These investment trusts have been crushing the FTSE 100

Jack Tang — Sun, 18 Mar 2018 12:00:36 +0000

Fund managers get a lot of flak for charging high fees yet also failing to deliver market-beating returns. But while many actively managed mutual funds trail the market, there are a few out there that have deservedly earned their fees after having outperformed the market’s performance for a number of years.

Top performer

The Finsbury Growth & Income Trust (LSE: FGT) is one of the best performing funds in the UK equity space, having delivered total net asset value (NAV) returns of 81% over the past five years. This compares favourably to the FTSE 100’s total return of just 36% in the same period.

Nick Train, who has been managing the fund since 2000, has achieved this success by investing in a concentrated portfolio of durable, cash generative businesses that are under-priced on its valuation analysis. With just 26 holdings altogether, he is able to keep portfolio turnover as low as possible, while keeping most of his exposure to his highest-conviction picks.

The fund’s five biggest positions are Diageo (9.5%), Unilever (8.9%), RELX (8.7%), London Stock Exchange (8.6%) and Hargreaves Lansdown (8%).

Concentration risk

A concentrated portfolio can be a double-edged sword though, as it can increase your exposure to a small number of winners but does this by reducing diversification, which can increase the overall risk level of the portfolio. It’s all fine when your best investments are doing well, but when things turn sour, you could suffer major losses even if just a few of your top positions implode.

There are countless examples of companies that have ended up in serious trouble, and even the best stocks can suffer huge losses, sometimes abruptly, taking overly concentrated investors down with them.

Contrarian investing

Fidelity Special Values (LSE: FSV) is another fund that has massively outperformed the FTSE 100. It’s an actively managed investment trust that aims to deliver attractive long term capital growth for investors by investing in unloved companies in sectors that are out of favour.

Over the past five years, the trust has beaten the FTSE 100 by a whopping 68 percentage points, after having achieved a cumulative performance of 104% — almost three times the Footsie’s return over the same period.

Long-term view

Alex Wright, who has been managing the fund’s portfolio since 2012, has demonstrated considerable skill in picking under-valued stocks. He’s a value contrarian investor who looks for companies which have potential for share price growth that has been overlooked by the market. Alex has a long-term investment view and only seeks to invest in companies where he understands the potential downside risk to limit the possibility of losses.

Alex’s portfolio typically has a heavy bias towards medium-sized and smaller companies, which is a major factor in the fund’s outperformance against the Footsie. In contrast, however, it is more diversified, with typically between 80-120 stocks held in the portfolio. It also has greater geographical diversification, with up to 20% invested in overseas stock markets.

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Jack Tang has no position in any shares mentioned. The Motley Fool UK owns shares of and has recommended Unilever. The Motley Fool UK has recommended Diageo, Hargreaves Lansdown, and RELX. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Two Footsie beating investment trusts I’d buy to supercharge my pension

Rupert Hargreaves — Wed, 18 Oct 2017 11:06:07 +0000

Investment trusts are one of the best instruments to help build your wealth. Even though trusts might be more expensive than index-tracking funds, they’re run by skilled managers, whose job it is to try to outperform the market.

Fidelity Special Values (LSE: FSV) is one such example. This trust is one of the market’s best performers. Since the beginning of the year, the shares have returned 24% excluding dividends. And even after this performance, Fidelity continues to trade at a discount to net asset value, which is around 261p (according to the most recently published net asset value report).

A focus on value

Fidelity is focused on value and the firm’s substantial weighting towards financial services businesses has helped it beat the market this year. The fund is not limited by nationality and has benefitted from the rally in US financial stocks during the past 12 months. Its current largest position is Citigroup at 5.7% of the portfolio, followed by UK dividend champion Royal Dutch Shell at 5.2%.

As well as the trust’s outperformance, the other attractive quality is its relatively low cost. With an annual management fee of 1.1%, the fund is at the top end of what I would call “appropriately priced,” but the returns achieved over the past five years more than justify the higher fee.

Since the end of 2014, Fidelity has delivered a total return for investors of 144%, outperforming its benchmark, the UK All Companies Index by nearly 100%. The index has returned 75% over the same period.

With a dividend yield of 1.8% as well, significantly more than the average rate on offer at high street bank savings accounts, Fidelity looks to me to be a great addition to my retirement portfolio.

International value

The British Empire Trust (LSE: BTEM) has a much broader mandate than Fidelity, and this is one of the reasons why the fund looks attractive to me.

British Empire is a global investor, looking for undervalued companies all over the world. Only 1% of its portfolio is allocated to UK equities. Some 32% is allocated to European stocks, 20% is allocated to North American equities, and the remainder to Asian and other international stocks. Over the past five years, the fund has produced a return of 79% for investors, outperforming the FTSE 100 by 38% over the period excluding dividends.

Despite these gains, the shares trade nearly 11% below British Empire’s net asset value of 805p.

Another positive about the trust is its low management fee. The fee is 0.9% per year, 0.2% below that of Fidelity, although the performance gap explains the difference (British Empire’s dividend yield is also lower at 1.6%). Still, for exposure to international markets, with a proven management team, it seems that you can’t go wrong with the Empire trust.

As a way to benefit from global growth and protect my portfolio from Brexit, this trust seems to me to be worthy of further investigation.

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