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Trust Insider: the best & worst trusts of 2013 and why 2014 is wide open

by James Carthew on Jan 14, 2014 at 00:01

Many mining and resource funds are subscale now but they would probably argue that the time will soon come when investors should be thinking about taking advantage of low valuations in the sector. It will be interesting to see whether any of the existing funds can find ways of raising fresh capital to address this opportunity.

I have heard of at least one new resource fund looking to launch but, with the sector so out of favour, will investors be brave enough to back it?

The best performing funds in NAV terms are a mixed bunch. Top of the list is British American (BAF), an unusual and relatively small fund that is probably not well known to most people. Its largest holding, a biotech stock called Geron, tripled in value in the last few months of 2013, which contributed towards a doubling of its NAV over the year.

BAF’s share price may have overreacted, however, as it looks as though it is on quite a large premium. The biotech sector was in vogue in 2013 and this was reflected in decent performance generated by Biotech Growth Trust, up 63%, and slightly further down the list, International Biotech and Worldwide Healthcare – both up 44%.

A few split capital trusts feature in the top performers, aided by the gearing provided by their zero dividend preference shares. Aberforth Geared Income’s ordinary share NAV rose by 71% while Premier Energy & Water’s ordinary share NAV rose by 62%.

The Aberforth fund had the advantage of being geared into the UK small cap market. It’s one of the areas that did especially well in 2013 with many small cap funds featuring in the list of top performers. Also, Japan finally came good and the Baillie Gifford funds that most rewarded their shareholders.

I am finding it hard to read the runes for 2014. There are tentative signs of recovery in some developed markets and that should lead to the phasing out of quantitative easing and maybe even, by the end of the year, interest rate rises. How that will be reflected in share prices is hard to predict.

It was good to see the investment company sector expand in 2013 and especially to see a number of funds regularly issuing new shares to investors. Hopefully 2014 will see a continuation of this trend – expanding the number of large, liquid funds (and thereby expanding the sector’s appeal in a virtuous circle) and that, if the worst happens and markets take a tumble, boards are ready to buy in shares again to steady discounts and moderate share price volatility.

James Carthew is director of Sapient Research

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1 comment so far. Why not have your say?

Suze Jamieson

Jan 14, 2014 at 16:12

Good and useful article, as always.

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