Closed-end Fund Investors Favour UK Equities

Which are the top closed-end funds according to Morningstar readers? Equity trusts top the charts, in particular those offering exposure to developed market stocks

Karen Kwok 14 April, 2016 | 10:19AM
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Developed market equities proved popular with closed-end funds investors last month, according to the top hits list on Morningstar.co.uk.

The ongoing low interest rate environment has made bonds a less attractive option; investment trust investors’ interests seem to be solely in equities, and in particular those with exposure to stocks listed in the US and Europe. Despite a majority of the most popular trusts have delivered a negative return year to date, they all generate a positive return over the long term. As a result the temporary loss might be an opportunity for investors to buy “on sale”. Below we pick six investment trusts that offer a discount at the moment.

Global Equity Trust With a High UK Exposure

Across the top 10 most popular investment trust list on Morningstar.co.uk, global equity investment trust Law Debenture Corporation (LWDB) was a new entry, perhaps because it offers the most attractive discount at 9.7%. Although this Silver Rated trust lost 3.1% in 2015, it has delivered a positive return in 2012 to 2014 on an annualised average of 16.8% and it has a 9.6% five year annualised return. It belongs to the Global Flex-Cap Equity category, but it has 65.8% of exposure to UK equities.

For a more diversified portfolio, Witan (WTAN) also offers an attractive discount at 4.7% to NAV, and it is a long-term investment, having generated positive gains over the last four years.  Investors are closely watching this trust as a result, coming sixth in the most popular list for March. The fund has gained 11% a year under its manager Andrew Bell's tenure – he joined the trust in February 2010, compared with the Global Large-Cap Blend Equity Morningstar Category average of 7%.

“Witan Investment Trust is a very solid choice for investors seeking core global equity exposure. The process of transition from largely passive to active management has been successfully implemented, and the resultant strategy is now established and executed to good effect for investors,” Morningstar senior fund analyst David Holder said.

In 2013, the board of the trust moved to quarterly dividend payments from semi-annually. The trust is currently rated Silver by Morningstar analysts.

But topping the most popular list of investment trusts for March – and has remained the top investment trust for nearly a year is global equity investment trust Scottish Mortgage (SMT).

This trust is “very liquid”, according to Holder, mostly invested in US and China stocks. Managed by a well experienced fund manager James Anderson, the trust plays into the good strong thematic trends in the emerging world, mostly through developed markets such as the US and Europe.

The trust is rated Gold by Morningstar analysts, the highest accolade that can be awarded. Investors in this trust are sitting on a 13.3% gain in 2015, and the trust is trading on a 0.8% premium to NAV.

The Only Popular Trust Has Posted Gains in 2016

Fifth most popular trust, the Gold Rated global equity investment trust Murray International (MYI) is currently on a discount of 2.6%, and has generated a long term growth of 8.3% 10 year annualised return. The trust lost 15.2% in 2015, however it is up 8% year to date. Prior to the loss in 2015, the trust also has generated a consecutive gain over six years.

UK Investment Trusts that Deliver Long-term Returns

UK equity investment trust Lowland (LWI) has delivered excellent capital returns when compared with its peer group, under the management of a “proven and skilled manager” James Henderson, Morningstar analyst David Holder said. Investors agree, with the trust coming eighth in the most popular list for March.

Long-term returns have been strong in this Silver Rated fund as has its record of providing investors with a strongly growing level of quarterly income. The portfolio has delivered annualised dividend growth of 6.9% during the past 25 years, and there are revenue reserves of more than a year’s worth of income at current levels. The trust is currently on a discount of 3.5%.

Seventh most popular was the  Jupiter European Opportunities (JEO) trust, which  offers an exposure to European equities evenly. Since the fund's launch in 2000, it has returned 13.2% annualised return to the end of August 2015, some eight percentage points more than its average Europe flex-cap equity Morningstar Category peer.

Not only that, the “experienced, talented and pragmatic” manager Alexander Darwall has achieved consistent outperformance in every year bar 2008, when gearing exacerbated the market fall, Morningstar analyst Muna Abu-Habsa said. Looking at the past performance, this Gold Rated trust has delivered strong returns over the last four years. The trust is at a 4.4% discount.

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.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
European Opportunities Trust688.83 GBX0.41Rating
Law Debenture Corporation Ord790.00 GBX2.07Rating
Lowland Ord127.00 GBX3.46Rating
Murray International Ord1,253.00 GBX2.04Rating
Scottish Mortgage Ord776.36 GBX2.15Rating
Witan Ord209.15 GBX1.28Rating

About Author

Karen Kwok

Karen Kwok  is a Reporter for Morningstar.co.uk