Interactive Investor

The funds and trusts investors have cold-shouldered in 2022

14th December 2022 11:48

by Kyle Caldwell from interactive investor

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Research by interactive investor reveals the funds and investment trusts that have slipped down the most-bought popularity rankings over the past year. 

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Growth-focused strategies have seen their performance come under pressure in 2022, with high inflation and interest rate rises devaluing the future earnings of such businesses.

Having enjoyed the tailwind of loose monetary policy for more than a decade, the challenging backdrop for growth funds and investment trusts has not gone unnoticed by investors. In response, growth mandates have become less popular, with investors turning to dividend-paying strategies to receive some ‘jam today’.

In this article, we look at which funds and investment trusts have slipped down the most-bought popularity rankings over the past year. We examined the top 20 most-bought funds and trusts for 2021 among interactive investor customers, and compared them with the first 11 months of 2022.  

In total, nine of the most-popular funds in 2021 exited the top 20 this year, and nine investment trusts. Below, we examine the names. 

The funds falling out of favour

Five of the nine funds that have left the top 20 are run by Baillie Gifford. The biggest faller in the rankings is Baillie Gifford Global Discovery, which was the sixth most-bought fund in 2021. It is managed by Douglas Brodie, who is also in charge of Edinburgh Worldwide LSE:EWI) investment trust.

Both the fund and trust invest in global smaller companies, with Brodie explaining that he seeks to “invest in companies that offer significant growth prospects with an emphasis on companies operating in industries with potential for structural change and innovation”.

A notable difference between the fund and trust, is that Edinburgh Worldwide has exposure to unlisted stocks, accounting for around 20% of assets.  

Both Baillie Gifford Global Discovery and Edinburgh Worldwide have posted heavy losses over the past year (to 8 December), down 37.8% and 42.6%. Such sharp declines have proved damaging to their long-term performances. Over five years Ballie Gifford Global Discovery has returned 18.4% versus a gain of 42% for the average global fund. For the same time period, Edinburgh Worldwide is up 26.3% against 33.5% for the average global trust.

The four other Baillie Gifford strategies no longer among the top 20 most-bought funds have also posted notable one-year losses. They are: Baillie Gifford China, Baillie Gifford Pacific, Baillie Gifford Managed and Baillie Gifford Long Term Global Growth Investment.

The same is true for the other four non-Baillie Gifford funds; they departed the top 20 as their performances came off the boil over the past year.

Marlborough Nano Cap Growth, Chelverton UK Equity Growth and IFSL Marlborough UK Micro Cap Growh have all also seen performance suffer in 2022, due to investing in UK smaller companies. When investors are cautious, there’s less appetite to own small-sized shares.  

Blue Whale Growth has also had a tough year of performance, down 25.4%. Over the past five years, the fund has outperformed the 42% gain for the average fund, returning 55.6%. However, its five-year returns are now similar to the MSCI World Index. The fund invests in high-quality growth businesses, which have been punished by the market this year.

Stephen Yiu, fund manager of Blue Whale Growth Fund, is confident the short-term pain will prove temporary. Speaking to interactive investor, Yiu said: “I think this year's performance has been quite disappointing from our perspective. But to put it in context, I think out of the five years that we've been running the fund, the first four years were very good and then this year has been very disappointing.

“Of course, if you marry the level of underperformance this year, then it has probably eaten away a lot of the outperformance that we generated in the first four years.

“But I would probably categorise this year as an [abnormal] year because of the interest rate cycle going up quite quickly...on the back of high inflation, [and] the Ukraine crisis. And I would see this year as a bit similar to the pandemic year, [in] that [it] is probably not a repeatable year.

If our investors can take a medium-term view, I think they are very well positioned from here [and] we should be able to recover quite a lot of the losses in the next coming years.

How 2021s most-popular funds rank in 2022 

FundRanking in 2021Ranking in first 11 months of 2022
Fundsmith Equity11
Vanguard LifeStrategy 80% Equity22
Baillie Gifford Positive Change311
Baillie Gifford American48
Vanguard LifeStrategy 60% Equity54
Baillie Gifford Global Discovery6Below the top 20
Vanguard LifeStrategy 100% Equity73
Vanguard US Equity Index85
L&G Global Technology Index97
Baillie Gifford China10Below the top 20
Baillie Gifford Pacific11Below the top 20
Rathbone Global Opportunities1216
Baillie Gifford Managed13Below the top 20
Vanguard FTSE Global All Cap Index146
Vanguard FTSE Developed World ex-UK Equity Index159
Blue Whale Growth16Below the top 20
Marlborough Nano Cap Growth17Below the top 20
Baillie Gifford Long Term Global Growth Investment18Below the top 20
Chelverton UK Equity Growth19Below the top 20
Marlborough UK Micro Cap Growth20Below the top 20

Source: interactive investor. 2022 data is to the end of November. 

The trusts taking a tumble down the rankings

The first of three Baillie-Gifford managed investment trusts no longer in the top 20 is Monks (LSE:MNKS). The trust, overseen by Spencer Adair and Malcolm MacColl, invests in high-growth global shares. Summarising the investment approach, MacColl says Monks is “drawn to businesses addressing a particular ‘crisis’ in a novel manner, which can help to reduce costs and/or produce a radically improved quality of service”.

Monks is viewed as a less aggressive version of Scottish Mortgage (LSE:SMT), also run by Baillie Gifford. However, this has not deterred investors from sticking by Scottish Mortgage, which remains the most-popular trust among interactive investor customers. In contrast, Monks, which was the fifth most-popular trust in 2021, has fallen out of the top 20.

Over the past year, Monks has lost 30% versus a bigger decline of 47.7% for Scottish Mortgage. Monks recently completed its merger with UK equity-focused Independent Investment Trust, which has boosted its assets by £173 million. Monks’ market capitalisation is now just over £2.3 billion.

The other two trusts from the Baillie Gifford stable to fall out of the top 20 are Baillie Gifford US Growth (LSE:USA) and Pacific Horizon (LSE:PHI).

Baillie Gifford US Growth has substantial holdings, which can represent up to 50% of the portfolio at the time of investment, in unlisted companies, on the grounds that many companies in the US these days remain private for longer before seeking a listing on public stock markets. Its high-growth approach has struggled in 2022, with the trust down 52.2%.

Pacific Horizon, which seeks to find high growth in the world’s fastest-growing economies, has similarly struggled, down 34.2%.

The performance of both Pacific Horizon and Baillie Gifford US Growth was turbocharged when economies shut during the Covid-19 pandemic, due to their exposure to technology firms or companies with strong online operations. This boosted the popularity of both trusts. However, in 2022 their popularity waned as performance took a turn for the worse.

Two other investment trusts among the Covid-19 winners were Fidelity China Special Situations (LSE:FCSS) and JPMorgan China Growth & Income (LSE:JCGI). China’s economy initially bounced back from the crisis quicker and stronger than most other nations, which boosted demand for Chinese shares, sending its stock market soaring.

However, over the past 18 months or so investors have been unnerved by China’s policymakers following aggressive regulation and reform of its own technology and education companies. In addition, investors have become more cautious on the outlook for China’s economy, including its property market. China’s zero-Covid policy had been harming its economy, but key parts of its strategy were relaxed earlier this month.

A big concern, which has led some fund managers to completely sell out of China, is the prospect of further regulatory crackdowns that could stifle the growth of successful companies.

As returns have soured, both trusts fell down the popularity rankings and are no longer in the top 20. One-year returns for Fidelity China Special Situations and JPMorgan China Growth & Income are declines of 27% and 31.1%.

The next two trusts no longer in the top 20 are Hammerson (LSE:HMSO) and BlackRock Throgmorton Trust (LSE:THRG). The former is a UK real estate investment trust (REIT), while the latter invests in UK smaller company shares.

And finally, wealth preservation strategy Personal Assets (LSE:PNL) also exited the top 20, having been the 18th most-popular investment trust in 2021. Interestingly, its three main rivals, Capital Gearing (LSE:CGT), Ruffer Investment Company (LSE:RICA), and RIT Capital Partners (LSE:RCP), all climbed the popularity leaderboard in 2022.

How 2021s most-popular trusts rank in 2022 

Investment trustRanking in 2021Ranking in first 11 months of 2022
Scottish Mortgage (LSE:SMT)11
Edinburgh Worldwide (LSE:EWI)217
City of London (LSE:CTY)32
BlackRock World Mining Trust (LSE:BRWM)43
Monks (LSE:MNKS)5Below the top 20
Smithson Investment Trust (LSE:SSON)66
Fidelity China Special Situations (LSE:FCSS)7Below the top 20
Baillie Gifford US Growth (LSE:USA)8Below the top 20
Pacific Horizon (LSE:PHI)9Below the top 20
Polar Capital Technology (LSE:PCT)108
JPMorgan China Growth & Income (LSE:JCGI)11Below the top 20
JPMorgan Emerging Markets (LSE:JMG)12Below the top 20
Capital Gearing (LSE:CGT)135
Hammerson (LSE:HMSO)14Below the top 20
Alliance Trust (LSE:ATST)1510
BlackRock Throgmorton Trust (LSE:THRG)16Below the top 20
RIT Capital Partners (LSE:RCP)1712
Personal Assets (LSE:PNL)18Below the top 20
F&C Investment Trust (LSE:FCIT)199
Allianz Technology Trust (LSE:ATT)2011

Source: interactive investor. 2022 data is to the end of November. 

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

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