It's that time of year again for a Phileas-Fogg inspired voyage around the world of investment trusts. One of the great joys of investment trusts is their ability to give investors instant and easy access to exotic markets with an experienced fund manager as an investment guide.
The return from last year's Around-the-World portfolio of eight trusts was decent but much of this was down to strong markets. That said, there was some outperformance, too, and six out of the eight trust did better relavent indices. Arguably, things would have been better without some Brexit-related damage done to the UK generalist pick (see table).
2015 PERFORMANCE
| Name | TIDM | Total return (22 Oct 2015 - 17 Oct 2016) |
|---|---|---|
| Standard Life UK Smaller Cos | SLS | 5.8% |
| FTSE All-Share | - | 14% |
| JPMorgan European Smaller Co | JESC | 25% |
| FTSE Europe ex. UK | - | 22% |
| JPMorgan Russian | JRS | 54% |
| FTSE Emerging Markets | - | 40% |
| Scroder Asia Pacific | SDP | 38% |
| FTSE Asia Pac ex. Jap | - | 35% |
| JPMorgan Japanese Smaller Cos | JPS | 30% |
| FTSE Japan | - | 30% |
| North American Income | NAIT | 45% |
| Russell 2000 | - | 36% |
| S&P 500 | - | 37% |
| Finsbury Growth & Income | FGT | 17% |
| FTSE All Share | - | 14% |
| Personal Assets | PNL | 16% |
| FTSE World | - | 32% |
| Around World Trusts | - | 29% |
| All Indicies | - | 28% |
| FTSE World | - | 32% |
| FTSE All-Share | - | 14% |
Source: Thomson Datastream
And the longer-term outperformance of the strategy looks pretty good with a cumulative total return over four years of 89 per cent compared with 44 per cent from the FTSE All Share and 85 per cent from the US-heavy FTSE World index, or 64 per cent from a 50:50 blend (see graph). This return is based on switching out of one portfolio and into the next each time a new portfolio is published. The total return data assumes dividends are reinvested. If a notional 1.5 per cent annual charge is factored in for dealing costs, the cumulative outperformance drops from 89 per cent to 78 per cent.
Around the World portfolio performance
YEAR-BY-YEAR PERFORMANCE
| Year to Oct | FTSE All-Share | FTSE World | 50:50 All-Share/World | Around the world trusts |
|---|---|---|---|---|
| 2013 | 21% | 24% | 23% | 25% |
| 2014 | -0.8% | 5.1% | 2.1% | 0.5% |
| 2015 | 5.6% | 7.1% | 6.4% | 17% |
| 2016 | 14% | 32% | 23% | 29% |
| Year to Oct | FTSE All-Share | FTSE World | Index Blend | Around the world trusts | Around the world with 1.5% charge |
|---|---|---|---|---|---|
| Start | £1,000 | £1,000 | £1,000 | £1,000 | £1,000 |
| 2013 | £1,212 | £1,241 | £1,226 | £1,253 | £1,234 |
| 2014 | £1,202 | £1,304 | £1,253 | £1,259 | £1,221 |
| 2015 | £1,269 | £1,397 | £1,332 | £1,469 | £1,404 |
| 2016 | £1,444 | £1,848 | £1,639 | £1,892 | £1,781 |
Source: Thomson Datastream
While it's Fogg's adventure that dictates the investment destinations of this investment-trust world tour, the specifics of the stop-offs are decided by my 'overlooked and outperforming' investment-trust screening methodology. This screen aims to find trusts that are attractive based on a combination of three-month price momentum and trust's with shares that look 'cheap' relative to net asset value (NAV) based on their one-year range, as measured by the Z-score. The screen is also only interested in trusts with shares trading at a discount to NAV and with market capitalisations of £100m or more - to try to avoid trusts with very illiquid shares. My recent 'overlooked and outperforming' stock screen offers a more detailed explanation for the rationale behind the strategy.
Trusts are ranked separately based on both their momentum and relative cheapness. These two scores are then added together to create a combined ranking, which the final rank is then based. This is a rankings system that hedge fund manager Joel Greenblatt employed, using different factors, for his 'magic formula' which attempts to find equities that offer both value and quality.
The Around-the-World trusts choices are based on the highest ranking shares in each of the geographic regions visited on this annual circumnavigation of the globe. The route starts on home turf hunting for a UK generalist trust (including smaller companies funds), then moves to Europe, on to Asia, across to Japan, a quick stop in the emerging markets, before alighting in the US and then back to blighty to select a UK equity income fund. Finally, a global generalist is chosen for good measure. Unlike Mr Fogg who had to uproot himself from his habitual haunt that was the Reform Club to make his voyage, the delights of investment trusts means I've able to conduct my expedition from the comfort of my desk at IC Towers.
As with previous years, I've included an alternative trust selection for each geography visited alongside the top ranking trust. With some of the eight geographies, the alternative trust provides a more mainstream choice as some of the top trusts are fairly esoteric, such as the UK generalist and emerging markets picks. Where another esoteric trust ranks second above a more mainstream fund, I've provided details of that too. It's also worth noting that technically the top North American trust was Middlefield Canadian Income, however, I felt it important that this region was represented by a fund with exposure to the US given this market's global dominance.
So, without further delay, pack your bags and grab your investment passport as we go around the world in eight investment trusts.
UK
