Ian Cowie: six of the best trusts that have stood the test of time

27th January 2022 10:10

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With Russia-Ukraine tensions escalating, our columnist looks at trusts that have endured troubling moments, including two world wars.

Fears that military manoeuvres in Russia and Ukraine might end in something worse - maybe much worse - make global stock markets more febrile and volatile today than they have been for years. Without in any way wishing to diminish the seriousness of the current situation, some investors are even considering the risk of World War III.

So there is some comfort to be had from the fact that no fewer than 24 investment trusts survived both world wars and are still trading today. No other form of pooled fund can claim their diversification to diminish risk has survived such an extreme test of time and delivered such remarkable results.

Of course, the past is not necessarily a guide to the future. Even so, in these uncertain times long-term investors may be interested to know which shares survived both world wars.

So, without further ado, here are six of the best investment trusts formed before 1914. They are ranked by total returns over the last 20 years, with a nod to their short-term one-year performance and current dividend yields - as calculated by the Association of Investment Companies (AIC) based on data from independent statisticians Morningstar. Better still, after recent setbacks for global markets, some are trading at discounts to their net asset value (NAV). The discount figures, from Winterflood, are all to close of trading yesterday – 26 January.

Step forward Scottish Mortgage (LSE:SMT), Britain’s biggest investment trust, with assets above £17.6 billion, and the top performer among our ‘survivor shares’ in the 20 years to this week, when it turned £1,000 into an eye-stretching £19,657.

But rising doubts about ‘jam tomorrow’ stocks - such as SMT’s top 10 holdings, the American electric carmaker, Tesla (NASDAQ:TSLA), and the Chinese online retailers Tencent (SEHK:700) and Meituan (SEHK:3690) - caused this investment trust’s shares to shrink an initial outlay of £1,000 into just £795 over one year and its yield remains negligible at 0.3%. Launched in 1909, SMT traded below its NAV earlier this week, but is now trading on a small premium of 1%.

BlackRock Smaller Companies (LSE:BRSC) stands second with a 20-year return of £15,475 on the same £1,000 initial investment. Rising hopes that UK Smaller Companies might offer value helped achieve a one-year return of £1,155. Perhaps surprisingly, its top 10 holdings are led by Watches of Switzerland (LSE:WOSG) - the self-descriptive UK retailer - and also include the fragrances and flavours-maker, Treatt (LSE:TET), plus the marketing goods group 4imprint (LSE:FOUR). BRSC was formed in 1906, yields 3.2% and trades at a 4.3% discount to its NAV.

TR Property (LSE:TRY) ranks third with an international portfolio of commercial and residential real estate shares that turned £1,000 into £14,877 during the last two decades and £1,291 over the last year. Top 10 holdings include German companies Vonovia (XETRA:VNA) and Phoenix Spree Deutschland (LSE:PSDL) as well as the UK warehouse group, Segro (LSE:SGRO). TRY dates back to 1905, yields nearly 3% and trades on a premium of 3.3%.

BMO Global Smaller Companies (LSE:BGSC) came fourth with a 20-year total return of £9,940 and £1,105 over the last year. Interestingly, all of its top four underlying assets focus on Asia; they are PineBridge Asia ex-Japan SmallCap; Aberdeen Standard Japan Smaller Companies; Eastspring Japan Smaller Companies and Scottish Oriental Smaller Companies (LSE:SST). BGSC was launched in 1889, yields 1.1% and is priced at a 5.9% discount.

Henderson Smaller Companies (LSE:HSL) is fifth with total returns of £8,732 over the last two decades and £1,109 over the last year. Top 10 holdings in this UK fund include the specialist publisher, Future (LSE:FUTR); Watches of Switzerland - again - and the video games maker Team17 (LSE:TM17). HSL was formed in 1887 and currently yields 2.2%, and is trading at a discount of 7.3%.

Mercantile (LSE:MRC) stands sixth with total returns of £7,618 and £1,008 over both periods shown above. Its UK All Companies portfolio is led by Intermediate Capital Group (LSE:ICP), the private equity lender to small and growing businesses; Softcat (LSE:SCT), the information technology provider to private and public sector corporate clients; and the residential builder, Bellway (LSE:BWY). MRC is the oldest of our long-term survivors, having begun trading in 1884. It currently yields 2.9%, and trades at an eye-catching 11.4% discount.

Annabel Brodie-Smith, a director of the AIC, told me: “When markets are volatile, investors can take comfort that investment companies have endured some of the most troubling moments of our last 150 years and have continued to deliver strong long-term performance for their investors.

“Twenty-four investment companies, including many well-known and much-admired stalwarts, have survived both world wars, as well as the dotcom bubble bursting, the financial crisis and the pandemic.”

Let’s hope World War III never happens and that these fears soon look silly. But before we dismiss such speculation as absurd, perhaps we should ask ourselves: how many people predicted World Wars I or II?

Ian Cowie is a freelance contributor and not a direct employee of interactive investor.

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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