Building a portfolio with investment trusts
By Nick Britton, Head of Intermediary Communications, AIC When the average investment trust has lost...
As our millennial writer has pointed out to us, her generation has gained a reputation for job-hopping, with a “job for life” becoming a thing of the past: those aged 25-34 have already had, on average, an astonishing six different roles in their professional careers*.
But are they really any different from other generations and, while they may have a nomad start to their work life, will they eventually settle down into a role?
According to Morningstar data, the average fund manager tenure in the UK Equity Income sector, among investment trusts is 12 years 10 months, while among open-ended funds the average manager has been in place just 6 years 11 months.
The same data analysis also shows that often the longer a manager has run a fund, the more likely it is to outperform.
“Investors can benefit from the rich experience that managers have, running portfolios in good times and bad,” commented Nick Britton from the Association of Investment Companies (AIC).
So when it comes to finding the funds and trusts that can deliver the best long-term returns, it can pay to check who the manager is and, crucially, how long they have been at the helm.
This year, three Elite Rated fund managers are celebrating 20 years managing the same trust or fund. Here’s what they had to say.
Alexander trained as an investment analyst and had a few jobs in this role before he joined Jupiter in 1995 – a company he stayed with until 2019, when he left to set up his own company, Devon Equity Management Limited.
He has managed the European Opportunities Trust since November 2000 and, since then, has returned 786.44% for his investors compared with 337.61% for the sector average**.
Alexander told us: “We have endeavoured to be consistent in applying the trust’s investment process whatever the market conditions, sentiment or economic backdrop.
“This consistency has been key to the success of the trust. In other words, we have not followed market fashions either at the top or at the bottom: we avoided the bubbles and we avoided the periods of panic. The investment trust structure is terrific in that it allows us to behave this way.
“The European Opportunities Trust is the core of our new venture, Devon Equity Management. We are excited about the opportunity to reward shareholders who supported us in this move.”
Carl had several non-investment related jobs after he graduated from university in 1991. “My first job was as a chef,” he told us. “My worst day in that job was when I spent all day plucking pheasants. I’m now a vegan!”
After joining the investment industry in 1996 and, in 1998 became an assistant fund manager. He has managed Rathbone Income fund since the turn of the century – taking on the role just as the technology bubble burst and a bear market began. Over his tenure, the fund has returned 396.90% compared with 223.59%*** for the sector average and the dividend has increased in 19 of those 20 years.
In a recent video interview, among other subjects, he talked about 20 years managing the fund “I love the variety,” he said. “I really enjoy meeting lots of companies and when you get an investment right it’s a good feeling. My job is different today than it was 20 years ago. Today I run a bigger team and more mandates and have different challenges, but I still enjoy it.
“The best stock choice over the past two decades for me has been Decra Pharmaceuticals,which I’ve now owned for 17 years. The shares halved almost immediately after I purchased them but I held my nerve and added to the holding, and the shares ever since have rewarded.”
James graduated from university and, after post graduate study in Italy and Canada. Joined Baille Gifford in 1983 – where he has stayed ever since.
He has managed the Scottish Mortgage Investment Trust since April 2000 and, since then, the trust has returned 728.01% compared with 361.85% for the sector average^.
Speaking about his time running the fund, James told us: “When I look at the very savage bear market of 2008-09, the lesson learned there was was that, for all the nervousness and terrors we saw in that time, it was all about keeping your discipline and spotting bargains.
“A good example of this is that we initially missed out on buying Apple, and we got to buy in early 2009 at what turned out to be a very good price. Amazon have also said to us quite frequently that 2009 was a crucial period for them in establishing their dominance because a lot of their peers went under.
“The other big lesson I’ve learnt is to find your own way and listen to your principles. Don’t listen to conventional wisdom about what we should spend our time doing and how we should think.”
“I find this job rewarding, but also self-reinforcing, because I’m actually finding I’m more radical now in terms of what we should be doing and what are the advantages. That’s not meant to happen as you get older!”
*Source: OnePoll, commissioned by Open Study College, of 2,000 adults
**Source: FE Analytics, total returns in sterling, 20 November 2000 to 7 January 2020, trust performance compared with the IT Europe sector average.
***Source: FE Analytics, total returns in sterling, 31 December 1999 to 7 January 2020, fund performance compared with the IA UK Equity Income sector average.
^Source: FE Analytics, total returns in sterling, 31 March 2000 to 7 January 2020, trust performance compared with the IT Global sector average.