Funds 25
moneyweek.com 8October 2021 MoneyWeek
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the past 20years can teach us
YetAsiaandemergingeconomiesaccountfor 16
ten-baggersinthelast 20 years.Perhapstheworldpays
toomuchattentiontothebadnewsandnotenough
totheemergenceofagrowingnumberofsuccessful,
well-governedemerging-marketcompanies.Growth
inemergingcountriescontinuestoexceedthatin
developedeconomies,creatingbusinessopportunities
forentrepreneurs.Inthepast,investorsmayhavebeen
toooptimistic–butnowtheymaybetoocynical.Attracting toptalent
Theten-baggersoft he next20years will need more
than afavourabletailwind from theeconomies,sectors
andstylestheyfocuson. Good managers areessential
butthe growingsuccess andpopular ityofinvestment
trustsmeans that they will continue to attractthe best
investme nt talentavailable,which wasnot thecase20
yearsago.Then, persiste nt discount ston et assetvalue
(NAV), capital outflowsand awidespreadassumption
that investmenttrustswere arelic of thepastmadeit
seem adead-endsector.
Investme nt trustshavealwayshad inherent
advantages over open-endedfunds,includingthe
ability to usegeari ng,the su pervisionofanindependent
boardofdirectors and, aboveall, thegreater ease of
managing afixed pool of money. As aresult, investme nt
trustshavenearlyalwaysoutperformedcomparable
open-endedfunds,eventhose with thesamemanagers
investinginthe same areas. Theprobl em wasgetting
thismessage across to investors.
Theinterne thas made investme nt trustsfar more
accessible.Innovationhas continuedbut themis-steps
of thepast,suchasaggressively-struct ured splitcapital“Financial
history books
are littered
withnames
thathaven’t
stood the test
of time”trusts, have beenavoided.Relaxatio nofthe ruleshas
enabledshare buyb acks,the paymentofdivid ends from
realisedcapital reserves andthe issueofnew equity
with outaformaloffering. Non- executive directors
arebetterqualified,moreactive andmorewilli ng
to intervene. Management companies recognise the
prestige,publicity andprofita bility of managing trusts
instead ofregardingthemasasideshow.
Thecompetitive advantageoft he investme nt trust
struct urehas beenenhancedbythe sh ortcomings of
an open-endedstructure for investme nt in private
equity,infrastructure, property andother illiquid
assets.Thisensures asteadymigration of assets from
underperforming,suppose dlyopen-en dedvehicles
(but in practice oftenclosedtor edemption) towards
investme nt trusts. Growth acts as amagnet.
Theconsequence of all this hasbeenasteadyfall in
discountstoNAV to negligible le vels. This hasallowed
equity issuancebothfor existing trustsand for new
ones,culminatingint he breakthroughyearof2020
in whic hthe FTSE Equity In vestmentInstruments
indexoutperformedthe All-shareindex by 27.8%. The
averageopen-en dedfundunderperforms itsbenchmark
–but thisisn ot truefor investme nt trustswhere
outperformance, often by wide margins, is therule.
That there have been42ten-baggersint he last 20
yearsisnosurprise.The pa th of economie sand markets
over thenext20years is unknowable,though it is
certainthatthere will be many bumps, crise sand bear
markets along theway.The temptati on to sell,whether
in fear of furthermarketlosses or to cash in on gains,
will be frequent but,for thosewho stay invested,there
will be many more ten-baggers.ThereisgrowingconcernoverChina’strajectory