What investment trusts did investors buy in July?

World stock markets entered a more volatile phase in late July and early August, after the Bank of Japan abandoned its long-standing policy of holding interest rates below or close to zero. This event coincided with new fears of a sharp US economic slowdown and rising tensions in the Middle East. Markets and investor confidence have subsequently stabilised.

Growing doubts about the ability of AI to boost the profits of users dampened enthusiasm in the technology sector in July. Quarterly results from six of America’s Magnificent Seven tech companies were mixed. While Alphabet, Apple and Meta surprised to the upside in some respects, the opposite was true for Amazon, Microsoft and Tesla. Contrastingly, US smaller companies benefitted from a partial rotation away from the technology mega-caps.

The UK stock market proved to be a relative winner amid the global uncertainty. Shares rose after the general election yielded a large majority for the Labour Party. This was seen as positive for stability. A first cut in UK interest rates at the end of the month proved less advantageous. Members of the Bank of England’s Monetary Policy Committee only voted for a cut by the narrowest of margins and clearer guidance as to when further rate reductions might arrive was not forthcoming.

Investment trusts specialising in technology tightened their grip on the sales tables in July, while trusts delivering strong income returns also remained popular. The Manchester & London Investment Trust entered the top 10 for the first time.

Scottish Mortgage climbed to first place from second in June. The UK’s largest investment trust continues its recovery after a disappointing 2023 marred by concerns over its private equity exposure.

Buoyant markets and a £1 billion share buyback have helped drive a partial return to form, the trust’s discount to the value of its assets narrowing again over the past month to around 9.3%. Nvidia remains the trust’s top holding, followed by ASML and Moderna, highlighting ongoing conviction in the outlooks for AI technology hardware and healthcare¹.

JP Morgan Global Growth & Income advanced three places to second. This trust continues to perform well against its MSCI All Countries World Index benchmark, while offering a prospective dividend yield of around 3.2%². Please note, this yield is not guaranteed.

This success is reflected in the trust’s 0.9% premium to asset value, confirming that a solid capital performance coupled with an attractive yield come at a price. Mega-cap technology companies currently account for a large share of the top holdings, although there are also large weightings in blue chip income producers including Munich Re and and Nestlé.

Continuing the technology theme, Allianz Technology Trust rose to third from seventh in July. This trust’s managers recently reported a high level of conviction in secular growth trends within technology, in the belief we are still early in the spending trend supporting the sector.

Nvidia (now 11.9% of the trust) Microsoft and Meta are the top holdings in a 43 stock portfolio. Netflix and the database software provider Oracle are recent additions. The trust currently trades at a discount of 9.1%, up a little from 8.3% a month ago³.

Polar Capital Technology Trust remained in fourth. The trust’s managers recognise fears over the sustainability of current AI spending, but believe strong growth will be sustained through the second half of this year and into 2025. The trust’s largest holdings are: Nvidia, Microsoft and Alphabet. The trust currently trades at a discount of around 10.0%, also a little higher than a month previously⁴.

City of London Investment Trust climbed a place to fifth. The trust delivered a good return in July, reflecting the continuing rehabilitation of UK shares in the global marketplace together with an investor appetite for yield. These trends removed a small discount to asset value, returning the shares to par. The trust currently yields around 4.8%⁵. Please note this yield is not guaranteed.

Over the longer term this trust is recognised for its conservative investment approach leading to relatively stable capital returns and for its long history (57 years) of continuous dividend growth. While it invests in UK shares, over 60% of the revenues of the companies it is invested in are derived from overseas.

F&C Investment Trust, in sixth place in July, is another trust with a long track record (53 years) of consistent dividend growth. This trust aims to achieve dividend growth that beats inflation over the long term while smoothing out the highs and lows of stock markets. Being a global investor, it doesn’t compete with City of London for yield. The trust currently yields about 1.5%. Please note this yield is not guaranteed.

The world’s oldest investment trust is currently invested in more than 400 companies spread over 35 countries and owns a restrained exposure to America’s mega-cap tech companies compared with many other global funds. Microsoft is the largest holding at 3.3% of the portfolio; Nvidia is next at 3.1%⁶.

Greencoat UK Wind – the trust with the highest yield among the most bought funds in July – climbed from ninth to seventh. This trust provides investors with an opportunity to capitalise on the energy transition and could stand to benefit from the new UK government’s de facto lifting of a ban on new onshore wind plants.

In its interim results published late last month, Greencoat said its net asset value decreased by 2.9% in the six months to June due to lower cash generation and a fall in power prices. Electricity generation was adversely affected by an export cable failure. Against that, the company paid a 2.5p dividend for the first quarter and announced the same amount to be paid for the second quarter. Underlying dividend cover was 1.5 times over the period and the company bought back £44 million of its own shares⁷.

Fidelity Special Values slipped back from the top spot to eighth place in July. This trust is a contrarian, value investor that searches out underappreciated companies mostly in the UK. As such, it offers an exposure to companies often not covered by other popular UK funds.

This trust currently has a broad based portfolio composed of 121 holdings. Notable too is its 23% exposure to financials – principally in banks and life insurers. Current large holdings include the Irish sales and marketing group DCC, Imperial Brands and Ryanair. The trust currently trades at a 6% discount to its asset value, compared with about 7.7% a month ago.

Fidelity European Trust dropped a place to ninth, while remaining investors’ top choice for a European exposure. This trust has a strong bias towards large businesses with resilience and pricing power. The Wegovy weight loss drug producer Novo Nordisk , chip lithography specialist ASML  and Nestlé are the current top three holdings.

The trust is reasonably concentrated – its top 10 holdings account for around 48% of the portfolio and there are just 45 holdings in total.  It currently trades at a discount of about 3.6% compared with 4% a month ago.

Finally, Manchester & London Investment Trust, a large-cap global growth portfolio, was a new name joining this list in July. This trust is clearly strongly committed to the AI revolution and its potential to disrupt.

Just two holdings – Nvidia and Microsoft – accounted for 57% of the portfolio at the end of June. Clearly, this strategy entails significant stock specific risk, reflected, perhaps, in the trust’s 14% discount to net asset value⁸. On the other hand, it is undeniably in a very strong place to capitalise on what may turn out to be the biggest trend in tech since the advent of the smartphone.

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

1. Scottish Mortgage Investment Trust
2. JPMorgan Global Growth and Income
3. Allianz Technology Trust
4. Polar Capital Technology Trust
5. City of London Investment Trust
6. F&C Investment Trust
7. Greencoat UK Wind
8. Fidelity Special Values
9. Fidelity European Trust
10. Manchester & London Investment Trust

Source: Fidelity Brokerage, 1-31 July 2024

Source:

¹ Scottish Mortgage, 12.08.24
² JP Morgan, 08.08.24
³ Allianz Global Investors, 12.08.24
⁴ Polar Capital, 08.08.24
⁵ Janus Henderson, 12.08.24
⁶ F&C, 30.06.24
⁷ Greencoat UK Wind, 24.07.24
⁸ L&M, 12.08.24

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.