Three big trends from best investment trusts over 25 years
Kyle Caldwell looks at the key trends from data revealing the 25 best-performing investment trusts since ISAs were launched.
15th March 2024 09:17
by Kyle Caldwell from interactive investor
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Five years is widely viewed as the minimum time frame when investing in funds and investment trusts to smooth out the ebbs and flows that go hand in hand with investing in the stock market.
However, for those who can invest for much longer time periods the potential rewards can be far greater, as data from the Association of Investment Companies (AIC) shows.
The AIC, which is the trade body for the investment trust industry, has identified the best-performing investment trusts over the 25 years since tax-efficient ISAs were introduced on 6 April 1999.
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At the time, the ISA allowance was £7,000, which is the figure the AIC used in calculating how much the top 25 investment trusts would have made for investors.
The table below shows that the top three performers, Scottish Oriental Smaller Companies (LSE:SST), HgCapital Trust (LSE:HGT) and abrdn Asia Focus plc (LSE:AAS), would all have generated a tax-free pot of over £250,000 from a £7,000 ISA investment, while 18 of the trusts would have grown £7,000 into over £100,000.
Below the table, we consider three big trends over that period among the 25 best-performing trusts.
Rank | Trust name | AIC sector | Return on £7,000 (from 6 April 1999 to 5 March 2024) |
1 | Asia Pacific Smaller Companies | £289,213 | |
2 | Private Equity | £280,799 | |
3 | Asia Pacific Smaller Companies | £273,758 | |
4 | Asia Pacific | £182,740 | |
5 | Biotechnology & Healthcare | £153,246 | |
6 | Technology & Technology Innovation | £152,250 | |
7 | Biotechnology & Healthcare | £138,301 | |
8 | Europe | £133,258 | |
9 | India/Indian Subcontinent | £133,143 | |
10 | European Smaller Companies | £129,030 | |
11 | Technology & Technology Innovation | £127,570 | |
12. | Commodities & Natural Resources | £125,123 | |
13 | UK Smaller Companies | £119,836 | |
14 | UK All Companies | £117,153 | |
15 | Global | £111,000 | |
16 | Property Securities | £108,227 | |
17 | Biotechnology & Healthcare | £105,946 | |
18 | Global | £104,021 | |
19 | Global Emerging Markets | £93,793 | |
20 | Asia Pacific | £93,290 | |
21 | North American Smaller Companies | £92,348 | |
22 | Global | £91,417 | |
23 | UK Smaller Companies | £90,795 | |
24 | UK All Companies | £90,382 | |
25 | UK Smaller Companies | £86,733 |
Source: AIC/Morningstar. Includes AIC member investment trusts. Returns are share price total returns for a single lump sum invested on 6 April 1999, with dividends reinvested and held until 5 March 2024. Past performance is not a guide to future performance.
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Smaller company strength
Seven investment trusts from smaller company sectors are among the top 25 performers, with four investing overseas, namely Scottish Oriental Smaller Companies, abrdn Asia Focus, JPMorgan European Discovery (LSE:JEDT) and JPMorgan US Smaller Companies (LSE:JUSC).
The other three trusts, Rights & Issues Investment Trust (LSE:RIII), BlackRock Throgmorton Trust (LSE:THRG) and Invesco Perpetual UK Smaller Companies (LSE:IPU), invest in UK smaller company shares that could become “tomorrow’s winners”.
Over the past couple of years, since interest rates started rising at the end of 2021, UK smaller companies have been out of favour. Stagnant economic growth, high inflation and interest rate rises led investors to reduce risk. This caused share prices and valuations to slump for smaller company shares, which are riskier than larger companies.
For investors sizing up smaller companies, now is an opportunity to take advantage of knock-down prices. For those prepared to be patient, there’s the prospect of benefiting from the long-term trend of smaller companies typically delivering higher returns compared with larger companies.
Tech is a long-term winner
Two technology trusts appear in the top 25, with Allianz Technology Trust (LSE:ATT) in sixth place and Polar Capital Technology (LSE:PCT) in 11th place.
As the 25-year period began on 6 April 1999, it includes the spectacular tech boom and bust of the late 1990s and early 2000s. For investors with a long-term perspective, exposure to either of these dedicated tech trusts has paid off very handsomely.
The tech duo own six of the seven US tech giants in their top 10 holdings, excluding Tesla (NASDAQ:TSLA). They are both trading on discounts of around 10%, therefore offering exposure to the artificial intelligence (AI) theme at a cheaper price. As well as AI, another key theme for the duo is cybersecurity.
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Scottish Mortgage (LSE:SMT) is one trust on the list that has plenty of exposure to technology. The global portfolio seeks to identify exceptional growth companies, with its top three holdings being ASML Holding (EURONEXT:ASML), Nvidia (NASDAQ:NVDA) and MercadoLibre (NASDAQ:MELI). It holds 27.9% in private companies.
Investing in higher-risk regions pays off
Another trend is that investors with exposure to higher-risk areas have seen their boldness pay off. Four trusts from the Asia-Pacific sectors feature, alongside three biotech trusts, a global emerging market trust and an Indian specialist.
Investing in Asia-Pacific or emerging market economies carries greater risk, such as political risk, compared with developed markets, but as the past 25 years have shown, the reward can be high returns. This part of the world has younger populations and growing middle classes, which it is hoped will boost economic growth and, by extension, stock market performance.
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.
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