Enthusiasm for technology exposure dampened in August, with Polar Capital Technology (LSE:PCT) exiting our top 10 most-bought investment trust league table. A month earlier its main rival Allianz Technology Trust (LSE:ATT) also dropped off the list.
Both tech trusts entered our top 10 in June for the first time in 2023, a year that has so far seen plenty of excitement over the potential of artificial intelligence (AI) to transform various industries.
The AI mania has helped boost returns for the tech duo year-to-date. Slightly ahead, with gains of 28.8%, is Polar Capital Technology Trust, followed by 26.4% for Allianz Technology. Despite those gains, both are on sizeable discounts of 14.1% and 11.8%.
A trust with an even more eye-catching discount that’s also departed the top 10 this month is Pershing Square Holdings (LSE:PSH). The concentrated portfolio, managed by star investor Bill Ackman, is trading on a discount of 34.7%. It joined the top 10 last month but has not kept its place.
Dividend strategies have become more appealing to investors in response to interest rates rising in an attempt to cool high inflation. Among our top 10 investment trusts all pay some income, with the majority yielding more than 4%.
However, in terms of overall total returns it has not all been plain sailing for income strategies. In particular, since interest rates started rising in late 2021 it has been a tough period for investment trusts whose objective is to provide an alternative income to investors, including Renewables Infrastructure Group. The trust and its peers have seen their share prices come under pressure due to greater competition from bonds which are offering their highest level of income in over a decade.
With yields of 4% and 5% available on cash and relatively low-risk bonds, there’s less appeal in trying to obtain higher yields – of 6% to 7% - for higher risk in the case of renewable energy infrastructure trusts.
Renewables Infrastructure Group’s share price is down 20.1% over the past year, and its discount has been widening, currently 17.8%. The trust yields 6.6%, which is a key attraction. Its objective is to generate sustainable returns from a diversified portfolio of renewables infrastructure that contribute towards a zero-carbon future. Investors buying in now will be hoping for a change in short-term fortunes, and the potential double-whammy of the discount narrowing.
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Murray International, the other new entrant this month, has largely had a good spell of performance in the rising interest rate environment. However, its recently released half-year results (to the end of June) reported underperformance versus the FTSE All World Total Return Index. Those results also announced the retirement next June of long-standing lead fund manager Bruce Stout.
Stout, who has managed the trust since 2004, will pass the baton to co-managers Martin Connaghan and Samantha Fitzpatrick. The duo have worked with Stout for more than two decades.
Murray International has a higher yield than most other global equity income funds or investment trusts. Its current yield is 4.6%. Another difference is that around 40% of its assets are in shares listed in the Asia-Pacific and emerging market regions. Most other global equity income funds tend to mainly stick to developed markets.
Of the eight investment trusts keeping their places in the top 10 the number one spot once again goes to Scottish Mortgage (LSE:SMT). The trust, which invests in disruptive businesses making clever use of technological innovations, has seen its performance struggle over the past two years. Performance has not been helped by rising interest rates, which have downgraded the valuations of growth stocks that promise future profits.
Scottish Mortgage is an adventurous investment, and it asks investors to judge performance over five years. Therefore, this is the minimum holding period that investors should adopt. Over five years, it has returned 24.4% versus 27.3% for the average global trust, according to Morningstar via the Association of Investment Companies (AIC).
Greencoat UK Wind, the renewable infrastructure investment trust managed by Stephen Lilley, aims to provide investors with a yearly dividend that increases in line with RPI inflation. This aim has been successfully achieved each year since the trust launched in 2013.
City of London, which has been managed by Job Curtis since 1991, predominately invests in dividend-paying FTSE 100 firms. Curtis adopts a conservative approach in focusing on companies with good cash generation. It has raised its dividends for 57 years in a row – a high level of consistency.
Both Lilley and Curtis recently visited our recording studio to make the case for their respective strategies. The videos can be found in the two links below.
- Greencoat UK Wind: interest rate rises have left us grossly underpriced
- City of London: our ultimate backstop to keep paying a rising income
F&C adopts a global approach and holds a mix of growth and income stocks, including having some of its assets in private equity. The trust’s manager, Paul Niven of BMO Global Asset Management, oversees the strategic and tactical asset allocation. He selects managers to run various strategies, which are predominantly within BMO.
JPMorgan Global Growth & Income adopts a total return approach, aiming to outperform the MSCI All Country World Index over the long term.
BlackRock World Mining, which invests in natural resources stocks, has the second-best three-year returns among the top 10, with gains of 68.2%. The need to decarbonise and transition to renewable energies is a long-term trend that’s a potential tailwind for this trust, which owns mining companies involved in battery metals.
Alliance Trust adopts a multi-manager approach. Its external fund manager Willis Towers Watson selects managers with a balance of investment styles, which means Alliance Trust effectively takes style risk off the table.
And finally in ninth place is Merchants Trust (LSE:MRCH), which has the highest three-year return within the top 10 of 78.4%. It aims to deliver an above-average level of income and income growth, as well as long-term growth of capital, through investing mainly in higher-yielding large UK companies.
Top 10 most-popular investment trusts in August 2023
|Ranking||Investment trust||Change from July||One-year return (%)||Three-year return (%)|
|1||Scottish Mortgage||No change||-15.6||-28.3|
|2||Greencoat UK Wind||Up one||-11.2||12.4|
|3||City of London||Down one||2.5||41.4|
|4||F&C Investment Trust||Up one||-2.3||29.2|
|5||JPMorgan Global Growth & Income||Up two||9.4||49.7|
|6||BlackRock World Mining||Up three||-1.7||68.2|
|7||Alliance Trust||Down three||9.9||35.4|
|8||The Renewables Infrastructure Group||New entry||-20.1||-6.9|
|10||Murray International||New entry||5||53.2|
Source: interactive investor. Performance figures: FE fundinfo. Note: the top 10 is based on the number of “buys” during the month of August. Data to 30 August 2023.
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.