- Equity income funds are a stand out theme this month.
- The report is also very keen on funds invested in income producing assets with an inflation link.
- All the report portfolios from the past year lead the FTSE All Share and 7/10 lead the MSCI World
The market’s mood has changed. The new consensus appears to be that inflation is here to stay and interest rates are on the up. For the Alpha investment trust report that means it's time to back income-focused trusts.
It feels like there has been quite a mood change at the start of 2022. For most of last year, central banks and the market had managed to tow the line that inflation was transitory and monetary largesse could continue. That all changed in the final months of 2021 and January seems to have found investors in a far more sober mood.
Hot stocks have gone cold. The US market, long the global trailblazer, is also looking sheepish. It is folly to try to read too much into short term moves but given the market had previously become so dominated by just a few themes, it would not be too surprising if we were at some kind of inflection point.
At least, that’s what this month’s Alpha investment trust report is suggesting. The fact that so many of the trusts featured in the report are new names, also indicates something of a changing of the guard.
The new troops marching out in front of the palace are stout, income-generating types. This makes some sense in the context of heightened concerns about persistent inflation and interest rate rises.
As things stand, of the ten portfolios highlighted over the last 12 months, seven are performing ahead of the MSCI World index on a total return basis. All are beating the FTSE All Share index.
The UK index is an important comparator for the report because the investment trust universe has an outsized number of UK-focused funds. This report’s portfolio construction rules (see below) cater to this by allowing up to half of each month’s trust picks to be UK equity funds. Indeed, this month is a case in point with four of the ten trusts focused on UK equities and one focused on UK real estate.Download PDF