Most popular investment trusts in 2017

17 January 2018

Political uncertainty was rife throughout 2017. Key elections were held in Europe, the UK and Japan, while the rift between US President Donald Trump and North Korea’s Kim Jong‐Un intensified. The threat of rising inflation and interest rates also dominated news stories.

But despite the uncertainty, most global stock markets delivered strong returns.

This provided a healthy backdrop for the investment trust sector: many delivered phenomenal returns and remained popular with investors. This isn’t a guide to how they’ll perform in future, however.

Here I take a closer look at the trusts most popular with HL clients in 2017. They are provided for your interest, but this isn’t a guide to how you should invest.

You should consider your own objectives and attitude to risk before making investment decisions, but if you’re unsure, please seek advice. All investments can fall as well as rise in value so you could get back less than you invest.

Most popular investment trusts:

Baillie Gifford Japan Trust

Baillie Gifford Shin Nippon

City Of London Investment Trust

Fidelity China Special Situations

Monks Investment Trust

Polar Capital Technology Trust

RIT Capital Partners

Scottish Mortgage Investment Trust

TR European Growth Trust

Witan Investment Trust

Listed in alphabetical order.

Going global for growth

Investment trusts that invest in a diversified range of companies from across the globe were some of the most popular with investors, including Scottish Mortgage and Monks Investment Trust. Both trusts invest in companies they believe will benefit from the disruptive power of technological change, including Amazon and Alibaba. The shares of technology companies across the globe performed strongly last year and this benefited returns.

There are some differences between the two. Scottish Mortgage invests in a more concentrated number of investments and sectors, for example, and a greater proportion of the trust invests in companies not currently listed on a stock exchange. This makes it a higher‐ risk option.

Investors also favoured Polar Capital Technology Trust for pure exposure to the technology sector. It invests in companies across the globe but, similar to many technology funds, most of it’s invested in US companies, such as Apple and Microsoft. Part of the trust also invests in other areas such as Asia and Europe.

Witan Investment Trust was also popular. It offers something different from the others, as it uses a multi‐manager approach. The underlying managers all have different areas of expertise, which could help smooth out some of the volatility associated with investing with a single manager.

It might appeal to investors seeking more diversification, where the decision over who to invest with is left to a professional.

Asian stars

The Asia Pacific region was home to some of the world’s best‐performing stock markets last year. Investors ignored their initial fears over the impact potential trade and foreign policy from the US might have on the region, and dismissed previous concerns over slowing growth in China.

Fidelity China Special Situations was in favour last year. Manager Dale Nicholls aims to benefit as the country shifts from its dependence on export‐led growth to one serving the needs of a growing middle class.

We view the trust as an attractive option for patient investors seeking exposure to China’s long‐term growth story, although a focus on a single emerging market and bias towards small and medium‐sized companies increases risk.

A couple of Japanese trusts are also on the list: Baillie Gifford Japan and Baillie Gifford Shin Nippon. A similar investment approach is used for both: they have the support of a well‐ resourced management team that seeks companies they believe have excellent growth prospects, helped by growing earnings and cash flows.

Both invest in higher‐risk small and medium‐sized companies, although Baillie Gifford Shin Nippon invests more in the smallest end of the Japanese market.

European renaissance

Investor sentiment towards Europe improved significantly throughout 2017: the economic picture for many European companies got brighter, while anti‐EU parties were rejected in a number of high‐profile elections.

TR European Growth was investors’ favoured choice in this sector.

A great record of growing income

Interest rates remain low and yield‐starved investors continue to favour trusts paying a regular and growing income.

City of London Investment Trust has an impressive dividend track record – it’s grown its dividend for 51 consecutive years, so it’s easy to see why it has been so popular with investors. The trust currently yields 3.77%, although this should not be seen as an indicator of future income payments.

Capital preservation for uncertain times

Investors in search of a more conservative option favoured RIT Capital Partners. The trust’s managers aim to capture some long‐term growth as markets rise, but offer an element of shelter during tougher times. The trust is diversified and invests across shares, funds, bonds, currencies, real assets and private equity investments