(^24) Funds
MoneyWeek 8October 2021 moneyweek.com
In thelast 20years, theFTSE100 indexhas risenby
aboutathird.But if dividends,basedon an average
yieldof3.5%per annum, areincluded,the totalreturn
is between2.6 and2.8 times. This hasbeenenough
to keep aheadofinflation,but little more.Some
investment trustshavedonefarbetter.
As Ian CowieofInteractive Investor haspointed
out, no fewerthan42trustshavemultipliedinvestors’
moneyten or moretimesover. They arewhatFidelity’s
former investmentguru, PeterLynch,called“ten-
baggers”.Whatclues do these42provide foridentifying
theten-baggers of thenext20years?
Firstly,ittookstubbornpatiencetoholdthese
truststhroughoutthose 20 years. At thestart,
stockmarkets were halfwaythrough thebearmarket
that followed thetechnology bubbleatthe endofthe
1990s. Theperiodalsoincluded the2007-2009 bear
markettriggeredbythe financialcrisis, inwhichthe
MSCI Worldindex more thanhalved, as wellasthe
pandemic crashand severalother sharpsetbackswhich,
at thetime, threatened to turnintosomethingmuch
worse.Ithas notbeenaneasytimeto stay investednor
will it be in thefuture.
Don’t take profitstoo soon –ortoo late
Number 17 on thelist with areturnofover14times is
PolarCapital Technology Trust.Twenty yearsago,its
shares hadfallen by nearly two-thirdsfromthe peak
andtheyweretohalve againbeforehittingalowayear
later. Pickingthe besttimetoinvestisn’t easy,and it’s
always tempting to take profitstoo soon.
Ontheother hand,AberdeenNewThai, number 13
on thelist,multiplied14-fold to ashort-livedpeakin
April2018, then dropped by 40%inlessthanayear. It
made anewpeak 10%above theold onein mid-20 19
butnowtrades 33%belowit.Those whodidn’ttake
profitsinApril 2018 will wish they had.
This is largelydue to thepoorperformance of thelocal
market, butothertrustsdon’t have that excuse. Number
nine on thelist, Scottish Oriental Smaller Companies,
mayhavemultipliedinvestors’money 16 timesover20
yearsbut itsfive-year return, 27%,is less thanhalf that of
itscompetitor, Aberdeen Standard Asia Focus,number
three. Itsshare pricehas risenbyafactorof21.
BlackRockWorld Mining hasgiveninvestors the
roughest ride of all.Its shares aredown25%from
theirspringpeakbut have multiplied investors’ money
12 timesoverall.Thissoundsfine, butlong-term
holderswillrememberthe shares soaringtoapeakin
early2008, then crashing by two-thirds.Theyreached
anewpeak in late 2010,25%higher than thelevel
reachedlastspring. Atleastthe trust paid generous
dividends, butholderswill have beenwise to reinvest
theseelsewhere.
Half-waydownthe list is ElectraPrivate Equity trust,
whichmultiplied investors’ money 12.6 times. It would
almost certainlyhaveperformed better hadamajority
of investorsnot thrownit to thewolvessix yearsago,
forcing it to sell allitsinvestments.The treatmentof
Genesis, recentlyfiredasmanagersoftheiremerging-
markets trust despite multiplyinginvestors’money
12-fold,may also provetohavebeenamistake.
Find astrongtailwind
Growinginvestors’moneytenfold over 20 yearsimplies
acompoundannualreturnof12.2%.Ithelps to have
Forty-two trustshaverisen more than tenfoldoverthe la st twodecades.Whatmadethe winnersstand
out? Andhow canweidentifyfutureoutperforme rs?Max Ki ng siftsthrough theevidence
atailwind behind theinvestmentthesisand oneof
thestrongestofthese is afocusonsmaller companies.
Globally, smaller companieshaveoutperformedthe
overallmarketby5%ayearoverseveral decades; in
theUKthe figure is 4%.Unsurprisingly, 17 of the42
ten-baggershavebeensmaller-companies specialists,
andthese arelikelytofeatureprominently in thelist for
thenext20years.
In most markets,smaller companieslooked
undervalued relative to larger onesatthe startofthe
year buthave sincecaughtup. Theexception is in
theUS, wheretheforward multiple fortheS&P 600
(the small-cap index) is 15.5,comparedwith16.3for
theS&P400(mid-caps)and 20.7 forthe S&P500.
JPMorganUSSmaller Companiesand BrownAdvisory
USSmaller Companiesshoulddo well in future.
Growth shares maylookexpensive in theshort
termbutthelong-termcompounding effect of high
growth should negate thehandicapofahigh initial
valuation. Novaluefundmadeitintothe ten-bagger list
in thelast 20yearsand that looksunlikelytochange.
Value-orientated trustsmay have periodsofstrong
performanceand maypay attractive dividends, but
areunlikelytoexcel in thelongterm. However, many
“growth” companies fall flat on theirfaces.Key to the
successofagrowth trust will be itsability to identifythe
relativelyfewcompanies that dominateoverall returns.
Bigcould be beautiful
BaillieGifford explicitlyaimsforthisand it’s no
surprise that itaccounts for four of the42ten-baggers
includingnumberone (ScottishMortgage, a28.8-fold
return)and number two(PacificHorizon,27-fold).
Someof theirnewer trustsshouldexcelinthe future
whileBaillie GiffordJapan is notfar shortoften-bagger
status,despite theJapanesemarkettrading sideways for
at leastthefirst tenyears. Only one Japanese trust made
it into thelist(at number 42), butfuture performance
shouldbe better.
JPMorganhas sixonthe list andJanus Henderson,
Aberdeen andBlackRock arealsowellrepresented.So
thereisnoreasonwhy alargerfund managershould
nothaveaculture of investment excellence.Nofund-
management companyhas amonopolyonexcellence;
financial historybooksarelitteredwithnames that
haven’tstood thetestoftime.
Threegrowth-sector specialists–twoin technology,
onein biotech–makethe list.Healthcaretrustslook
likelyto be greatlongtermperformerswhile betting
against thetechnology sector looksdangerous. It may
look expensivenow,but it wasinpoorshape in late
2001 too, yetstill deliveredhugereturns.
Only twoprivate-equity trusts, HgCapital (number
four,a21-foldreturn) andElectra, have beenten-
baggersinthe last20years butprivateequityhas a
record of sustainedoutperformanceofstockmarkets.
Thefinancial crisiswasahugesetbackbutmost funds
recovered, learned lessonsand improved business
models.The number of listedfundshas increased
andthe newcomershaveperformedstrongly. The
trendlooks likelyto endure.Inrecentyears,emerging
markets have struggled. Political,economic andsocial
developmentseemsto have stalled,ifnot reversed.
Doubts aregrowing aboutthedevelopment path of
Chinaand severalother markets. Commoditywealth
hascontinued to be more acurse thanablessing.
What the top investment trusts of
“The
BlackRock
World
Mining trust
has gi ven
investors the
roughest ride
of all”