Best of breed IT tips

Tips 2008 & 2009

We got off to a good start by choosing the Edinburgh Investment Trust as our first ever fund tip. It was the end of 2008 and stock markets were in disarray following the collapse of Lehman Brothers. We chose the fund as a defensive holding for troubled times, backing the prowess of star fund manager Neil Woodford who had recently been handed the reins of the fund.

Over the past three years the Edinburgh Investment Trust has certainly delivered, making a return of 20 per cent for investors. It is currently the third best performer in the Association of Investment Companies (AIC) UK Growth & Income sector (see table below).

Come 2009 and the full impact of the global financial crisis set in. Many investment trusts were trading at significant discounts, especially in those sectors perceived by investors as 'more risky' – such as commodities and small caps. Capitalising on this we tipped a number of investment trusts including wealth preservation fund RIT Capital partners (on a 7 per cent discount), City Natural Resources High Yield Trust (23 per cent discount), Biotech Growth Trust (7.8 per cent discount), global growth trust Scottish Mortgage (11.5 per cent discount) and Standard Life UK Smaller Companies (10 per cent discount). Have a look at the table below to see how these discounts have since narrowed.

Of these, City Natural Resources High Yield was the top performer. The fund has benefited greatly from the strong gold price and remains our best performing investment trust tip to date - it made a staggering return of 282 per cent from the beginning of 2009 to date, significantly more than the sector average of 161 per cent over the same period. Other top performing tips include the Biotech Growth Trust, the Scottish Mortgage Investment Trust and Pantheon. In fact out of the 18 investment trusts we tipped in 2009, only one (Phaunos Timber) has lost investors' money.

Tips 2010 & 2011

The investment trusts we tipped in 2010 produced equally impressive results - out of 30 funds tipped only three funds, European Investment Trust, Renaissance US Growth Investment Trust and Anthony Bolton's Fidelity China Special Situations Fund made a negative return.

Our best performing funds were those most unloved during the financial downturn of 2008 and 2009, namely small caps and private equity funds.

We have favoured a number of small company stock pickers, including Harry Nimmo's Standard Life UK Smaller Companies and Aberforth Smaller Companies, both tipped in 2009. In 2010 we backed the BlackRock Smaller Companies and Aberdeen Asian Smaller Companies funds and this year (2011) the Throgmortan Trust, which invests in small- and medium-sized companies, and JPMorgan Smaller Companies. Our 2010 small-cap picks proved spot on and are backed by figures from the AIC which suggest that investment companies with a smaller companies focus have invariably outperformed in share price terms over the last year.

The average UK Smaller Companies investment company is up 21 per cent over the last year to 31 August, compared with an overall industry average of 9 per cent and an average of 5 per cent for the UK Growth sector. Top performers include the Aberdeen Asian Smaller Companies and BlackRock Smaller Companies Trust.

Our prediction in early January 2010 that private equity investment trusts were likely to emerge as the "comeback kids of 2010 and 2011" also proved correct and investors who backed these should be happy. Private equity funds that have been on our buy list include Pantheon International Participations, HgCapital Trust, Electra Private Equity, Dunedin Enterprise, Conversus Capital and SVG Capital.

We are still positive on the private equity sector, although more selective. This year we have backed JPMorgan Private Equity and Standard Life European Private Equity. The latter is holding up well compared with the sector; however, to date our best performing investment trust tip in 2011 is Baker Steel Resources. Despite volatile markets the fund is up 12 per cent and the top performer in the commodities and natural resources sector.

Source: Morningstar. All figures as at 16 September. *Rank, Sector position and Mean in Sector figures refer to same period as Performance period.