Investigating investment trust performance AIC Seminar London 30 September Nick Britton Head of Training AIC

Transcription

1 Investigating investment trust performance AIC Seminar London 30 September 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 August 2015)

3 Where have trusts beaten funds? 1 year 5 years 10 years Sectors Investment Trusts OEIC/ Unit trusts Investment Trusts OEIC/ Unit trusts Investment Trusts OEIC/ Unit trusts Global Global Equity Income UK Equity Income UK All Companies North American Europe vs. Europe ex UK Global Emerging AsiaPacific ex Japan Japan Property UK SmallCap Japanese SmallCap TMT European SmallCap North American Smallers Source: Canaccord Genuity (to 30/6/2015)

4 Where have trusts beaten funds? (2) Outperformance of ICs, % points sectors where investment trusts outperformed 1 year 5 years 10 years sectors where open-ended funds outperformed Source: Canaccord Genuity (to 30/6/2015)

5 Sister funds

6 Out of 19 pairs of sister funds: 3 open-ended funds outperformed over 10 years compared with 16 investment trusts Source: Morningstar (NAV total returns in ten years to 30/6/15)

7 Sister funds Fund outperforming investment trust Investment trust outperforming fund Diff in NAV return over 10 years (% points) Average outperformance = 29% Source: Morningstar (NAV total returns in ten years to 30/6/15)

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

9 Discounts narrowing

10 Yes, discounts have narrowed Average industry discount ex VCTs (%) Source: Morningstar (to 30/6/15)

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 Scottish Mortgage FTSE All Share Source: Morningstar (to 1/9/15)

16 Average industry gearing since Average industry gearing (%) Source: AIC using Morningstar (ex VCTs). 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 Open-ended fund Closed-ended fund units created, fund gets bigger units cancelled, fund gets smaller shares are traded, fund size not affected

20 So, how might that affect performance? 1. Cash drag eliminated

21 So, how might that affect performance? 2. No forced buying/selling at bad times Net retail sales, open-ended UK equity funds ( bn)

22 So, how might that affect performance? 3. Fund size easier to manage

23 So, how might that affect performance? 3. Fund size easier to manage

24 So, how might that affect performance? 4. Illiquid assets can be included

25 So, how might that affect performance? 4. Illiquid assets can be included [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 So, how might that affect performance? 5. Transaction costs may be lower Investor buys units Fund sells shares Fund buys shares Investor sells units

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 For long-term capital growth For reliable income For diversification

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 Data providers: Morningstar, Financial Express Brokers: Canaccord Genuity, Cantor Fitzgerald, Charles Stanley, JPMorgan Cazenove, Numis, Stifel, Winterfloods Other analysis/research: Edison, Rayner Spencer Mills, Quoted Data News sources: Citywire, FT Adviser, Investment Week Management group websites