Top alpha-generating trusts revealed

Kepler's survey analysed the alpha of investment trusts and open-ended funds across five investment areas: UK large-caps, global large-caps, European equities, Asia and emerging markets equities, and smaller companies. It also measured the level of correlation between funds and their benchmarks, and their volatility over five years.

Among UK large-caps, the open-ended fund with the highest alpha was CF Lindsell Train UK Equity (GB00BJFLM156), which scored 7.74 per cent. The fund is managed by Nick Train, who also runs Finsbury Growth & Income Trust (FGT), which came second among UK large-cap trusts with an alpha score of 7.23 per cent. The top-performing UK large-cap trust was Fidelity Special Values (FSV), which generated 7.32 per cent.

Among global large-caps, the investment trust with the highest alpha was Scottish Mortgage Investment Trust (SMT), with 1.24 per cent. The trust was one of only a few to have delivered positive annualised alpha over five years in the Association of Investment Companies (AIC) Global or Global Equity Income sectors and the only large-cap fund to have done this.

The highest-scoring equities trust was Jupiter European Opportunities (JEO) with 5.77 per cent, followed by JPMorgan European Investment Trust Income Pool (JETI), which generated an alpha of 4.71 per cent. The trust also has an attractive yield of 3.3 per cent, according to Winterflood Securities, as at 3 May.

Among smaller companies, the trust with the highest alpha score was Baillie Gifford Shin Nippon (BGS) with 8.5 per cent.

Pascal Dowling, director at Kepler, said: "What we think stands out in this study is that the death of active management has been greatly exaggerated. Across a whole range of international sectors we've been able to identify managers who have, through their stockpicking skill, consistently generated returns that beat the index - in some cases by a very significant margin. At a time like this with indices around the developed world at all-time highs, we think the risk is on the downside - and this is exactly the wrong time to put your faith in a robot, which will deliver whatever returns lie in store for those indices."

Jason Hollands, managing director at Tilney Group, said the list of managers the research had thrown up shared a common thread. "While there are many different strategies represented, most of the managers are taking conviction positions and the funds they manage are run in a benchmark-unaware way," he said. "Either the funds are more concentrated or unconstrained, or they tend to have a lot more in mid-caps than the indices."

He added that when investors are choosing active managers and paying higher fees for this, a track record of outperformance from taking conviction positions is what they want to see.

Meanwhile, when trying to choose between an open-ended fund and an investment trust run by the same management team, investors should also weigh up the costs and the level of discount.

For instance, Mr Hollands favours Edinburgh Investment Trust, which has an ongoing charge of 0.61 per cent, over Invesco Perpetual High Income (GB00BJ04HQ93), with an ongoing charge of 0.87 per cent, and Invesco Perpetual Income (GB00BJ04HX60) with one of 0.86 per cent. These are all run by well-regarded manager Mark Barnett.

UK Large-Caps: Top five trusts by alpha

Source: Kepler, as at 26/4/17