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Top 5 Best Performing Investment Trusts in 2012

These five specialist trusts each returned more than 100% last year, but that doesn't mean they're suitable investments for anyone and everyone

Szymon Idzikowski 17 January, 2013 | 6:00AM

Specialist funds dominated a list of the top-performing investment trusts over the last year. Below is the list of the five top-performing trusts, a short description of each, followed by a word of warning for investors considering these trusts…

Oxford Technology VCT (OXT)
European Residual Income Trust (ERII)
LoudWater Trust (LWT)
Kings Arms Yard VCT (KAY)
Economic Lifestyle Property Trust (EPL)

Understanding the Top Performers

The Oxford Technology VCT (OXT) returned an astonishing 561% last year (on a price basis), with shareholders benefitting from both net asset value (NAV) appreciation and discount contraction. That said, the fund will not fit everyone’s investment needs due to its narrow focus. It is a venture capital fund that invests in early-stage, high-growth start-up companies. Its portfolio is filled with unlisted, UK-based, science, technology and engineering businesses located around Oxford.

The second best performing investment trust was the European Residual Income Trust (ERII), which returned 177%. The fund was launched only in 2011 and invests primarily in debt secured by residential properties in Western Europe and the UK.

The third best performing investment trust was LoudWater Trust (LWT), which returned nearly 159%. It’s a private equity fund that was launched in the beginning of 2007, which invests mainly in pre-IPO companies that are expected to be listed.

This is followed by another venture capital fund, Kings Arms Yard VCT (KAY), which provides exposure to unquoted UK companies principally operating in the healthcare, environmental and leisure sectors. It returned 129% last year.

The fifth and final top performer is a property fund, Economic Lifestyle Property Trust (EPL), which also returned almost 129%. EPL holds a portfolio of properties suitable for retirement living throughout the UK.

A Word of Warning

When looking over this list of top performers, investors should ensure that they do not over-emphasise one year’s worth of performance. Getting it right once is statistical noise and it rarely tells you much about a fund manager’s long-term skills.

Furthermore, the above funds are small specialists funds, and generally investors would have had to have been very patient over long time periods before reaping any rewards. In fact, shareholders of the top performing fund for 2012 - Oxford Technology - have been losing more than 10% annualised over the ten years before 2012 on a price basis. Plus, valuing unlisted stocks is subjective, which means those returns are rather arbitrary as well.

As a final point, specialists’ funds tend to be more risky. For example VCT and private equity trusts invest in small companies, which are more prone to failure, have high key-man risk and are also more susceptible to liquidity issues. For investors that are risk-averse, these niche trusts are probably not suitable for their portfolios.

Where to Look?

Investors who want to make informed decisions when investing in trusts can support themselves with our investment trust’s ratings. These ratings look beyond short-term returns and are based on a comprehensive methodology that aims to give forward-looking assessments for funds. A full list of rated investment trusts can be found by clicking here.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

Securities Mentioned in Article
Security NamePriceChange (%)Morningstar
Rating
European Residual Income Investments Cell4.20 EUR0.00-
Kings Arms Yard VCT Plc18.50 GBX0.00-
Oxford Technology Venture Capital Trust54.00 GBX0.00-
About Author Szymon Idzikowski

Szymon Idzikowski  is a closed-end fund analyst with Morningstar.