What investment trusts did investors buy in April?

Stock markets delivered more hesitant performances in April, as markets were required to contend with a less agreeable outlook for interest rates. In particular, inflationary trends in the US picked up a little, casting doubt on expectations that US rates might be cut three times before the year is out.

Markets also started to reappraise their assumptions regarding AI, after reports of soaring capital spending at Google, Meta and Microsoft. AI may have very considerable longer term benefits, but these have to be paid for upfront, with no guarantees of success.

Despite this, some value areas of markets – including financials and miners – showed further signs of strength. This played into the hands of the FTSE 100, which rose above the 8,100 mark, narrowly beating its previous best of February 2023.

With a couple of notable exceptions, investment trusts with a strong growth remit prevailed in April. While the majority of the month’s best sellers were names we have seen before this year, there were two new entrants to this list.

Scottish Mortgage remained the most popular investment trust among Fidelity’s personal investors. Following the announcement in mid March of a £1 billion share buyback, the trust’s discount has narrowed to just 6%. That compares with 8% a month ago and 14% the month before that. Hopes that an influential activist shareholder might stimulate positive price discovery among the trust’s private equity holdings have also lifted sentiment.

The trust’s weighting in Nvidia has now increased to the point where it shares the top spot with ASML – the Dutch company that supplies the lithography technology to inscribe silicon wafers. Both account for 8% of the portfolio. Coming up on the rails in third is Moderna, which made the headlines again in April following positive results from early-stage trials of an mRNA cancer vaccine¹.

JP Morgan Global Growth & Income climbed a place to second. This trust aims to beat the MSCI All Countries World Index over the long term, which it has done since stock markets bottomed in 2020. Reflecting this success, the trust currently trades at a 1.7% premium to its asset value. It has a prospective dividend yield of around 3.3%². Please note, this yield is not guaranteed.

While the trust’s management remains cautious about the macroeconomic environment in 2024, it sees corporate earnings growing by about 10% globally. Current industry estimates suggest this may not be far wide of the mark, with analysts looking for US earnings growth of 11% now that results for the first quarter are in³.

Fidelity European Trust rose from sixth to third and remained the top pick for an exposure to Europe. This trust continues to emphasise large businesses differentiated by their resilience and pricing power and has ASML, Nestlé and Novo Nordisk as its top three holdings. The trust currently trades at a discount of about 3.5%, down a little from 5.2% a month ago.

City of London Investment Trust bucked the trend towards growth focused trusts and stayed in fourth. City of London aims for a combination of long-term income and capital growth by investing in UK companies. However, since over 60% of the revenues of the companies it is invested in are derived from overseas, it effectively offers an exposure to global corporate profits at a discount.

Having said that, the discount is not as large as it once was. UK shares rallied in April and the price of this trust reflected that. The trust now trades on a discount to its net asset value of 2.9% and currently yields 4.9%⁴. Please note this yield is not guaranteed.

Polar Capital Technology Trust, the second tech-focused trust on this list, shot up from ninth to fifth.

Manager Ben Rogoff reports being fairly fully invested, due largely to the management team’s conviction in the powerful secular tailwind associated with generative AI.

The trust’s favoured mega-cap companies are: Nvidia, Microsoft, Meta and Amazon. A recently reduced position in Apple reflects concerns over regulatory headwinds and increasing competition in China, although it still accounts for 5.1% of the portfolio. The trust currently trades at a discount of around 8.4%, down about 1% from a month ago⁵.

F&C Investment Trust slipped from second to sixth. Like City of London, the world’s oldest investment trust has consistently grown its dividends over time – 53 years in this case. The trust aims to achieve dividend growth that beats inflation over the long term. It also targets smoothing out the highs and lows of stock markets.

Where this trust differs most is that it is currently invested in more than 400 companies globally, so individual stakes tend to be smaller than in other trusts (Microsoft is the largest holding accounting for 3.2% of the portfolio; Nvidia is next at 2.1%)⁶. It is, therefore, less exposed to the mega-cap winners of the recent past than some of its global competitors.

Fidelity Special Values returned to the most bought list in seventh. Investment Week’s Investment Company of the Year and Citywire’s Best UK All Companies Trust is a contrarian investor that searches out underappreciated companies primarily in the UK. Current large holdings include the Irish sales and marketing group DCC, Imperial Brands and the Swiss pharmaceuticals giant Roche.

Even so, manager Alex Wright has been adding to the trust’s mid-cap and smaller company exposures recently through purchases of shares in Direct Line Insurance and the thread manufacturer Coats, among others. This trust continues to offer an exposure to companies generally not covered by other popular UK focused funds.

Next was Alliance Trust, which reported recently it had reduced its positions in the “Magnificent Seven” mega-caps and other similar growth stocks in the belief that sentiment over AI had become excessively bullish. Capital was redeployed to companies with lower valuations. The trust continues to look very different from its global benchmark with, for example, MasterCard and the British beverages group Diageo among its top 10 holdings⁷.

The private equity and venture capital specialist 3i Group was April’s second new entrant. 3i is currently most notable for its investment in the Dutch discount retailer Action, which accounts for around 65% of the company’s assets. Full-year results released in early May confirmed continued solid progress, with Action delivering a gross investment return of £3.7 billion or 33% over the year⁸.

Finally, another new entrant, BlackRock World Mining Trust, rounded out the top-10. Selected commodities have started to outperform of late, including the economic barometer copper as well as precious metals including gold and silver.

This trust appears to be in a good place to capitalise on these new trends, while providing investors with an alternative diversification opportunity. A 25% position in copper and 15% position in gold are among the trust’s largest exposures⁹.

Source:

¹ Scottish Mortgage, 09.05.24
² JP Morgan, 09.05.24
³ FactSet, 03.05.24
⁴ Janus Henderson, 09.05.24
⁵ Polar Capital, 09.05.24
⁶ F&C, 31.03.24
⁷ Alliance Trust, 31.03.24
⁸ 3i, 09.05.24
⁹ BlackRock, 31.03.24

Top 10 best-selling investment trusts on Fidelity’s Personal Investing platform in March 2024

1. Scottish Mortgage Investment Trust
2. JPMorgan Global Growth and Income PLC
3. Fidelity European Trust PLC
4. City of London Investment Trust
5. Polar Capital Technology Trust
6. F&C Investment Trust PLC
7. Fidelity Special Values
8. Alliance Trust
9. 3i Group
10. Blackrock World Mining Trust

Source: Fidelity Brokerage, 1-30 April 2024 

Important information - investors should note that the views expressed may no longer be current and may have already been acted upon. Before investing, please read the relevant key information document which contains important information about each investment trust. The shares in these investment trusts are listed on the London Stock Exchange and their price is affected by supply and demand. Investment trusts can gain additional exposure to the market, known as gearing, potentially increasing volatility. Overseas investments will be affected by movements in currency exchange rates. Investments in emerging markets can be more volatile than other more developed markets. Reference to specific securities should not be construed as a recommendation to buy or sell these securities and is included for the purposes of illustration only. Eligibility to invest in an ISA and tax treatment depends on personal circumstances and all tax rules may change in the future. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to one of Fidelity’s advisers or an authorised financial adviser of your choice.