In a report written by Alan Brierley, formerly director of investment company research at Collins Stewart, found that 22 out of the top 25 investment companies by market cap had outperformed their benchmarks.
Furthermore, within this group, which have a combined market cap of £27.5bn, all 16 equity-focused investment trusts outperformed the equivalent open-ended sector average by a simple annualised average of 4.3%.
The report comes as the “evolution” of the IT sector gathers momentum, Cannacord Genuity said, with an intolerance of persistent mediocrity leading to the removal of “perennial underachievers”.
“This is an ongoing process and with some corporate actions still uninspiring, we would like to think that moving forward board’s avoid taking what one leading investor recently referred to as the ‘lazy option,’” Canaccord continued.
The report goes on to say that the investment trust sector has long been considered the “sleepy sector” and poses the question of what could happen if the sector ever woke up.
“The ability to focus on managing money without distractions of managing inflows/redemptions is a key advantage. In addition lower TER’s and the ability to enhance returns through gearing, buybacks and new issues should underpin superior returns.”
Notable changes
One key feature the report highlights is the growing prominence of alternative investment sub-sectors in the investment trust universe.
Ten years ago, it said, SVG Capital was the only “alternative” investment company in the top 25, whereas hedge funds, private equity, infrastructure, property and debt now play a far bigger role, with nine out of the top 25 and 27% of the total market cap following an alternative mandate.
Alliance Trust, which is currently dealing with an activist shareholder in Laxey Partners, is the largest investment trust, but Templeton Emerging is closing the gap. “With Alliance buying around £1m of its shares daily, if equity markets continue to make progress then Templeton Emerging could become the largest investment trust within the next year,” Canaccord said.
Even in its current position, Templeton’s progression in the past 10 years has been impressive, with a rise from 11th to second place in terms of market cap.
Meanwhile, Murray International, run by Aberdeen’s Bruce Stout has also had an extremely successful decade, moving from 27th largest to eighth largest in the investment trust sector.
“While most of its global peers have been actively purchasing their own shares, strong demand from investors has seen Murray International increase its number of shares by 30%.”
Poor performers
The largest fallers of those included in the top 25 in 2002 are Edinburgh US Tracker – down 75 places and Merrill Lynch European – down 68 places.
Two JPMorgan investment trust are next in line of the biggest fallers, both down 67 places, while European Investment Trust (formerly F&C Eurotrust) is down 60 places.
