The Best and Worst Investment Trusts of 2023

JP
Morgan
is
the
only
one
in
the
34-strong
list
to
belong
to
the
US
Equity
Large
Cap
Growth
category,
although
large-cap
trusts
are
well
represented
in
the
top
12:
four
belong
to
the
Global
Equity
Large
Cap
category
(Monks,
Scottish
Mortgage,
F&C
Mid
Wynd
International)
while
two
belong
to
the
Europe
Equity
Large
Cap
category
(HEFT
and
Fidelity
European).

In
basic
terms,
US
large
caps
were
the
winners
last
year;
it
hasn’t
all
been
about
US
tech
giants
but
it
certainly
felt
that
way
news-wise;

my
US
colleague
Sarah
Hansen
argues
2024
could
see
a
more
broad-based
rally
as
markets
respond
to
potential
central
bank
cuts.

Top-Performing
Investment
Trusts

Away
from
the
predictable
large-cap
winners
of
2023,
there
were
some
outliers,
such
Silver-rated
TR
Property
(TRY),
Bronze-rated
Pacific
Assets
(PAC)
and
Silver-rated
Schroder
Asian
Total
Return
(ATR).
The
first
one
produced
a
share
price
return
of
10%
despite
some
turbulence
in
the
property
sector,
while
PAC
gained
8%
and
ATR
rose
6.80%
even
as
Asian
equities
struggled.

On
that
theme,
the
worst
performer
in
our
coverage
was
JPMorgan
China
Growth
&
Income
(JCGI),
which
fell
just
over
37%
in
2023
in
share
price
terms.
Asian
Dragon,
on
which
more
below,
was
the
next-worst
performer.

Asia
was
a
common
theme
among
the
year’s
laggards,
including
Schroder
AsiaPacific
(SDP),
Baillie
Gifford
Japan
(BGFD),
Baillie
Gifford
Shin
Nippon
(BGS).

Should
I
Stick
With
Underperforming
Japan
Trusts?

You
may
be
surprised
to
see
Japan-focused
trusts
in
the
bottom
10.
After
all,
the
Nikkei
225
rose
30%
in
2023
and
the
Topix
index
performed
similarly.
Indeed,
JP
Morgan
Japanese
(JFJ)
is
in
the
top
10
of
trust
performers
with
a
6%
gain.

Trust
managers
tend
to
deviate
significantly
from
the
benchmark,
however,
and
Japan
is
a
country
where
active
management
is
prized
by
investors
for
many
reasons.

In
previous
years
when
the
market
has
gone
sideways
–
and
many
investors
have
had
several
lean
years
and
false
dawns
backing
Japan
–
trusts
have
managed
to
make
positive
(and
real)
returns.
But
2023
was
different. Perhaps
it
was
a
turning
point,
although
much

depends
on
currency
and
the
Bank
of
Japan.
A
simple
Japan
ETF
would
have
provided
you
some
significant
returns,
even
above
those
from
the
US
market.
Again,
markets
rarely
repeat
themselves
neatly
in
subsequent
years.

With
Japan
trusts,
it’s
worth
looking
(by
clicking
on
the
tickers)
at
which
stocks
they
hold
and
where
the
overlap
with
the
indices
is
–
a
concept
known
as
“active
share“.
Managers
can
have
a
different
size
and
style
bias
to
the
index
too.
The
other
obvious
swing
factor
is
currency:
the
Yen
has
been
weak
against
rival
currencies
in
recent
years;
a
year
ago
£1
bought
¥159
and
now
that
buys
¥183,
a
significant
depreciation.
A
useful
explainer
on
currency
impacts
on
returns
can
be
found
in
“Should
Investors
Panic
About
the
Weak
Pound?“.

Should
you
stick
with
the
2023
underperforming
Japan
trusts? 
Baillie
Gifford
Japan
has
a
Silver
rating
and
Morningstar
analyst
Lena
Tsymbaluk
says
“our
conviction
in
the
team
and
approach
remains”.
She
adds:
“this
strategy
is
all-cap,
addressing
the
lack
of
sell-side
analyst
coverage
lower
down
the
market
cap.
The
approach
is
benchmark-agnostic,
focusing
on
identifying
underappreciated
long-term
growth.”
The
trust
has
outperformed
the
Topix
index
in
the
longer
term
too.

“We
retain
conviction
in
this
strategy’s
potential
to
outperform
over
full
market
cycles,”
she
continues.

“Given
its
style,
it
is
expected
to
do
well
when
the
market
pays
attention
to
earnings
growth
but
is
likely
to
underperform
when
quality-growth
and
mid-cap
companies
are
out
of
favour,
as
has
been
the
case
more
recently.”

Bronze-rated
stablemate
Baillie
Gifford
Shin
Nippon
(BGS)
had
a
standout
2020
but
has
struggled
in
recent
years.
Again,
Tsymbaluk
explains
this
as
down
to
its
size
and
style
focus:

“The
fund
has
clear
style
biases
toward
high
growth
smaller
areas
of
the
market
compared
with
the
index,
which
has
been
largely
responsible
for
the
recent
underperfomance.”
Given
its
volatility,
she
encourages
investors
to
hold
the
trust
for
longer
periods.

China
Disappoints
Again

2023
wasn’t
a
great
year
for
emerging
markets
either,
and
the
performance
of
China
has
not
helped.
Gold-rated
JPMorgan
Emerging
Markets
(JMG)
sneaks
into
the
bottom
10
with
a
share
price
fall
of
just
over
4%.
This
trust
has
India
as
the
biggest
weighting
(24.77%)
and
21.66%
invested
in
China.

Emerging
market
investors
now
need
a
good
year
from
China
in
2024,
and
a
revival
there
has
been
talked
of
for
a
few
years
now.
There
are
signs
of
a
thaw
in
relations
between
the
US
and
China
but
a
potential
change
of
US
President
could
shift
the
balance
of
power
again.
My
colleague
Kate
Lin
looks
at

the
drivers
of
the
Chinese
stock
market
in
2024
in
her
recent
outlook.

It’s
worth
pausing
to
look
at
how
rated
trusts
performed
the
year
before.
Some
of
2023’s
biggest
gainers
were
among
the
worst
performers
in
2022.
Scottish
Mortgage
is
one,
having
fallen
by
a
hefty
45%.
Top
performers
in
one
year,
whether
funds
or
trusts,
often
fail
to
match
this
in
the
subsequent
year,
a
disappointment
to
investors
trying
to
follow
trends.

This
was
particularly
stark
last
year
as
2022’s
“risk-off”
mindset
was
followed
by
the
emphatic
return
of
“risk
on”
sentiment
for
equities.
Here
we
see
Ruffer
and
Capital
Gearing,
numbers
two
and
eight
respectively
in
2022,
in
the
bottom
10
in
2023.
On
the
flipside,
Monks
(33
out
of
39
in
2022),
TR
Property
(36
out
of
39)
and
JP
Morgan
Japanese
(34
out
of
39)
make
it
into
the
top
10
for
last
year.

There
are
plenty
of
general
global
trusts
out
there,
with
F&C,
Witan
and
Alliance
Trust
all
popular
with
retail
investors.
But
they
also
allow
niche
exposure
to
sectors
that
open-ended
funds
would
struggle
to
reach;
recent
innovations
include
airline
leasing,
music
royalties
and
renewable
energy
storage.

What
Are
Investment
Trusts?

Trusts
trade
at
a
discount
or
premium
to
their
net
asset
values
(NAV)
and,
unlike
their
open-ended
counterparts,
can
use
gearing
(borrowing)
to
enhance
returns.

Many
are
listed
on
the
FTSE
250
with
ample
liquidity,
while
a
handful
are
large
enough
to
make
it
into
the
FTSE
100.
Examples
include
Scottish
Mortgage,
Pershing
Square
Holdings,
and
F&C.
Taking
real
estate
investment
trusts
(REITs)
into
consideration,
Land
Securities
is
also
in
the
blue-chip
index.

Trusts
are
traded
on
the
London
Stock
Exchange
(LSE)
like
shares
and
are
priced
in
real
time.
So
it’s
easy
to
see
how
well
a
trust
is
performing
on
a
daily
basis –
handy
if
you
like
to
check
how
your
portfolio
is
doing
regularly. 

Setting
performance
aside,
it
hasn’t
been
a
vintage
year
for
investment
trusts.
Discounts
are
one
way
of
measuring
whether
trusts
are
out
of
favour
and
they
tell
one
part
of
the
story.
Consolidation
of
smaller
trusts
is
another,
and
we’ve
seen
a
number
of
those
announced
in
2023:
abrdn
New
Dawn,
a
top
performer
in
the
heyday
of
emerging
markets,
was
wound
up
and
taken
over
for
£214
million
by
the
Morningstar
Bronze-rated
Asia
Dragon
Trust
(DGN).
At
the
time
of
writing,
the
combined
trust
has
a
market
capitalisation
of
over
£500
million.
For
comparison,
the
biggest
in
the
market
is
Scottish
Mortgage
Trust,
valued
at
just
over
£10
billion
valuation.
It’s
followed
by
F&C
with
nearly
£5
billion.

Another
Morningstar-rated
trust,
Abrdn
Japan
(AJIT)
was
merged
with
Nippon
Active
Value
Fund
(NAVF),
which
is
not
rated
by
our
analysts.

Methodology

35
UK
investment
trusts
are
assigned
a
Morningstar
Medalist
Rating
of
Neutral
or
above.
We’ve
chosen
to
measure
the
share
price
share
to
calculate
performance;
we’ve
taken
the
closing
price
on
December
31,
2021
and
compared
that
with
the
closing
price
on
the
last
trading
day
of
2022,
December
30,
2022.

This
may
not
be
the
perfect
way
of
measuring
performance,
especially
factoring
in
gearing,
premiums/discounts,
costs,
dividends
etc.
But
it
reflects
the
reality
of
the
average
investor
buying
and
holding
a
trust
over
and
year
and
checking
their
portfolio
for
the
annual
gain
at
the
end
of
the
period.
Also,
an
investor
can
quickly
check
the
“live”
price
of
their
trust
during
market
hours
with
a
quick
internet
search.
They
would
rarely
calculate
the
change
in
the
NAV,
although
this
is
often
reported
as
part
of
a
trust’s
results.

Investment
trust
share
prices
can
trade
above
or
below
the
underlying
value
of
the
portfolio’s
assets,
leading
to
premiums
and
discounts
to
NAV,
which
are
usually
quoted
in
percentage
terms.
We’ve
shown
the
premium/discounts
in
a
separate
column
above.

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