It’s been a tough five years to make money in the UK equity markets. At 31 May 2012, the five-year annualised return on the FTSE All Share index was a loss of 0.71%. The average fund in the Morningstar UK Large-Cap Blend equity category lost more, at 1.39%. But that doesn’t mean there haven’t been some bright spots.
Within this Morningstar large-cap category, there are 457 share classes with five years of history and from this, just 71 have had positive returns over that time period. In the list of top-25 performers, there are four investment trusts. Granted, these returns aren’t large, but in a period when the market has lost money, it’s encouraging to see that not everyone has followed suit and that some managers have managed to make money for their investors.
Two of these four investment trusts carry Morningstar Analyst Ratings. Keystone (KIT) carries our Silver rating and Perpetual Income & Growth (PLI) our Gold rating. Both funds are run by Mark Barnett from Invesco, and both funds use gearing, which has helped to generate extra returns. A third fund in the top five is also run by Barnett – Invesco Perpetual Select Trust UK Equity (IVPU)—but this fund has been restructured in the last year and is part of a bigger mandate so it’s hard to draw too meaningful a conclusion. Nonetheless, it’s undisputable that Barnett has done a pretty good job for his investors in the last five years.
It’s not just about producing returns, though, it’s about keeping volatility within acceptable boundaries too. Once again, in this respect he has done well. If we look at the funds’ five-year standard deviation (a statistical measure of risk), for KIT it’s 12.8% and PLI a little higher at 14.2%. These compare with the category average fund’s five-year standard deviation of 18.7%--considerably higher and let’s not forget that the average fund has lost money, too. This places both funds considerably lower in the risk spectrum than their open-end top performers and that’s despite the use of gearing.
This is just one Morningstar UK equity category and these are only a few of the investment trusts that fall into this category. Both funds are currently trading close to NAV—PLI is at a slight premium—and are beating their three-year average discount levels. But for investors seeking a balance between capital growth and income, in a low-risk fund, we think both Keystone and Perpetual Income & Growth deserve consideration, at the right price.
