A further 25% of most consistently performing investment companies have a UK focus
As the stock market rally continues, it's important for investors to remember that a key factor to consider when researching investment companies' past performance is consistency. Today, the Association of Investment Companies (AIC) has issued new research into the top 20 most consistently performing investment companies over the last 10 years.
Global top performers
The two top performers are investment companies from the Global sector.
In fact, the Global sector is the dominating force in this year's list, with five out of twenty investment companies from the sector featured.
Taking pole position for the most consistent performing investment company is the Lindsell Train Investment Trust, managed by Michael Lindsell and Nick Train, while F&C Global Smaller Companies, managed by Peter Ewins, follows in second place.
Commenting on the performance, Michael Lindsell, joint founder of Lindsell Train Limited said:
"As investment manager of the Lindsell Train Investment Trust, we invest in a small number of quoted companies that we judge to be 'exceptional' and we hardly ever change them. These have contributed to the trust's long-term performance, but not as much as the stake in our fund management company, Lindsell Train Limited ('LTL') which has been the key driver behind the trust's very strong performance record. We like this close alignment with the trust's shareholders, who have shared in the success of our business.
"In terms of the outlook for the trust, the quantum and the consistency of returns, while of course welcome, bring enhanced expectations – reflected most obviously in the trust's share price, that has traded more recently at a heady premium to the NAV. Indeed, the Chairman of the trust has for some time warned shareholders that this level of premium is unlikely to be sustainable, being doubly vulnerable to any decline in prices of the companies in which the trust and other LTL managed portfolios are invested.
"Aside of this warning, as investment managers we continue to be positive about the long-term prospects for our quoted companies. With so much debate within the investment community about interest rates, inflation, Brexit and Trump (none of which we spend much time dwelling on), it seems to be as good a time as any to shelter under the umbrella of a collection of companies with such strong fundamentals."
Commenting on the last 10 years Peter Ewins, Fund Manager, F&C Global Smaller Companies said:
"The past decade has been a great period to be overweight small cap equities. The asset class has done well despite the economic downturn around the global financial crisis, and other economic and political challenges along the way.
"We believe that many small caps have been re-rated in recent years as they have demonstrated an ability to cope with tough economic times, while at the same time delivering premium growth through the cycle. The investible universe we have to look at is wide and dynamic, with new companies listing all the time.
"Our team has consistently been able to construct a portfolio of attractive small cap stocks from this opportunity-set, with business models that have been able to thrive in the ever-evolving corporate landscape. We spend a lot of time getting comfortable with the strength of the key members of the management team as they will often be critical in defining whether or not an individual small cap will do well or not. Avoiding those companies which are over-hyped, over-leveraged, or which lack a proper competitive edge is very important as individual stocks can be volatile and respond badly to disappointments in financial results.
"Managing a closed-end fund targeting small caps has advantages, as we make use of gearing which can augment returns if market levels rise. We are also able to be more comfortable in investing in less liquid companies than an open-ended fund. Being global allows us to shift geographic exposure if we decide that this is appropriate. Most recently we have added to our European exposure and trimmed our US weighting reflecting the relatively more attractive valuation case and improving economic backdrop in Europe. While it's never easy to predict how markets will do in the future, we intend to use the same risk-aware approach in the future to deliver returns to shareholders."
North American Smaller Companies
North American Smaller Companies has had strong performance over the last 10 years, with two of the sector's three investment companies –JPMorgan US Smaller Companies and Jupiter US Smaller Companies – featuring in this year's top 20.
Consistency and UK focus
Seven investment companies have retained a position in the 2017 top 20 from last year: Allianz Technology, F&C Global Smaller Companies, Finsbury Growth & Income, Invesco Perpetual UK Smaller Companies, JPMorgan American, JPMorgan US Smaller Companies and Schroder Oriental Income.
Interestingly, the UK has featured strongly for the second year running, with five UK focused investment companies included, namely: Invesco Perpetual Select UK Equity, Invesco Perpetual UK Smaller Companies, Finsbury Growth & Income, F&C Commercial Property and Threadneedle UK Select Trust*.
The number of investment companies from the Asia Pacific: Excluding Japan sector in this year's list is slightly down on last year (three in 2017, as opposed to five in 2016), but those who have made the top 20 are: Edinburgh Dragon, Schroder Oriental Income and Aberdeen Asian Income. However, Witan Pacific from the Asia Pacific: Including Japan sector is a new addition to this year's list.
Annabel Brodie-Smith, Communications Director, Association of Investment Companies (AIC) said:
"It's important for investors to remember that performance is only one factor to consider when researching investment companies and they also need to look at other criteria including portfolio composition, gearing, discounts and charges. Investors usually focus on the latest top performers but consistent long-term past performance is key when considering an investment.
"The investment company industry has a total of 55 sectors, so there is a wide range to choose from and 12 of these are represented in the top 20 most consistent performers. After all the political surprises of the last year it's interesting to see the Global sector dominate this year and UK focused investment companies continue to feature strongly. There's no telling what may happen in the future so investors should bear in mind that they need a balanced portfolio for the long term. If they have any concerns they should speak to a financial adviser."
The AIC ranked its member investment companies by discrete annual returns and benchmarked outperformance against the overall average investment company. Where two companies had the same consistency score, volatility of returns (standard deviation) was used to differentiate between them.
Top 20 most consistently performing investment companies over the last 10 years