The pain of 2022 has been felt just as fiercely in the investment trust sector as the open-ended sector, but it has left some sectors looking appealing.
- The average investment company is down 15% for the year to date
- Commodities, aircraft leasing, direct lending and global equity income have defied the gloom
- Smaller and growth companies may be areas to watch in the year ahead
Plenty of investment trusts have defied the prevailing gloom in 2022. However, the winners wouldn’t necessarily have been the obvious choice at the start of the year – commodities perhaps, but aircraft leasing, direct lending or even global equity income?
The average investment company is down 15% for the year to date, according to figures from the Association of Investment Companies. However, there has been vast polarisation in performance. At the top end is the commodities and natural resources sector, up a recession-defying 26%. The top performing funds are all aircraft leasing funds – DP Aircraft 1, Doric Nimrod Air Three and Doric Nimrod Air Two, which saw an astonishing rise after two very difficult years. Private equity group Literacy Capital, and Gresham House Energy Storage also turned in noteworthy performances.
At the other end of the scale are the growth capital trusts. This includes Chrysalis Investment, where the board must surely be reviewing the managers’ £112m payout in 2021 after a 65.5% loss in the past 12 months. Property has also been weak, as investors have fretted about its exposure to higher interest rates and the reconfiguration brought about by agile working. Smaller companies have struggled amid the general gloom on the economic climate and widespread risk aversion.
Could this reverse in 2023? Might smaller companies revive, property be reappraised and defensive trusts no longer hold the same interest for investors? Certainly, some appealing discounts have opened up. The Schroder UK Public Private and Chelverton Growth trusts now sit on discounts of 47% discount. The private equity sector also has some tempting valuations – HarbourVest Global Private equity is on a 47% discount, while Pantheon International and Abrdn Private Equity Opportunities are on 45% and 42% respectively. While there may be some adjustments to NAV over the course of 2023, it is unlikely to be this much.
Commercial property still has a lot of uncertainty, but a number of the logistics companies have seen discounts widen – Tritax Big Box, for example, is trading on a 38% discount. There is a 69% difference between its share price return and NAV return this year. The smaller companies trusts have also seen a significant gap open up between NAV and share price performance. All these trusts may see their NAV weaken in 2023, but they have a significant cushion for investors willing to take risk.
History suggests that these difficult markets are a good moment to go shopping in the investment trust sector. Certainly, there is pain to come on the economy and in corporate earnings, but it appears that investors are well-compensated for the risks.
