Finding exceptional investment trusts without the price tag
“Covid-19 has created a once-in-decade opportunity to pick-up exceptional investment trusts at...
Six months on from the fastest stock market falls in history, much of the recovery story has centred around the US and, in particular, its big tech stocks.
Having already led markets for some time before the crisis, the pandemic has given these companies an extra boost, as more and more of our daily lives have gone online.
But behind the headlines, another sector of the market has also done remarkably well: European smaller companies.
Looking at the sector average returns of all funds and trusts since the market lows of 23 March 2020, those investing in European smaller companies have performed best. The average fund in this sector has returned 47.1%* and the average trust has returned 78.3%*.
Both have beaten the average technology fund and trust, which returned 47%* and 62%* respectively.
Other regions’ smaller companies have also done well. In the funds ‘universe’, US, Japanese and UK smaller companies sectors make up the rest of the top five spaces (technology is second). In the trusts universe global smaller companies are also in the top five*.
European equities got hit particularly hard because, after China, the global pandemic really took hold in Spain and Italy. But European leaders surprised the market and got their act together quickly to put a stimulus package in place. The fact that European stock markets were fairly cheap to begin with and a weakening Sterling vs the Euro (due to Brexit uncertainty) has also helped this region bound back strongly.
And while smaller companies tend to get hit hardest when markets fall, as investors run to safety, the midst of a market panic can also be a great time to buy them – as evidenced by these returns.
Hugh Grieves, co-manager of LF Miton US Opportunities fund, told us why it’s best to invest in smaller companies in the depth of a recession, in this podcast interview back in April:
Another sector that has largely gone unnoticed is gold – mainly because funds investing in the precious metal are placed in the ‘Specialist’ sector, along with all sorts of different types of offerings from Latin American equities to infrastructure.
But four of the top ten funds of the many hundreds available are all invested in gold equities*.
The performance of our Elite Rated funds and trusts is further evidence of the small-cap bounce. Of the 15 best performing over the period, 11 either invest exclusively in smaller companies or have a bias towards them. A further two are gold funds*.
The best performing Elite Rated portfolio has been Scottish Mortgage Investment trust, which has returned 109.5%*. It is followed by newly rated Baillie Gifford American (106.6%*) and Baillie Gifford Shin Nippon (94&*).
Over the course of what has been a very turbulent year, all 15 of these funds are also in positive territory year to date – and by a very healthy margin in most cases**.
|Rank||Fund/Trust name||Bounce back performance*||Performance year to date**|
|1||Scottish Mortgage Investment Trust||109.5%||70.0%|
|2||Baillie Gifford American||106.6%||86.4%|
|3||Baillie Gifford Shin Nippon||94.0%||33.5%|
|4||Merian Gold & Silver||91.1%||34.0%|
|5||Baillie Gifford Global Discovery||76.1%||49.6%|
|6||Ninety One Global Gold||76.0%||38.9%|
|7||Fidelity China Special Situations||68.9%||42.7%|
|8||LF Miton US Smaller Companies||65.8%||32.5%|
|9||Baillie Gifford Japan||64.0%||9.0%|
|10||T. Rowe Price European Smaller Companies Equity||61.3%||18.9%|
|11||Baillie Gifford Japanese Smaller Companies||59.9%||26.3%|
|12||ASI Global Smaller Companies||57.3%||18.5%|
|13||T. Rowe Price Global Focused Growth Equity||55.6%||29.8%|
|14||LF Miton European Opportunities||55.4%||24.3%|
|15||Marlborough European Multi-Cap||54.4%||6.68%|
*Source: FE Analytics, total returns in sterling, 23 March 2020 to 30 September 2020, using Investment Association and Investment Trust sector averages.
**Source: FE Analytics, total returns in sterling, 1 January 2020 to 30 September 2020