ii Super 60 performance review: Q3 2023

At the end of the quarter, we saw clear outperformance of the value style over growth in most regions, and this has largely defined the performance of funds at the top and bottom of the Super 60 investment ideas' list.

The top-performing fund over the quarter was the WisdomTree Enhanced Commodity ETF (LSE:WCOB), which provides investors with exposure to four broad commodity sectors (energy, agriculture, industrial metals, and precious metals) plus up to 5% in bitcoin. With energy prices rising over the quarter as a result of a series of supply cuts, this exchange-traded fund (ETF) produced a return of just over 8%.

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After an extended period of weakness due to concerns over rising interest rates and demand, the portfolio of pan-European property equities and UK physical property held byTR Property (LSE:TRY), provided investors with a more pleasing return of just over 6% in Q3 2023. This share price return was the second strongest on the Super 60 and reflected an uplift in the underlying value of holdings and a reduction in the discount, as investors recognised that peak interest rates were drawing nearer.

The next three funds on the top performers' list all invest in UK equities, which produced relatively good performance over the quarter, reflecting the bias to the value style that the UK market exhibits in comparison to global markets.

Diverse Income Trust (LSE:DIVI) aims to provide investors with an attractive and growing income, together with capital growth over the longer term. The trust is managed by Gervais Williams and Martin Turner, who both have significant experience in the small-cap space, and the trust maintains a significant weighting to this part of the market. As news regarding the UK economy and interest rate expectations became slightly more favourable over the quarter, smaller-cap stocks outperformed. In addition, the trust benefited from improving sentiment through a narrowing of its discount, resulting in a share price return of just under 5%.   

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It was a similar story for Fidelity Special Values (LSE:FSV). The trust is managed by Alex Wright, who has been at the helm of this all-cap strategy since 2012. Prior to this fund he successfully managed a small-cap strategy and he continues to implement his tried and tested approach that looks to identify unloved companies with the potential to recover based on factors such as a business model/corporate change or industry cycles. The manager may buy into such situations at an early stage, which tends to result in a contrarian value bias. There is an element of overseas exposure (mainly Europe) and gearing (up to 125% net exposure). The contrarian and value-oriented approach to investing, and the small-cap bias have been beneficial over the quarter, with a positive net asset value (NAV) return being boosted by the discount narrowing.

Jupiter UK Special Situations is the final fund on the list of top five performers with a return of just over 4.5%. The managers adopt a clear value approach that aims to identify longer-term valuation anomalies by looking for stocks that have an attractive price/earnings (PE) ratio when calculated using 10-year average earnings, or which look attractive on an earnings yield to return on capital basis. This, plus the slight bias down the market-cap scale, have been beneficial over the quarter.

Moving to the bottom of the performance table, we find Baillie Gifford Shin Nippon (LSE:BGS). This smaller-cap Japanese equity product follows the more extreme end of the Baillie Gifford house process and focuses on identifying stocks with high earnings and sales growth. This growth style and an element of gearing largely explains the performance over the quarter, which was down just under 6% in NAV terms, while the widening of the discount led to a nearly 9% decline in share price terms. This trust is clearly a higher-risk product, which investors should expect to show significant variability in performance depending on market conditions.

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As its name suggests, FTF ClearBridge Global Infrastructure Income invests in listed infrastructure companies and has an overall objective of generating an income in excess of inflation. Given the approach, it has significant exposure to the utilities sector, which performed particularly poorly over the quarter. The fund showed a negative return of 6.8% and much of this reflects the greater than 65% exposure to utilities. Despite some weakness versus peers over the short term, the fund has demonstrated longer-term success.

Man GLG Continental European Growth Portfolio is the next fund on the underperformers' list. Having produced strong returns earlier in the year, the fund succumbed to the recent rotation towards value stocks. Europe ex-UK has also been one of the weaker equity regions over the past quarter and these two elements have resulted in the relative returns seen. The fund continues to be managed by the highly experienced Rory Powe, and is a concentrated, high-quality-growth fund that has shown persistent overweights to the consumer discretionary and IT sectors.

The final two funds on the underperformers' list are global products, but they have shown weakness for different reasons. Murray International Ord (LSE:MYI)saw a marginal drop in its NAV over the quarter, but in share price terms the weakness amounted to over 5.5% as the discount widened. This widening coincided with the announcement that the long-term manager of the trust, Bruce Stout, is due to retire in 2024. The two existing co-managers will continue to run the trust using the same broad philosophy, but the loss of Stout is clearly a negative.

• Bruce Stout: I’ve bought bargain bonds twice in 20 years, but won’t buy gilts now
• How Murray International has a higher yield than most rivals

The final fund on the underperformers list is abrdn Global Smaller Companies and it showed a negative return of just over 4%. It is managed using the group’s proprietary quantitative matrix and this, plus the subsequent fundamental analysis, results in a portfolio that has a clear growth bias. There is also significant exposure to small-cap stocks in Europe and the US, which have come under pressure in the current environment. In combination with the growth style, this structural positioning explains much of the relative performance over the quarter. 

Top five Super 60 funds in Q3 2023

Source: Morningstar - Total Return for OE / Market Return for CE - (GBP) to 30/09/2023.

Bottom five Super 60 funds in Q3 2023

Source: Morningstar - Total Return for OE / Market Return for CE - (GBP) to 30/09/2023.

Top five Super 60 funds for a five-year period

Source: Morningstar - Total Return for OE / Market Return for CE - (GBP) to 30/09/2023.

Bottom five Super 60 funds for a five-year period

Source: Morningstar - Total Return for OE / Market Return for CE - (GBP) to 30/09/2023.

Most-bought Super 60 funds in Q3 2023

Most-sold Super 60 funds in Q3 2023

Changes to the Super 60 list (under review/developments)

September 2023: Murray International Trust: Under Review

September 2023: Janus Henderson European Selected Opportunities Fund: Under Review (this fund was removed from under review today [11/10/23] and retained on the list – but post-quarter end)

September 2023: GAM Star Credit OpportunitiesFund: Under Review

Super 60 videos in Q3

Murray International

Bruce Stout: I’ve bought bargain bonds twice in 20 years, but won’t buy gilts now

How Murray International has a higher yield than most rivals

City of London

City of London: the ‘ultimate backstop’ to keep paying a rising income

Job Curtis: five stocks I’ve bought for City of London Investment Trust

Man GLG Income

Two value stock opportunities, and the bank share I’ve been buying

The high-yielding shares I am backing to deliver market-beating income