Top investment trusts in Q3
UK and European smaller companies trusts were among the best performers in NAV
terms during the three months to 30 September, according to the latest quarterly review from Stifel.
JPM Smaller Companies was the third best performing trust, with a NAV total return of 10.6%, joined by Dunedin Smaller Companies (+8.9%), Invesco Perpetual UK Smaller Companies (+8.8%), JPM European Smaller Companies (+8.7%) and Montanaro UK Smaller Companies (+8.6%).
The European smaller companies sector was also the best performer when compared to its open-ended equivalent over the year to the end of August, according to Winterflood Securities, rising some 41.3%.
It outperformed the open-ended sector by 15.4 percentage points and comfortably beat the HSBC European Smaller Companies index rise of 26.8%.
Viktor Nossek, director of research at WisdomTree in Europe, identified a reduction in political risks and a stronger euro as tailwinds for the European smaller companies sector, saying this backdrop justifies their higher valuations compared to large-cap peers.
He said: “Valuations are high across the market, but high-beta strategies are now firmly in fashion following [Emmanuel] Macron’s win, looking better value on a relative basis than larger peers.”
Comparatively, Asian smaller companies vehicles saw share price declines, including Fidelity Asian Values, which was down 4.7%.
According to Stifel, the £250m trust has opted to hold some cash and hedge market exposure on the belief the market is currently offering a lower margin of safety.
According to Winterflood, over the 12 months to the end of August, investment trusts outperformed their open-ended equivalents in 14 out of 16 subsectors, when comparing share prices for investment trusts with open-ended NAVs.
Meanwhile, other outperformers in the quarter included emerging markets trusts and those with exposure to commodities such as JPM Russian Securities, JPM Chinese and BlackRock World Mining – among the biggest risers in both NAV and share price terms.
Stifel said BlackRock World Mining was “boosted by strong economic data from China as well as much improved results from the miners as many companies saw rising free cashflow, deleveraged balance sheets and returned cash to shareholders”.
Overall, the investment trust sector (ex 3i Group) slightly outperformed the FTSE All Share index in Q3, returning 2.3% during the period versus an index return of 2.1%.
However, analysts at Winterflood warned the sector will be vulnerable to heightened discount volatility in the case of a market drop due to levels remaining flat over the “quieter” summer months.
The analysts said the average trust discount remained “virtually unchanged” during the quarter, moving between 3.2% and 4.2% and averaging 3.6%.
They added: “Arguably, this low volatility reflects benign market conditions and lower trading volumes over the summer months. We suspect the sector is vulnerable to an increase in discount volatility in the event of a market setback that could see discounts widen.”