The Best And Worst Performing Trusts From A Turbulent First Quarter

It has been an interesting start to the year with the macro-economic data driving sentiment one way then another. This has created a challenging environment for investment trusts with many big winners and losers.

When there is so much uncertainty about which way things will go it can create some decent opportunities, so it is worth looking back at what has happened and why. If you do that then the recent performance can provide a useful guide as to what might happen in the months ahead.

The year started on a positive note, but hopes of multiple rate cuts in the US and the UK faded quite early after the release of better than expected economic data. It now looks as though inflation and interest rates will stay higher for longer, unless events in the Middle East throw another spanner in the works.

Equity Winners

According to the broker Numis, the average investment trust share price was up 3.1% in the first quarter, with the average discount widening from 13.9% to 16%. The biggest winners amongst the equity mandates were those with significant exposure to the US mega cap tech stocks that have continued to move higher.

Most of the gains were driven by Nvidia and Meta, with Manchester & London (LON: MNL), Polar Capital Technology (LON: PCT), Allianz Technology (LON: ATT) and JPMorgan American (LON: JAM) up 22.1%, 15.6%, 14.5% and 14.8% respectively. Despite these impressive returns the first three are all trading on double digit discounts.

Another sector that has done well is Biotech, an area that had just endured its longest ever bear market. The main beneficiaries were Polar Capital Global Healthcare (LON: PCGH) that was up 14%, BB Biotech (LON: BION) with a gain of 11.9% and the Biotech Growth Trust (LON: BIOG), which recorded a share price total return of 11.3%.

The Big Losers

The biggest equity losers were those trusts that saw their discounts widen. These included JPMorgan Global Core Real Assets (LON: JARA) that was down 10.8% and RIT Capital Partners (LON: RCP), whose bad run continued with a further decline of 6.2% to leave the shares languishing on a discount of almost 30%.

In terms of the different sectors, it was the UK that seemed to be most out of favour, with many of the constituent trusts being amongst the worst performers. Some of the notable examples were abrdn Equity Income (LON: AEI) that was down 8.5%, Invesco Select UK (LON: IVPU) with a loss of 7.5% and Henderson Smaller Companies (LON: HSL),which fell 5.9%.

The continued weak performance of China saw Fidelity China Special Situations (LON: FCSS) drop by five percent, while JPMorgan China Growth & Income (LON: JCGI) lost 4.1%. This also negatively impacted sentiment towards commodities with BlackRock World Mining (LON: BRWM) falling by nine percent.

The Alternatives

The biggest winners amongst the alternatives tended to be more idiosyncratic with the top spot going to Seraphim Space (LON: SSIT) following an impressive gain of 43%. Prior to this it had endured a torrid period and the shares remain at a near 40% discount.

Another area that had been out of favour was private equity, but the implementation of more investor friendly capital allocation policies has helped some of the constituents to turn the corner. Chief amongst these were abrdn Private Equity Opportunities (LON: APEO), which was up by 16% and Schiehallion (LON: MNTN) with a gain of 10.5%.

Both Taylor Maritime Investments (LON: TMIP) and Tufton Oceanic Assets (LON: SHIP) benefitted from the increase in shipping costs following the Houthi attacks in the Red Sea, with gains of 20.3% and 14.5% respectively. Two of the listed hedge funds also did well as their discounts narrowed, allowing Third Point Investors (LON: TPOU) and Pershing Square (LON: PSH) to record share price gains of 17.2% and 12.2%.

Places To Avoid

If there was one place to avoid it was the battery storage funds that all sold off strongly due to concerns about their dividends. Gresham House Energy Storage (LON: GRID), Harmony Energy Income (LON: HEIT) and Gore Street Energy Storage all made significant losses of 61.7%, 49.9% and 27% respectively.

The higher for longer narrative also affected the wider infrastructure sector with many of the constituents experiencing double digit declines. It was the same story for some of the property trusts, although it wouldn’t take much for the situation to reverse if inflation was to resume it’s downwards trend.

This isn’t the case where there are significant stock specific concerns, such as the Life Science REIT (LON: LABS) and the Regional REIT (LON: RGL). The first has achieved weaker than expected earnings growth, while the latter has been affected by the challenging backdrop for offices, with the two trusts losing 37.8% and 37.2% respectively in the first quarter.