No investment trust rated highly by Morningstar analysts lost investors money during the first quarter of 2019, data from Morningstar Direct show.
After a tricky three months to end 2018, stock markets across the globe re-rated to start the current year, with all of the major world regions recording positive gains in the year to date.
After a benign period from 2015 to 2017 where markets trended upwards without pause, Alexei Jourovski, head of equities at Switzerland-based asset manager Unigestion, says investors should not be surprised at the recent uptick in volatility.
During the aforementioned period, investors were “still in euphoric mode, influenced by central bank intervention” that allowed asset prices to rise unabated, he explains.
“When the monetary stimulus was progressively withdrawn in 2018 and there was [a lot] of different risks such as restrictions on international trade and geo-political events, we’re not surprised that volatility’s coming back up for equities.”
That said, most regions still have failed to get back to where they were trading at the beginning of 2018, let alone the start of October. Indeed, the recent yield curve inversion put a halt to gains from equity markets as investors became worried about the prospect of a potential US recession.
Still, most of the top-rated closed-end funds listed in London are in the black in the year to 31 March. Below, we round up the best and worst performers in that timeframe.
Best-Performing Investment Trusts
At the top of the table sit two Bronze-rated trusts focused on China: JPMorgan Chinese (JMC) and Fidelity China Special Situations (FCSS), which returned 22.7% and 18.3% respectively. Interestingly, these were the two worst-performing in our list during 2018, losing 25.2% and 21.7% respectively.
The trade spat between China and the US has very much impacted returns in the Chinese market since the turn of 2018. Share prices fell in 2018 thanks to some very negative media headlines and tweets from Donald Trump, but investors have been placated in the past few months as talks seem to have become more constructive.
The volatility in China’s stock market is unlikely to dampen until an agreement is announced, if, indeed, that is the outcome.
The Baillie Gifford-managed Edinburgh Worldwide (EWI), which was recently upgraded to a Silver rating, took third place with a return of 15.5%. Douglas Brodie’s mandate, which was one of the better performers in 2018, too, has a similar feel to its better-known stablemate Scottish Mortgage (SMT).
Top holdings in US online lending exchange LendingTree (TREE), Wayfair (W) and Ocado (OCDO) – up 100%, 75% and 66% respectively year-to-date – have clearly helped performance. It may not be for widows and orphans, says Morningstar analyst David Holder, “but [it’s] an increasingly compelling and unique global small-cap option”.
Alasdair Mundy’s deep-value, contrarian-run Temple Bar (TMPL) also bounced back from a tough 2018. The UK equity income offering gained 14.5% for shareholders. Rounding out the top five, Worldwide Healthcare (WWH) was up 13.25%.
Worst-Performing Investment Trusts
Looking towards the bottom of our table of top-rated funds, the worst performer of the first quarter was JPMorgan Indian (JII), which secured gains of just under 1% for its investors.
Meanwhile, Pacific Assets (PAC), which has a third of its portfolio invested in India, was the second worst performer with a gain of 2.3%.
The Indian market suffered more than most in 2018 and continues to lag this year, but the trust has still put together a better three months than its 12 previous. And Georgina Taylor, multi-asset fund manager at Invesco, sees upside ahead if Narendra Modi’s BJP secures a second term in office in the forthcoming election.
Bruce Stout’s global but emerging market-skewed Murray International (MYI) came in next at 2.5%. Many may now be banging the drum for emerging market stocks at much lower valuations than a year ago, but Jourovski is cautious.
“Risk factors are still high in emerging markets,” he says. These include a slowing Chinese economy, an over-reliance on basic resources and governance worries in the big state-owned enterprises in countries like China and Russia.
Two more defensive companies, Personal Assets (PNL) and Ruffer (RICA), round out our bottom five list, each returning just over 4%. Both of these trusts are run in conservative fashion and aim to conserve investors’ capital in tough times.
However, the pair had rare down years in 2018, losing 3% and 6% respectively. That’s led Ruffer to currently trade at a big discount relative to its history, potentially leading to an attractive entry point today.
