The Results Round-Up: The week’s investment trust results

Pick-up in results this week with no fewer than six funds in the latest round-up: Brown Advisory US Smaller Companies (BASC), Herald (HRI), BlackRock Throgmorton (THRG) , Polar Capital Global Financials (PCFT), City of London (CTY) and Rights & Issues (RIII). But which fund put in the best performance with a +34.8% NAV per share return for the year?

By Frank Buhagiar

Brown Advisory US Smaller Companies (BASC) optimistic despite wild exuberance

BASC’s +5.3% net asset value (NAV) per share return for the half year, a tad off the Russell 2000’s +10.7%. Chairman Stephen White points out that much of the benchmark’s performance “was led by a narrow subgroup of more speculative or unprofitable stocks, many of which were driven by exuberance in the AI, quantum computing, and cryptocurrency sectors.” By contrast, the portfolio managers focused “on strong quality businesses and long-term compounders, that they believe will deliver truly sustainable growth, but which lagged the rally.” The portfolio managers provide examples of the Russell 2000’s “wild exuberance in certain niches”, including Rocket Lab, “a money consuming space company” which saw its share price jump +431% in the second half of 2024; and Rigetti Computing up a cool +1,326%.

White sees good times ahead, “recent developments have caused us to remain optimistic for the prospects of our portfolio. For developments read “The shift in monetary policy by the Fed in September and the first rate cuts since 2020, combined with Donald Trump’s ‘clean sweep’ presidential win and a perceived more business-friendly administration,” all of which “should be supportive for smaller companies with a more domestic bias.” And it’s not just wishful thinking it seems, as “relative performance has picked up since the half-year end.”

Winterflood: “During the period, the average weighting to Financials was c.5%, compared to the Russell 2000 Index weight of nearly 18%. The financials sector rose over 20% during this period, negatively impacting performance by c.1%.”

Herald’s (HRI) double-digit full-year return

HRI’s strong performance track record, specifically the +2,611.1% NAV per share total return since inception in February 1994, a key highlight in the fund’s full-year results. The latest numbers weren’t bad either: NAV per share total return came in at +12.1%. Easy to see why shareholders rejected the advances of activist investor Saba Capital at the recent general meeting. As for this year’s main drivers, the North America segment of the portfolio, the star of the show with a +36.3% return thanks to the AI-led tech boom. The US more than made up for a more pedestrian showing by the UK holdings which were up +3.3% – HRI’s UK stocks were held back by the weak performance of the AIM market.

Investment manager Katie Potts believes “There are a number of factors that should drive continued growth in the wider technology sector.” Artificial intelligence is one. So too, the drive to net zero which “poses some unresolved technical challenges, in particular the storage and distribution of renewable power”. Meanwhile “a geopolitically volatile world” is driving “innovation in defence and cyber security.” Opportunities abound then. But as Potts notes, after the battle with Saba “The challenge for the Company is to unite shareholders around its mandate in order that we can continue to make long-term investments in smaller quoted technology companies.” The continuation vote due to be held in March will provide an early test of that unity and also of Saba’s intentions.

Numis: “If shareholders again show support for Herald’s existing strategy and the continuation vote passes, the board will still likely need to engineer a way to facilitate an exit for Saba to remove the overhang of shares, whilst being fair to the remaining investors – which can be a difficult balance.”

BlackRock Throgmorton (THRG) outperforms during unusual year

THRG comfortably outperformed the Deutsche Numis Smaller Companies plus AIM (excluding Investment Companies) Index over the full year: NAV total return of +16.3%, +2.2% above the benchmark. Chairman Christopher Samuel describes the outcome as “a pleasing result for a cautiously positioned portfolio in a challenging and unusual year.” Portfolio manager Dan Whitestone has now beaten the benchmark in 9 of the last 10 years with the fund’s +130.5% NAV total return between March 2015 and 30 November 2024 not far off three times the benchmark’s +51.8%.

Whitestone admits “2024 has been one of the most difficult years to navigate”, citing outflows in the asset class and mergers and acquisitions in the UK small and mid-cap space as private equity and overseas buyers capitalised on depressed valuations and a weak currency. Thing is, “This is only good news if you own the shares.” Whitestone is finding it “hard to get too constructive on the UK small and midcap universe right now, given the domestic fiscal environment.” Having said that “a deep recession is unlikely, but our hopes for a V shaped recovery in 2025 have been squashed. Our base case now is a return to the environment of 2023, subdued demand and anaemic growth.” What to do? “Continue to invest in companies with strong balance sheets, and growing cash flows.”

Numis: “We rate the manager, Dan Whitestone, highly. The fund has a ‘quality growth’ bias, with a focus on businesses with favourable competitive positions, organic revenue growth and strong balance sheets, looking for companies with a compelling runway for growth and an asymmetric risk/ reward opportunity.”

Polar Capital Global Financials’ (PCFT) best annual investment performance

PCFT’s +34.8% NAV per share return, the best annual investment performance in the fund’s history according to Chairman Simon Cordery. The full-year performance, a tad below the benchmark’s +36.1% but strip out the 6.5% of the portfolio that is invested in fixed income securities which ‘only’ returned +12% and the investment return would have beaten the all-equity benchmark. As the investment managers point out, those stellar fund and benchmark performances down to financials being “the best performing sector of the global equity markets in the period, beating information technology into second place.” Longer-term investment performance stacks up too: NAV total return since PCFT’s reconstruction in April 2020 to 30 November 2024 stands at +129.9% compared to the benchmark’s +128.1%.

The investment managers think there could be more to come “We remain confident on the outlook for the financials sector.” The confidence is based on their view that “the investment background has fundamentally changed from the challenges of the last decade. Interest rates are ‘normalising’ and there is demand for significant investment in reshoring, defence and decarbonisation. We believe the sector will be a key beneficiary of these trends.”

Numis: “Exposure is broader than traditional banks, including exposure to payment systems and insurers and the managers are not afraid to actively manage positioning dependent upon changing market conditions. The shares currently trade on a tight discount of c.4%, which we believe largely reflects the upcoming tender offer for up to 100% of share capital at NAV less costs.”

City of London (CTY) being paid to hold on

CTY maintained its record of outperformance during the latest half year: +2.8% NAV total return versus +2.7% for the AIC UK Equity Income Sector and +1.9% for FTSE All-Share. That means CTY has now outperformed over six months, one, three and five years. Over 10 years, the +83.8% NAV total return beats the All-Share’s +81.9% but falls short of the sector’s +88.9%. Not quite a full house but close. As for what’s behind the outperformance this time round, stock and sector selection cited.

In his outlook statement Chairman Sir Laurie Magnus CBE points out that while CTY invests in UK stocks “At 31 December 2024, some 63% of the underlying sales of investee companies were made overseas. They are therefore well placed to benefit from global growth trends.” What’s more “Given the relative attraction of UK equities to their equivalents in overseas markets, especially with regard to dividend yield, it remains the case that investors in UK equities ‘are paid to hold on’. Unless of course buyers take advantage of the low valuations on offer “More takeovers can be expected from overseas companies and private equity firms while this low relative value of UK equities persists.”

Winterflood: “Share price TR +5.1%, as discount narrowed to 0.0% from -2.2%. Board is confident of 59th consecutive annual dividend increase. Ongoing charges expected to remain around 0.37% for FY25.”

Rights & Issues (RIII) sees opportunities and challenges

RIII’s +8.8% NAV per share return for the full year easily beat the FTSE All-Share’s +5.5%. Good start then for new lead manager Matt Cable who took over at the half-year stage. Looking ahead, Chairman Dr Andrew J Hosty “expects to see continued volatility in the markets. So, whilst there are some signs that energy prices, inflation and interest rates may have peaked, we are now seeing rising gilt yields and, in the UK where we focus, higher employment taxes to contend with.” All of which will generate “opportunities as well as challenges.” Expect no change then in the strategy to seek “investments in differentiated companies operated by good management teams that they believe to be fundamentally underpriced.”

Winteflood: “Share price TR +11.7%, as discount narrowed to 6.4% from 8.9%. Board considered share split to improve liquidity, but decided not to pursue following shareholder feedback.”