What to do with a dud investment trust is a dilemma that we all face, and there is no easy answer. Sell and risk a dramatic recovery? Hold on and see poor performance continue? Double down and risk throwing good money after bad? Reduce and wish you had sold all?
Patience can pay off. Scottish Mortgage (LSE: SMT) went from the top of the table to the bottom, but is now at the top again over three years. Conversely, European Opportunities was the star of its sector but never recovered from the collapse of Wirecard, its largest investment, in 2020. It has since merged away.
If poor performance is the result of a sector, style or geography being out of favour, then a trust is usually worth sticking with. However, poor performance when there is no excuse, the manager has been inflexible or an investment thesis was flawed should be a reason to sell.
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Can dud investment trusts be turned around?
So which are the dud investment trusts now? In the global sector, Mid Wynd (LSE: MWY) – once a MoneyWeek favourite – moved from Artemis to Lazard three years ago. The subsequent performance of just 17% against 63% for the MSCI World index has been dreadful. Surely the board will move it again?
STS Global Income and Growth (LSE: STS), run by Troy, has returned only 16%. It excuses this under an avowedly defensive strategy, which has been wrong. Troy's wealth-preservation-focused Personal Assets (LSE: PNL) has performed little better, as have Ruffer (LSE: RICA) and Capital Gearing (LSE: CGT). Maybe the Great Bear Market is just around the corner but they have been waiting for it for years. They have made no secret of their bearishness so their investors are presumably happy with their strategy.
AVI Global (LSE: AGT) has also lagged (36% over three years), but this is a firmly value-orientated trust in a market that favours growth. It could easily return to the top of the table, especially if the 20% allocation to Korea – made on the strength of corporate reforms that mirror those in Japan – pays off spectacularly.
A bigger question mark hangs over Alliance Witan (LSE: ALW), up 38% over three years. It has selected 11 “elite” managers from around the world with “distinct but complementary” investment styles, each investing in “no more than 20 high conviction stocks”. The returns suggest this approach isn't working. Investors should think about switching to F&C (LSE: FCIT), which up 60%, or Monks (LSE: MNKS).
The income orientation of Scottish American (LSE: SAIN) – widely known as SAINTS – hardly fits the Baillie Gifford investment style, so its dismal performance (up 25% in three years) should not be a surprise. It boasts 52 consecutive years of dividend increases, all paid from income, but its shares still yield below 3%. It has missed strong recoveries in banking, oil and gas, and utilities, as these companies “have not much control” over their fortunes. Murray International (LSE: MYI), Invesco Global Equity Income (LSE: IGET) and JP Morgan Global Growth & Income (LSE: JGGI) have far out-performed it.
Give Nick Train the benefit of the doubt
In the oversupplied UK sectors, Finsbury Growth & Income (LSE: FGT) has dismal returns over three and five years, up just 6%, but it was a star performer for many years previously. Manager Nick Train has evolved but not changed his investment approach and tells a compelling story about the opportunities he sees. He deserves the benefit of the doubt.
BlackRock Smaller Companies (LSE: BRSC) has gone from near the top of the UK small-cap table to near the bottom in the last five years, while CT UK Capital & Income (LSE: CTUK) lags way behind the All-Share index over all time periods. There is no shortage of better UK trusts: take Murray Income (LSE: MUT), which has moved managers from Aberdeen to Artemis and is already showing improved performance.
In Europe, BlackRock Greater Europe (LSE: BRGE) is now the weakest performer over all time periods up to five years, though it performed very well in the 17 years from launch until then. The board is surely reading the Riot Act to BlackRock.
Pacific Assets (LSE: PAC), the laggard in Asia, is being absorbed by Schroder Asian Total Return (LSE: ATR). Yet Scottish Oriental (LSE: SST), formerly its sister trust, has an even worse record, although it was once a star performer. Aberdeen Asia Focus (LSE: AAS), which has returned 73% against SST's 8% over three years, is an obvious alternative.
Technology and resources trusts have been standout performers among sector specialists, although Herald (LSE: HRI) has been left way behind by focus on small caps. Those who supported the Battle Against Cancer Investment Trust (BACIT) and saw it change into Syncona (LSE: SYNC) – investing in biotech start-ups – will wonder if it is too late to sell, especially given the 35% discount. Probably not.
Pershing Square (LSE: PSH) has been dismal over one and three years but previous periods of poor performance have been followed by spectacular recoveries. The 33% discount to net asset value (NAV) is surely a severe embarrassment to founder Bill Ackman, so this might be one of those rare examples of poor returns providing an opportunity to add to holdings rather than a reason to sell.
Get free tickets for the AIC Company Showcase
The Association of Investment Companies (AIC) will host its annual Investment Company Showcase on Friday 9 October in London. The event – now in its fifth year – is an excellent opportunity to gain insights into more than 30 investment trusts covering regions including the UK, Europe, Japan, India and emerging markets, as well as sectors including real estate and infrastructure. Attendees will also get the chance to put questions to many of the managers in the exhibition area, meet hundreds of fellow investors and probably run into some MoneyWeek contributors. Presentations will be livestreamed for those unable to make it to London. Book tickets and use the code MW26 for free entry.
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