JEFF PRESTRIDGE: Is it time for global trusts to get their Faangs out? That’s Facebook, Amazon, Apple, Netflix and Alphabet (Google as was) by the way
As regular readers of our Wealth section will know, I am a big believer in using investment trusts to build long-term wealth. They’re diversified, usually low-cost and their shares can always be bought and sold on the London Stock Exchange.
All rather reassuring given what happened in June last year to investors in Woodford Equity Income – prevented from getting their money out when fund dealings were suspended – and what thousands of investors, trapped in commercial property funds, are presently experiencing.
Both the Woodford fund and the property vehicles in question are investment funds, not stock market listed investment trusts, which means that anyone wanting out is always dependent upon the fund having sufficient cash available to pay them their dues. As Equity Income and numerous property funds have demonstrated, such cash is not always in ready supply.
What goes up…: Many trust managers are willing to ride the technology wave
Of course, not all investment trusts are run as well as they could be, but the independent boards that oversee them usually keep the investment managers on their toes – occasionally firing them if poor performance lingers for too long. My favourite trusts are those that are globally invested.
Some of them have been around since Queen Victoria was on the throne and are perfect vehicles for investors who want exposure to a broad range of markets and companies within one investment vehicle.
They’re not without risk, but they deliver more times than they disappoint.
On Friday, I did some back-of-the-envelope analysis of the 16 trusts that sit within the ‘global growth’ investment trust sector. Over the past year, they have enjoyed average returns of 7.7 per cent.
In other words, if you had put £1,000 into each of these trusts a year ago, your £16,000 investment would now be worth £17,233, minus any dealing costs.
To put these numbers into perspective, the FTSE All-Share Index has fallen by 11 per cent over the same period. An investment of £16,000 in the index would now be worth £14,240.
The 7.7 per cent average, however, is misleading. The 16 trusts have delivered an almost mind-blowing range in returns. At the top of the tree is Baillie Gifford’s Scottish Mortgage – the country’s largest trust with a market capitalisation of £14billion – with a staggering return of 87.5 per cent.
In stark contrast, Lindsell Train has recorded losses of 19.4 per cent, while six other global trusts have delivered one-year losses.
The range in performance can be part explained by the quality of the investment management teams. It is also a reflection of the willingness of the trusts’ managers to ride the technology wave.
Looking under their bonnets, the winners have been those that have taken big positions in the so-called ‘Faang’ stocks – Facebook, Amazon, Apple, Netflix and Alphabet (Google as was) – as well as chunky stakes in the likes of Microsoft and electric car manufacturer Tesla.
Analysis of the portfolios of the five best performing global trusts over the last year shows that their respective disclosed stakes in the Faangs, Microsoft and Tesla stand at 25.7 per cent (Scottish Mortgage), 8.8 per cent (Monks), 53.1 per cent (Manchester & London), 4.4 per cent (Martin Currie Global Portfolio) and 10.4 per cent (Bankers). Trusts Alliance and F&C also have more than 10 per cent exposure.
While we live in a world undergoing rapid change as a result of increased digitalisation and decarbonisation, this does not mean that the shares of the companies benefiting from these trends will continue skywards. As Christopher Lees, manager of the £1.4billion JOHCM Global Select Fund told me last week: ‘Trees do not grow to the sky.’ At some stage, he says, Faang stocks will ‘roll over’ – in other words correct.
For the record, JOHCM Global Select (not an investment trust) does not invest in any of the Faangs and has done pretty well as a result – a one-year return of nearly 14 per cent.
Investors in some of these Faang-infested global investment trusts would be wise to take some profits – before shares in these funds roll over.