F&C research highlights trusts’ relative outperformance

Most investment trust sectors outperform their open-ended peers when it comes to share price total returns, according to new research commissioned by F&C Investments.

Neil Woodford
Neil Woodford

Figures compiled by Winterflood Securities for the asset manager show trusts have returned more than Oeics in seven of eight major sectors across both one- and five-year timeframes. 

Comparing equivalent Investment Management Association (IMA) and Association of Investment Companies (AIC) sectors, the data says trusts outperformed in the UK Equity Income, Global Growth, Global Emerging Markets, Asia Pacific ex Japan, Europe ex UK and North America spaces.

Only in the UK Smaller Companies and Japan sectors did Oeics outperform investment trusts over one and three years. However, when performance is looked at over ten years, all eight investment trust sectors outperform their IMA equivalents.

Peter Hewitt, the manager of the F&C Managed Portfolio trust, says: “In many of these sectors, but particularly Global Emerging Markets, Asia Pacific ex Japan and UK Equity Income, trusts will have benefited relative to open-ended funds because of narrowing discounts to net asset value and the use of gearing in rising markets.”

In addition, the manager says the use of revenue reserves to ‘smooth’ dividends payments is another important factor in trusts’ relative outperformance. Trusts are able to hold back up to 15% of their revenue in good years to allow them to fund dividends in more difficult times, an option not open to Oeics.

Hewitt cites the differences in the performance of a number of Oeics and trusts run by the same manager as evidence of his argument.

For example, Neil Woodford’s Edinburgh Investment Trust lifted its dividend by 1% in 2010, while the income from his Invesco Perpetual High Income fund fell by 2.5%. In the following year, the Oeic fell by 15.6% while the trust’s dividend went up 12.7%.

F&C’s findings follow research by the AIC, which shows that one-third of investment companies presently yield more than the FTSE 100, as 80 out of the association’s 244 conventional members offer a dividend yield above the index’s annual average of 3.2%.

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