The investment trust sector may well be in for better things this year, but it's unlikely we'll see an end to the vigorous consolidation witnessed in 2023. In the past week we've seen another instance of a large, successful fund looking to gobble up a smaller peer, with proposals for the £2.1bn JPMorgan Global Growth & Income (JGGI) to absorb the £69mn JPMorgan Multi-Asset Growth & Income (MATE).
Consolidation can certainly be a good thing, with sub-scale trusts merging into more successful trusts, and the latter then gaining even more momentum. But there are drawbacks too: namely, that we can end up wiping out contrarian options in the sector and limiting the diversity of approaches on offer.
We have definitely seen some changes of tack that in the short term have proved ill fated: think Keystone Positive Change (KPC), a trust that switched from being a UK value investing vehicle to a global, Baillie Gifford-managed fund back in 2021. It has struggled in the face of market rotations since then, while UK value has fared somewhat better.
Similarly the Scottish Investment Trust, a contrarian fund absorbed by JGGI back in 2022, saw something of a boost to its returns ahead of it being merged away thanks to the value style coming back into favour.
But am I being overly pessimistic? A look at the Association of Investment Companies’ Global sector does suggest worries about a lack of variety are overblown for now. To give a sense of the options, we have some high-octane growth in the form of Scottish Mortgage (SMT) and the slightly unusual, now very AI-focused Manchester & London (MNL). Beyond that we have broader, more diversified funds in the form of multi-manager vehicles Alliance Trust (ATST) and Witan (WTAN) alongside options such as F&C (FCIT) and ‘all-weather’ equity portfolio Brunner (BUT).
You also have an interesting activist, value-oriented portfolio in AVI Global (AGT) and a few other oddities – think Lindsell Train (LTI), which has exposure to the underlying fund management business and once commanded an enormous share price premium to portfolio net asset value.
Global equity funds need to be differentiated in an age when investors can get exposure to the outperforming US and global markets on the cheap in a passive format, and my concerns may well be better founded if we look at other groupings of funds. Sectors such as UK equity income arguably offer less room for investment managers to take a highly distinct approach, for example.
If investors do have plenty of distinct options in the global equity space, it’s worth remembering a couple of things. Firstly, their more granular focus means many of them serve better as a smaller, satellite position in a portfolio rather than a core holding.
The more focused approach also means that these funds can easily dip in and out of favour, meaning it can be important to diversify among them. Investors may well want to hold some of these funds alongside trackers or pair them together. As we have previously argued, value plays such as AVI Global might sit well alongside some of the well-established growth funds.
