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Trust Watch Global Half-Year Report: Baillie Gifford triumphs

Trust Watch Global Half-Year Report: Baillie Gifford triumphs

Fund management group Baillie Gifford is having a great 2018 so far. Not only did the Edinburgh-based partnership succeed in raising £173 million for its new US Growth trust in March, it has also completed a virtual clean sweep of Numis Securities' global investment trust sectors in the first half of the year.

This article follows our previous look at the best performing UK investment trusts in the first six months of 2018.

The firm dominates Numis' Global Equity sector (see table below) with its flagship Scottish Mortgage Trust (SMT) topping the 23-strong group with an 18.4% total return in the first six months of the year as its big bets on technological disrupters such as Amazon continued to defy sceptics.

The impressive return was not the result of an undervalued share price re-rating and catching up with a more steadily growing portfolio. Managers James Anderson and Tom Slater grew the trust's net assets by an almost identical 18.2%, well ahead of the sector average of 6.8% and the MSCI World index which gained just 2.9%. 

That adds to their long-term performance with the £7.7 billion listed fund generating a total return of 237.6% over the past five years, again the best in the sector.

Baillie Gifford's grip is underlined by stable mate Monks (MNKS), a global best ideas fund in the hands of a team led by Charles Plowden. It clinched third place with a 10% shareholder return in the first half. After a poor run under a previous manager it too has built a convincing five-year performance of nearly 149%.

Both trusts's shares trade above their net asset value (NAV), two of just five in the sector to command a premium. While that does raise the potential risk of a big fall if markets sour, the premiums at around 4% are relatively modest compared to some other trusts (see Lindsell Train below).

Imitation is the sincerest form of flattery which is why Baillie Gifford can perhaps also take some credit for the appearance of Manchester & London (MNL), the Mark Sheppard managed independent trust that shares big holdings in Amazon and also Chinese social platforms Alibaba and Tencent. It delivered a 12.3% return to shareholders on the back of an 11.5% increase in NAV.

Scottish American (SCAM) can sometimes be over looked in the rush to admire Baillie Gifford's ultra-growth funds. Scrolling down to Global Equity Income trusts shows it led its sector in the first half with a negligible but nevertheless top return of 0.4%, which indicates the pressure on income funds as US interest rates rise. Over five years it has generated a total return of 82%, well ahead of the sector average of 45%.

Lastly, looking further down at Global Smaller Company trusts, Edinburgh Worldwide (EWI) completes the Baillie Gifford line-up at the top of its sector with a 17.3% first half return that extends its five-year performance to 181.5%, way ahead of both its sector average and the MSCI Smaller Comapnies World ex-UK index return of 99.5%. 

Moving on to other highlights in the data, the article continues below the table...

  Share price first half % NAV first half % Share price 5Y % NAV 5Y % Share price premium (- discount) to NAV %
Global - Equity (average) 7.5 6.8 116.5 99.5 -1.9
Scottish Mortgage 18.4 18.2 237.6 211.3 3.8
Manchester & London  12.3 11.5 115.3 87.0 -1.3
Monks 10.0 6.9 148.8 104.1 4.3
F&C IT  8.0 2.9 116.6 90.1 -0.2
British Empire  4.2 2.4 76.8 69.1 -9.0
JPMorgan Elect - Managed Growth  4.2 3.4 84.1 82.9 -1.9
F&C Managed Portfolio Growth F&C Managed Portfolio Growth (FMPG) fact sheet 3.9 4.1 84.3 74.1 1.1
Scottish  3.2 4.2 78.6 73.0 -8.8
Brunner 2.8 0.8 92.0 70.2 -8.4
New Star  2.7 2.8 69.9 53.1 -28.3
Hansa Trust  2.2 1.4 52.7 47.0 -23.8
Mid Wynd International  2.1 3.3 106.3 107.1 0.7
Witan 2.0 0.8 105.8 84.8 -0.8
Martin Currie Global Portfolio  1.9 3.6 80.6 77.4 -1.3
Lazard World Trust Fund  1.2 -1.4 102.4 77.2 -2.7
Alliance Trust Alliance 1.1 2.7 96.2 79.3 -5.6
Caledonia 1.1 0.5 82.1 69.9 -15.6
Hansa Trust A  0.8 1.4 40.0 47.3 -29.4
Bankers 0.4 1.2 86.6 84.5 -1.7
Majedie -0.7 3.1 97.1 71.1 -13.3
Miton Global Opportunities  -1.6 -2.0 104.3 78.6 1.8
EP Global Opportunities  -2.1 0.3 65.3 68.5 -7.5
Law Debenture  -3.3 3.1 44.1 70.5 -12.4
Henderson Alternative Strategies  -6.5 1.6 26.5 25.1 -18.4
Global - Defensive (average) 3.7 2.2 66.2 43.6 6.2
Lindsell Train   15.2 7.3 244.2 195.1 22.3
RIT Capital Partners  6.2 4.1 95.9 56.0 8.8
Capital Gearing  1.4 2.3 17.7 31.7 1.2
Aberdeen Diversified Inc & Gwth  0.5 -1.5 22.1 15.8 -0.5
Invesco Perp. Select - Balanced Risk  0.5 -1.6 29.2 31.0 -0.1
Seneca Global Income & Growth -0.1 -1.3 68.6 52.9 1.7
Ruffer Investment  -1.5 -0.1 14.2 16.5 0.9
Personal Assets -2.2 -2.4 27.5 27.5 1.8
JPMorgan Multi-Asset  - - - - -4.5
Global - Equity Income (average) -4.7 -4.4 45.0 48.1 1.0
Scottish American  0.4 -0.7 81.9 71.5 3.9
Invesco Perp. Select - Global  0.1 -0.4 73.7 74.7 -1.3
F&C Managed Portfolio Income  -0.8 -1.4 51.9 48.7 2.6
JPMorgan Global Growth & Income  -1.6 1.4 107.4 92.6 3.1
Securities Trust of Scotland  -2.0 -2.4 35.1 51.4 -7.5
Henderson International Income  -3.1 -1.2 69.9 71.7 -0.6
Murray International  -8.0 -8.2 26.6 34.1 0.8
           
Global - Smaller Company 3.8 4.9 106.1 106.1 -8.7
Edinburgh Worldwide  17.3 17.6 181.5 141.4 2.6
North Atlantic SmCos  7.5 6.5 109.3 110.3 -22.1
Oryx International Growth  4.5 7.1 175.4 149.8 -15.5
F&C Global Smaller Cos 2.3 4.0 93.2 96.6 -1.2
ScotGems -3.2 1.8 - - -7.4
Global - Other -2.6 -0.2 61.8 78.2 -37.9
Terra Capital  14.1 -0.4 89.1 59.9 -3.8
UIL 4.8 10.4 73.6 142.1 -38.9
JZ Capital Partners  -2.9 2.6 16.3 30.0 -36.6
Tetragon Financial  -3.6 -1.7 75.7 88.5 -40.6
Establishment  -8.8 -12.6 18.2 15.3 -16.7
FTSE All Share 1.7 1.7 52.8 52.8  
MSCI World 2.9 2.9 84.5 84.5  
MSCI World ex UK 3.0 3.0 88.0 88.0  
MSCI AC World 2.0 2.0 80.1 80.1  
MSCI Smaller Cos World ex UK 5.4 5.4 99.5 99.5  

Source: Numis Securities 29/6/18

Is Lindsell Train really ‘defensive’?

As noted in the UK half-year report, Numis' sectors differ from the AIC categories that many investors use. We're referring to them in these reports because Numis data is a good way of seeing trusts's NAV and shareholder returns together (it also provides the 'Z-score' data in our regular Investment Trust Watch columns, the next one of which will be on Monday).

One difference between them is whereas the AIC has a 'Flexible' sector featuring investment trusts with the freedom to invest in more than one asset class, Numis has a 'Defensive' category, including many of the same listed funds, such as Personal Assets (PNL), Ruffer Investment Company (RICA) and Seneca Global Income & Growth (SIGT).

Topping the Numis sector, however, is the hard-to-categorise Lindsell Train (LTI) which returned just over 15% in the first six months of the year, taking its five-year return to an outanding 244%.

Numis places the trust in the 'Defensive' category because of the absolute return mindset of star fund manager Nick Train, who by linking his peformance fee to the return on government gilts indicates he is interested in making positive returns for investors whenever possible.

While that can be construed as defensive, nevertheless with the shares trading on a chronically high premium of 22% over NAV, Lindsell Train is generally regarded as high risk! As its chairman continually reminds new investors the share price - powered by a big holding in Train's fund management company - is vulnerable to him falling under the proverbial bus or simply retiring.     

Of the remaining trusts in this category seeking to prioritise capital preservation, RIT Capital Partners (RCP) did best with a first half total return of 6.2%. Much of that came from shares in the Rothschilds-backed fund rising to a near 9% premium as investors bought into what they may hope is safe haven from increasingly volatile markets.

Buying opportunities

Two trusts that look interesting after a difficult first half and sit at the bottom of Global Equities both involve fund management group Janus Henderson.

I highlighted Henderson Alternative Strategies Trust (HAST) in Investment Trust Watch in February when it stood on a 20% discount after surviving a shareholder continuation vote. The shares ended the first half down 6.5% and on an 18% discount to NAV, hit by the departure from ill health of co-manager Ian Barrass in May. In the past month, however, the shares have risen 7% and the discount has narrowed to 15% in line with its one-year average. Nevertheless, the portfolio of 40 specialist investment companies and hedge funds still looks good value, offers useful diversification and is less volatile than other global trusts.

Veteran value fund manager James Henderson has had a difficult time of late with painful losses from holdings in Carillion and Conviviality. The table suggests Law Debenture (LWDB) - one of three trusts he runs - could be a way to back his recovery. This unusual company houses an equity portfolio managed by Henderson alongside a fiduciary services business whose new boss outlined ambitious plans for growth earlier this year. The shares slipped 3% in the first half but the NAV rose by the same amount which suggests it may have been oversold, a fact that is underlined by its wider than average discount of 12%.  

 

 

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