Interactive Investor

Top 10 most-popular investment trusts: May 2024

Three new entrants in our top 10 investment trust table this month, with one sector attracting attention as investors go bargain hunting.

3rd June 2024 10:53

by Kyle Caldwell from interactive investor

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Renewable energy infrastructure, an out-of-favour sector, has been attracting the attention of investment trust bargain hunters.

In May, the sector accounted for two out of three new entries in our top 10 most-bought investment trust table. NextEnergy Solar Fund (LSE:NESF) joined in sixth place, while Gore Street Energy Storage Fund (LSE:GSF) entered in 10th place.

As the spotlight illuminates one sector, it turns away from another. Technology duo Polar Capital Technology Ord (LSE:PCT) and Allianz Technology Trust (LSE:ATT) left the top 10, alongside Pershing Square Holdings (LSE:PSH), which invests in a small number of US companies.

The technology sector has been performing strongly since the start of 2023, which has led to valuations becoming pricier. As a result, some investors have looked elsewhere.  

Since interest rates started rising in late 2021, investors have shunned the renewable energy infrastructure sector. Rate rises have caused a re-pricing of valuations, which has hurt share prices. As interest rates rise, so do bond yields. As a result, income seekers have more options and can take less risk, as the safest types of bonds, UK and US government bonds, offer yields of around 4% compared to virtually nothing when interest rates were at rock-bottom levels. 

While the yields for renewable energy infrastructure investment trusts are higher (with the sector average yield at 8%), investors have been focusing on lower-risk areas where yields have risen. For example, cash-like money market funds are offering yields of around 5%.

Another headwind has been that higher interest rates also increase the cost of debt, which is a key tool for renewable infrastructure trusts to purchase new assets.

However, it appears that some investors are now attempting to buy low” in the hope that a recovery will play out. While share prices have been selling off, investment trust discounts have been widening. The average renewable energy infrastructure trust discount is currently -22.7%.

With big discounts and big yields on offer, investors buying today could argue that they are being paid to wait for a change in fortunes. In terms of potential tailwinds, interest cuts would, in theory, be a positive, as this would likely cause bond yields to fall.

NextEnergy Solar Fund yields a sky-high 11.7% and offers a discount of -30.8%. As share prices and yields have an inverse relationship, a high yield more often than not is a sign that a stock, for whatever reason, is out of favour. It is therefore crucial to do some digging to check whether the yield on offer is sustainable.

In the case of NextEnergy Solar Fund, last month the board approved a 1% increase in the dividend target for its next financial year, ending 31 March 2025. If achieved, this would be NextEnergy Solar Fund’s 11th consecutive year of dividend growth.

Gore Street Energy Storage Fund has also recently been reassuring investors over its dividend. In a full-year trading statement last month, the investment trust said “dividend cover has continued to trend upward”, while adding that it “reaffirms its dividend target of 7% of net asset value (NAV) for the reported period”. Its dividend yield is 11.5%, while its discount stands at -31.2%.

The duo join sector constituent Greencoat UK Wind (LSE:UKW) in the top 10. It has grown income payouts ahead of the RPI inflation measure each year over the past decade. It offers a dividend yield of 7.1% and recently increased its target dividend for 2024 to 10 pence per share, above the Retail Prices Index for December 2023. Its discount is currently -11.4%.

In terms of share price total return, Greencoat UK Wind has fared best over both the past year and five years, up 2% and up 37.6%. Gore Street Energy Storage has lost -30% over one year, but is up 14.1% over five years. Whereas, NextEnergy Solar Fund has made losses over both time periods, down -22.6% and -10.4%, according to Morningstar.

The third new entry this month is private equity giant 3i Group (LSE:III). It has been delivering stellar returns over the past one and three years, up 51.9% and up 151.2%. A key driver of 3i’s performance has been a notable valuation uplift for its biggest private equity holding, Action, the Dutch non-food discount retailer. New investors, however, are paying a big premium for its shares, currently 36.7%. Last month, it announced results for the year to 31 March 2024, which showed a total return of 23% for the period.

Of the remaining six trusts that retained their places in the top 10, four invest in global shares: Scottish Mortgage (LSE:SMT), JPMorgan Global Growth & Income (LSE:JGGI), Alliance Trust (LSE:ATST) and F&C Investment Trust (LSE:FCIT).

Scottish Mortgage retains pole position. The global trust, which seeks out companies capitalising on technological advancements, has been in recovery mode, with its share price up 30.8% over one year. The turnaround stems from technology stocks returning to form and the trustshare buyback plan succeeding in narrowing the gap between the share price and the value of the trusts investments, the NAV.

SMT’s three-year performance now shows a loss of -26.2%, with shareholders hoping the recent positive showing continues. Investment trust analysts say a positive development, such as an IPO, among its unlisted stocks (comprising just under 30% of the portfolio) could give SMT’s share price a boost.

In second place is JPMorgan Global Growth & Income, which adopts a total return approach in aiming to outperform the MSCI All Country World Index over the long term. It is “style neutral”, meaning it does not favour a particular category of stocks, such as value or growth.

Over the past three years, the approach has paid off, despite a few high-growth tech stocks dominating global markets over the past 18 months. JGGI is up 40.5% over three years, ahead of the average global equity income trust return of 21.6%.

Alliance Trust, in fourth place, is also style neutral. Over the past three years, it is up 32.5%. It is a multi-manager strategy, outsourcing the stock picking to external fund managers.

In ninth place is another multi-manager strategy - F&C Investment Trust. However, this portfolio mainly uses in-house managers from its fund firm Columbia Threadneedle. It is managed by Paul Niven, who decides on the asset allocation and gearing level. It is a steady performer, but has notably underperformed rival Alliance Trust over the past one and three years. 

The final two members of the top 10 are City of London (LSE:CTY) and BlackRock World Mining Trust (LSE:BRWM) in fifth and seventh place.

City of London, managed by Job Curtis since 1991, predominately invests in dividend-paying FTSE 100 firms. Curtis adopts a conservative approach by focusing on companies with good cash generation. City has raised its dividend for 57 years in a row, making it one of 10 investment trusts with a track record of more than 50 years of income increases. It has a market-beating dividend yield of 5%.  

Commodity specialist BlackRock World Mining remains popular in seventh place. The trust has a dividend yield of 5.7%, but its important to bear in mind that this is not progressive. If mining companies reduce dividend payouts, there will be less income for BlackRock World Mining to pay out. In its last financial year, to the end of December 2023, BlackRock World Minings dividend was cut by 16%. 

Top 10 most-popular investment trusts in May 2024 

Ranking Investment trust Change from April One-year return to 1 June 2024 (%)Three-year return to 1 June 2024 (%) 
1Scottish Mortgage No change 30.8-26.2
2JPMorgan Global Growth & Income No change 22.640.5
3Greencoat UK Wind Up one227.2
4Alliance Trust Down one25.232.5
5City of London No change 922.6
6NextEnergy Solar Fund New entry -22.6-8.4
7BlackRock World Mining Down one 5.27.7
83i Group New entry 51.9151.2
9F&C Investment Trust Down two 14.723.8
10Gore Street Energy New entry -30-24.5

Source: FE Analytics. Performance data to 1 June 2024. Rankings are based on the number of “buys” during May 2024.

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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