Interactive Investor

Top 10 most-popular investment trusts: January 2023

1st February 2023 12:53

Kyle Caldwell from interactive investor

There are four new entrants to our table, with investors hunting for income and potential bargains.

Investment trust fans have been on the lookout for potential bargains in the January sales and hunting for income.

This is reflected in four new entrants to the top 10 most-bought table last month.

Two trusts – Fidelity China Special Situations (LSE:FCSS) and HgCapital Trust (LSE:HGT) – have seen short-term performance come under pressure. As a result, the duo have been trading on sizeable discounts to their net asset values (NAVs).

Fidelity China Special Situations, which enters the table in seventh place, has suffered from poor investment sentiment towards China. There have been several items on the ‘worry list’, including concerns that China’s strict zero-Covid policies, which are now being eased, have hurt economic growth.

Following a series of policy shifts towards the end of last year that led to China’s economy re-opening, there’s hopes of an economic tailwind for 2023. Other reasons to be fearful are debt levels in China’s property market, and policy tightening and stringent regulation from China’s government for a number of sectors, notably technology and property.

However, the counter-argument is that the political risk of investing in China is nothing new, and that it is a price worth paying.

For retail investors, as China is the world’s second-largest economy and home to some of the most-exciting entrepreneurial businesses, it is difficult for investors to neglect it in their portfolio, despite its political risks.

Fidelity China Special Situations, one of interactive investor’s Super 60 investment ideas, has been negatively impacted by the macroeconomic headwinds over the past 18 months or so. However, it has been staging a recovery in recent months, with the share price up 60% since the end of October. Its discount (as at 31 January) is 4%, lower than its 12-month average due to its recent strong showing. Its 12-month average discount is 7%.  

Dale Nicholls has managed the trust since April 2014. The trust aims to identify companies - across both public and private markets - that are best placed to benefit from a growing middle class and the shift towards a more consumption-driven economy.

Another new entrant is HG Capital, the private equity trust. Like others in the sector, its share price and discount has come under pressure due to concerns among investors that falls in listed markets are putting downwards pressure on valuations for unlisted companies.

The predicament that investors face is that NAVs are reported quarterly by private equity trusts, resulting in a time lag on when the valuations are reported. Therefore, those NAVs potentially do not reflect the reality of what those assets could be sold for today.

However, most investment trust analysts argue that too much bad news has been priced in, and that the widening of discounts over the past year is a potential buying opportunity. HG Capital is trading on a discount of 19.8%. James Carthew, head of investment company research at QuotedData, notes that while valuations for private equity trusts may be cut, “the degree of this is unlikely to be anything like as great as share prices suggest”. He adds: “These trusts will be re-rated in time. What is hard to predict is the catalyst for this.”

The other two new entrants reflect the continued strong demand for income strategies in response to higher interest rates. In contrast, demand for growth-focused funds has cooled.

Murray International (LSE:MYI), another member of ii’s Super 60, has a 4.2% yield, which is higher than most rivals. The global equity income trust, managed by Bruce Stout, has been a beneficiary of the change in macroeconomic conditions, which has resulted in sentiment shifting away from high-growth strategies. It has a value focus, and a bias towards Asia and emerging markets.

Merchants Trust (LSE:MRCH) also has a higher yield than peers, at 4.6%. 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.

Among the six investment trusts that have remained in the top 10, RIT Capital Partners (LSE:RCP) is another example of investors attempting to ‘buy low’ through tapping into a discount that is bigger than usual. The trust, which adopts a multi-asset approach, is trading on a discount of 20.2% versus 9.1% for its 12-month average. Investec, the analyst, recently downgraded the trust, on the grounds that the extent of its privately owned assets make it much more risky in reality than its core objective of capital preservation implies.

The preference for income is also shown through City of London (LSE:CTY), BlackRock World Mining Trust (LSE:BRWM) and Greencoat UK Wind (LSE:UKW) featuring in second, fifth and sixth place respectively. The respective yields are 4.8%, 5.8% and 5.5%.

F&C Investment Trust (LSE:FCIT), the third most-bought trust in January, is a “dividend hero”, having raised its payouts for 51 consecutive years. However, its dividend yield is low, at 1.4%. Therefore, it has more of a capital growth focus.

The final trust keeping its place in the top 10 – once again remaining in pole position – is Scottish Mortgage (LSE:SMT).

At an investor conference last month, lead fund manager Tom Slater said that while 2022 may be remembered as a bad year in terms of Scottish Mortgage’s share price performance, there was some notable progress from some of its portfolio companies.

Scottish Mortgage asks investors to judge performance over five years, so this is the minimum holding period that investors should adopt. Over five years, it has returned 68.7% versus 50.1% for the average global trust, according to Morningstar via the Association of Investment Companies (AIC).

The four trusts exiting the top 10 are Home REIT (LSE:HOME)VinaCapital Vietnam Opportunities Fund (LSE:VOF), Ruffer Investment Company (LSE:RICA), and Alliance Trust (LSE:ATST).

Top 10 most-popular investment trusts in January 2023 

RankInvestment TrustChange from DecemberOne-year performance to 31 January 2023 (%)Three-year performance to 31 January 2023 (%)
1Scottish MortgageNo change-30.230.4
2City of LondonNo change9.416.4
3F&C Investment TrustUp one11.935.1
4RIT Capital PartnersDown one-220.4
5BlackRock World MiningUp two27.3151.7
6Greencoat UK WindDown one1830.6
7Fidelity China Special SituationsNew entry-2.137
8Murray InternationalNew entry18.530
9HG CapitalNew entry-13.241.3
10MerchantsNew entry8.430.3

Source: interactive investor. Performance figures: FE fundinfo. Note: the top 10 is based on the number of “buys” during the month of January. 

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