The Results Round-Up – The Week’s Investment Trust Results

Which investment trust has joined the £1 billion club? And what has Odyssean IT been able to do that a large number of investment companies haven’t been able to this past year?

Frank Buhagiar•14 Jun, 2024•

TR Property (TRY) looking for stability

TRY posted a +21.1% NAV total return for the year, outpacing the benchmark’s +15.4%. As Chair, Kate Bolsover, explains, most of the year’s gains were made in the second half as H1’s NAV Total Return came in at just +3.3%. Bolsover puts the strong H2 down to the underlying companies making ‘great strides to improve their balance sheets and debt books over the last two years. This was always going to be a key building block in the sector’s recovery.’ Heightened M&A activity also helped. Looking ahead, Bolsover points out that ‘What is being looked for is stability in the monetary environment with lenders returning and margins normalising.’

JPMorgan: ‘TRY has outperformed, building on a good long-term track record, driven by security selection overall, we remain comfortable with our Overweight recommendation.’

Numis: ‘TR Property’s pan-European mandate focused on listed Property companies is unique in the ICs sector. TRY shares are currently trading at a c.9% discount, which we continue to view as undemanding.’

Fidelity China Special Situations (FCSS) and the importance of being a £1bn fund

FCSS may have posted a -16.3% NAV Total Return for the year, but at least this was better than the MSCI China Index’s -18.8% total return (sterling). According to Chairman, Mike Balfour, China’s tough year was down to global uncertainties and geopolitical concerns remaining heightened, as well as a softer-than-expected economy recovery in the wake of COVID restrictions being lifted. The fund’s latest full-year performance means FCSS’ NAV has now outperformed the index over one, five and 10 years. Over the last ten years, total shareholder returns stand at 125.7%, compared to the index’s 49.3% return.

That long-term record goes some way towards explaining why 99.9% of abrdn China shareholders supported the proposed tie-up with FCSS. The transaction resulted in a £126 million asset infusion for FCSS, taking the asset base to over £1 billion. Not just a nice round number. As Portfolio Manager, Dale Nicholls, explains ‘the increased scale and liquidity should help to bring Fidelity China Special Situations PLC to the attention of more professional fund buyers’.

Numis: ‘we believe that Fidelity China is an attractive way to access the market, should investors be comfortable with the risk profile of a leveraged fund with a focus on mid/small caps in a single Emerging Market.’

JPMorgan: ‘We think FCSS deserves a narrower rating due to its larger size and better liquidity and it has also had a favourable NAV TR performance over the past 1 year, 3 year and 5-year periods.’

Odyssean (OIT), an outlier

OIT’s concentrated UK small-cap portfolio didn’t benefit from any takeovers during the latest financial year – one of the reasons given by Chair, Linda Wilding, for why NAV per share came in at -3.7%, compared to 3% for the broader market. While the wider market benefited from M&A activity, this largely escaped industrial stocks, an area OIT has significant exposure to.

A strong long-term performance record helped keep the share price at around NAV during the year, allowing the fund to grow by issuing equity. Makes OIT something of an outlier in the broader investment company space.

Numis: ‘Performance since launch has been exceptional, with OIT producing NAV total returns of 75% (9.6% pa), compared to 32% (4.6% pa) for the DNSCI inc. AIM ex ICs index. We believe that the stockpicking record speaks for itself and that Odyssean represents an attractive and differentiated addition to a portfolio.’

Lindsell Train (LTI) standing out from the crowd

LTI posted a total NAV return of +2.1% for the year, some way off the MSCI World Index’s +22.5% (sterling). According to Chairman, Roger Lambert, the underperformance is due to a combination of factors including a drop-off in annualised NAV total returns to +6.4% per annum from +14.4% between 31 March 2001 and 31 March 2020; fund outflows from investment manager LTL in which LTI has a 24% stake; and a general widening of discounts in the investment trust sector.

Despite the disappointing year, the fund has kept true to its investment disciplines – it rarely changes its portfolio of a small number of stocks so that compounding can work its magic on earnings and value. As Lambert says ‘It is a differentiated approach that stands out against the crowd’.

Numis: ‘We believe that Lindsell Train IT is an interesting vehicle that benefits from both an experienced management team and a unique approach. The fund’s long-term performance is impressive, helped by strong returns from the management group.’

Winterflood: ‘The Board believes that, to maintain or grow dividend going forward, ‘material improvement’ in LTL performance is required, and this will need to be evidenced before the Board is willing to utilise additional revenue reserves, which ‘will be asking a lot over the next year’.’

abrdn New India (ANII) focusing on quality

ANII may not have matched the +34.4% return of what Chairman, Michael Hughes, describes is the riskier MSCI India Index, but the fund’s NAV total return still soared +27.8% in sterling terms during the year ended 31 March 2024. And since period end to 10 June 2024, the fund’s NAV total return of +14.7% trounced the index’s +6%. As Hughes points out there’s a lot to like about India: fast-growing economy; large, youthful population; growing middle class; corporations holding their own on the international stage; supportive policies; infrastructure spending boom; and relative geopolitical stability.

There’s a but, though. ‘Investing in India, however, means accepting market volatility, particularly as high growth rates in corporate earnings come with high valuations’. That’s especially true in the small and mid-cap space. As a result, ‘these do not form the core of our portfolio although they are included in it to ensure that shareholders benefit over the medium-to-longer term.’ Instead, the focus is on “high-quality, resilient companies that possess strong balance sheets and can profit from pricing power at each stage of the economic cycle.’

Winterflood: ‘The strongest sector returns came from holdings in Property, Infrastructure and government spending beneficiaries in Utilities and Industrials sectors, while Consumer, Financials and Energy stocks lagged market returns.’

Baillie Gifford UK Growth Trust (BGUK), not in the business of second-guessing markets

BGUK’s NAV total return came in at +0.6% for the year, some way off the FTSE All-Share’s +7.5%. Similar story over the five years to 30 April 2024: +3% NAV total return compared to the All Share’s +30.1%. Chair, Carolan Dobson, puts this down to the macroeconomic backdrop of sluggish economic growth, rising interest rates and a spike in inflation. An environment ‘not conducive to Baillie Gifford’s growth investment style’. The index is jam-packed with resource and financial stocks ‘whose profits tend to be cyclical with limited long-term sustainable growth and as such are not areas that meet the Managers’ long term growth requirements.’

The Investment Managers have asked themselves what they could have done differently. They could have taken positions in index heavyweights such as the resources and financials. But this would have meant ditching their long-term active investment approach for a short-term one based around ‘trying to second guess, and trade around, short term swings in style in stock markets. Attempting to do so in our view could make things far worse for shareholders.’ The Board sounds happy with that – it is recommending shareholders vote for the continuation of the fund at the upcoming AGM.

Numis: ‘After a difficult period for performance since Baillie Gifford took over the trust in June 2018, the Board has committed to allow shareholders to realise up to 100% of their assets via a performance-related conditional tender should the fund not match or exceed the FTSE All Share in the five years to 30 April 2029. This is conditional on the continuation vote in September 2024 passing.’

JPMorgan Emerging Markets (JEMA) feeling optimistic

JEMAposted a +6.9% NAV total return for the half year, a little off the benchmark’s +9.1%. The difference is partly down to the fund’s Russian assets which do not form part of the index. The Russian holdings continue to be subject to strict sanctions. Looking ahead, the investment managers sound as if they are ready for anything, ‘whatever 2024 may hold, we remain optimistic about the longer-term prospects of emerging markets in Europe, the Middle East and Africa.’

Winterflood: ‘As at 30 April, portfolio comprised 100 stocks, of which 26 were Russian securities. The latter account for 8% of portfolio (written down to account for sanctions).’