Trust Awards 2014: This year's sector stars look set to shine again
9th July 2014 16:09
The objective of our annual investment trust awards is to highlight trusts that seem likely to perform well within their sectors in future.
To that end, we identify trusts that have not only achieved the highest net asset value (NAV) returns in their sectors over the past three years, but have also been above average in each of those years.
All the winners have beaten their benchmarks over the three-year stretch, in many cases by a wide margin. So have all the highly commended trusts, bar two ( and ). They demonstrate that active management can add a lot of value. Those who have entrusted their money to passive vehicles have been left well behind.
Among this year's sector-based winners, , , , , , and all won or were highly commended last year.
This repeated success indicates that their outperformance has been above average for at least four years. and could not feature last year because they did not have a full three-year record at the time. It is good to see new blood.
Our awards focus on NAV returns because these provide the best guide to the skills of managers, which is what continuing success ultimately depends on. In this context, it is interesting that three of the 10 award winners have had the same manager for at least 10 years, while four have had the same manager since inception.
In many cases, share price returns have been substantially better than NAV returns, thanks to tightening share price discounts to NAV. Investors must be wary if they have moved to a premium.
It may be justified, as in the case of Law Debenture, which has an income-producing subsidiary included in the NAV at cost rather than market value. However, a premium rating often means there is more downside than upside potential in the share price returns.
How the awards are won
Individual trust awards
Sector-based awards
To identify the top-performing trusts, we rank trusts in the sector(s) according to the following weighted result: 40% for annual net asset value performance to 1 April 2014, 30% to 2013, 20% to 2012 and 10% for the overall three-year NAV return to 1 April 2014.
In the private equity category, returns tend to be sporadic, so each year's performance is weighted equally. To reward consistency, we favour trusts that have been in the top half of the peer group in each of the past three years.
Our three-year awards are based on NAV returns, as these reflect the skills of managers more closely than share price returns, where underlying performance is distorted by movements in the share price discount or premium to NAV. However, the graphs for each winner show share price total return.
Regular savings awards
The criteria are based on share price performance for monthly savings of £50 over five years; long enough to iron out fluctuations in discounts and premiums to NAV. Contenders must have a minimum £100 million capitalisation at 1 April 2014. Several sectors are considered for each award.
Qualitative considerations
The judging process includes a qualitative element. Typically, these considerations include:
- Trust manager's tenure.
- Share liquidity and company size.
- Whether the company's strategy broadly tallies with retail investors' expectations.
- The diversity of the underlying portfolio.
Premier group award
The Premier Group award is open to the nine management groups with a diversified choice of trusts. We include the returns of all trusts managed by the group for at least three years, or those that retained the investment manager in the event of a switch. The contribution of each trust is calculated on the same basis as the sector-based awards.
Data sources
Performance figures are supplied by the Association of Investment Companies, using Morningstar figures (also used for graphs). Other figures are derived from Winterflood Securities and Numis Securities data. All data as at 1 April 2014.
Editor's Picks