelled Increase in NAV/share (& hopefully share price)

12 These policies are now common Buy-back policy No buy-back policy Source: AIC (ex VCTs), 5/6/15

13 The effect of buy-backs buy-backs start December 2008 Source: Morningstar (ex VCTs)

14 Gearing

15 A highly geared investment trust Historic gearing: 22/10

16 Average industry gearing since Source: AIC (members only, ex VCTs). Gearing expressed as %. This measure of gearing not in use pre-2010.

17 Trusts take advantage of cheap debt Fund Date Value Maturity Interest Bankers IT May-15 50m 20 years 3.68% RIT Capital Partners May m 16 years* 3.45%* Witan Apr-15 21m 20 years 3.29% Witan Apr-15 54m 30 years 3.47% Alliance Trust Jun m 15 years 4.28% Perpetual Income & Growth Mar-14 60m 15 years 4.37% City of London Dec-13 35m 15 years 4.53% Temple Bar Sep-13 50m 15 years 4.05% Note: * weighted average of three private placement notes, with terms of 10, 15 and 20 yrs and fixed rates between 3.0% and 3.56%. Source: Company & Numis Securities Research (19/5/15)

18 Closed-ended structure

19 Closed-ended structure: a recap Manager does not have to redeem units, or create them on demand so no inflows and outflows Instead, there is a fixed pool of assets to manage within a quoted company structure Shares are traded on secondary market (stock exchange)

20 Open-ended Closed-ended Inflows Company Assets Assets Cash Assets Outflows

21 Closed-ended structure 1. Eliminates cash drag

22 Closed-ended structure 2. Avoids forced buying/selling Net retail sales, open-ended UK equity funds ( bn)

23 Closed-ended structure 3. Keeps funds a manageable size Biggest equity funds bn Invesco Perpetual High Inc 12.9 M&G Global Dividend 8.3 First State Asia Pacific Ldrs 8.3 Templeton Asian Growth 7.4 Artemis Income 7.3 Invesco Perpetual Inc 6.7 CF Woodford Equity Inc 5.7 Biggest equity invt trusts bn Scottish Mortgage 3.9 Alliance Trust 3.6 Foreign & Colonial 3.0 RIT Capital Partners 2.6 Mercantile 2.3 Templeton Emerging Mkts 2.0 Witan 1.9 Source: FE Trustnet/AIC (based on total assets) latest available figures as of 29/5/15.

24 Closed-ended structure 3. Keeps funds a manageable size Miton UK Micro Cap, 50m Fundsmith Emerging Equities, 193m Woodford Patient Capital, 800m

25 Closed-ended structure 4. Permits investment in illiquid assets [We] continually came across high conviction offerings, but just not suitable for daily liquidity funds frustrating! By adopting a closed-ended vehicle we could take advantage of the liquidity premium, without reducing credit quality. - Gary Kirk, co-manager of TwentyFour Select Monthly Income

26 Closed-ended structure 4. Permits investment in illiquid assets First State Global Listed Infrastructure (open-ended) % National Grid 4.9 Transurban Group 4.6 Duke Energy 4.6 vs HICL Infrastructure (investment trust) Home Office Accommodation Queen Alexandra Hospital % Allenby & Connaught 5.1 Source: Top holdings data from fund factsheets/company reports (30/4/15, 31/3/15)

27 How have they done it (and is it repeatable?) Discounts narrowing? Gearing? Closed-ended structure?

28 Skin in the game 155m 20m 25m 6m 3m Source: Canaccord Genuity using Morningstar (10/12/14)

29 Help yourself

30 Disclaimer Any information contained in this presentation has been prepared for information purposes only. Whilst the AIC / AIC Information Services Limited has taken all reasonable steps to verify such information, it does not accept responsibility for any errors or omissions or for losses of any nature incurred by any person howsoever caused. The information contained in this presentation does not constitute investment advice or personal recommendation and it is not an invitation or inducement to engage in investment activity. You should seek independent financial and, if appropriate, legal advice as to the suitability of any investment decision. This presentation may not be printed, reproduced or further distributed to any other person or published, in whole or in part, for any purpose. Please refer to for further information relating to our disclaimer policy. The Association of Investment Companies (AIC) is a company limited by guarantee whose registered office is 9th Floor, 24 Chiswell Street, London. EC1Y 4YY. Its trading and registered office addresses are identical. The AIC is a company registered in England and Wales and its company registration no. is The AIC is registered for VAT and its registration no. is AIC Information Services Limited is a company registered in England and Wales with registration no

31 How to find out more - Register as a financial adviser on the AIC website to access all our training and data - Subscribe to monthly Spotlight e-newsletter - Follow us - Connect with me on Linkedin - Call me on me at nick.britton@theaic.co.uk

32 Other useful information sources Morningstar Financial Express / Investegate Research from brokers Citywire Quoted Data Management group websites