Important information - the value of investments and the income from them, can go down as well as up, so you may get back less than you invest.

The New Year saw a marked change in stock markets. Whereas the latter stages of 2023 were characterised by a race to the top, January was much more about a fresh tussle between the bulls and bears.  

Nervousness ahead of the quarterly corporate results season – particularly for tech companies – recession fears in Germany and concerns stemming from China’s highly indebted property sector weighed on sentiment.  

Even so, a narrative of falling interest rates in 2024 and optimism about the seemingly unstoppable take-up of AI eventually prevailed. The US stock market drove on to a succession of new highs and other world markets tagged along in the second half of the month. 

In this environment, investment trusts across the growth-income spectrum attracted support. Expectations of interest rate cuts by the middle of this year emboldened investors in growth strategies. Meanwhile, trusts investing in the lowly valued markets of the UK and China also fared well. 

Fidelity Special Values jumped to the top from sixth place in December. Investment Week’s Investment Company of the Year and Citywire’s Best UK All Companies Trust follows a contrarian approach that searches out underappreciated companies primarily listed in the UK.  

Manager Alex Wright said late last year he is cautious on the prospects for companies in the near term after recent rate rises. As a result, he’s favouring businesses with lower debt levels and the resilience to navigate uncertainty. Current large holdings include Imperial Brands and two Irish blue chips – AIB Group (Allied Irish Banks) and the sales and marketing group DCC

Scottish Mortgage slipped a place in January but remained highly popular as the upward trend in technology stocks persisted. Improving market conditions have seen the trust’s discount narrow over the past few months. However, the trust lagged rapidly rising shares last month, with the discount widening to around 12.5% at the time of writing from 9.5% a month ago1.  

The trust’s timely re-entry into Meta Platforms in December boosted the portfolio in January, after shares in the parent company of Facebook flew in the wake of strong results and the announcement of a first quarterly dividend. The Dutch chipmaker ASML remains the largest holding, accounting for 6.8% of the portfolio. Its shares rose sharply after strong results revealing a growing order backlog.  

JP Morgan Global Growth & Income also dropped a place while remaining the most popular trust with a balanced return mandate. The trust aims to beat the MSCI All Countries World Index over the long term, which it has succeeded in doing since stock markets bottomed in 2020. Reflecting this continued success, it currently trades at a 2.0% premium to its asset value.    

Like Fidelity’s Alex Wright, management currently notes the global uncertainties at hand and says it is focused on higher quality companies with robust balance sheets, proven management teams and a stronger ability to defend margins. A prospective dividend yield of around 3.7% looks attractive in an environment where interest rates and inflation are expected to fall below this level2. Please note, this yield is not guaranteed.

Polar Capital Technology Trust, in fourth place, kept the tech theme going. The trust’s discount widened by a very similar amount to the discount on Scottish Mortgage last month, from around 9.8% to 12.7%3

While the trust features positions in the majority of the “Magnificent Seven”, it is underweight the technology mega-caps overall compared with its global technology benchmark. It makes up the difference by focusing on a band of medium-sized and smaller companies that manager Ben Rogoff considers to have stronger growth prospects. 

Fidelity European Trust remained in fifth place last month. This trust continues to invest in large businesses differentiated by virtue of their resilience and pricing power.  

Among its largest holdings currently are companies with strong retail brands, including Nestlé, LVMH and L’Oreal. The trust’s second largest holding – Novo Nordisk – continued to climb strongly in January after a spectacular 2023. The Wegovy weight-loss drug maker’s main problem is reportedly making sufficient units to meet demand. The trust currently trades at a discount of about 8%.  

Allianz Technology Trust was the third tech trust to make the list, rising from tenth to sixth place. The trust’s managers report a continued high level of conviction in secular growth trends within the sector, from AI and machine learning through to the “Internet of Things”, cyber security and digital assets. They also expect a further increase in market breadth as interest rates start to fall, which should favour mid-sized and smaller tech companies.  

Murray Income Trust was a new entrant in January, usurping Murray International – December’s seventh best seller. Murray Income Trust aims for a high and growing income with capital growth, rather than the other way round. This 100-year-old trust has raised its dividend every year since 1973 and currently trades on a yield of 4.65%, an amount that is not guaranteed4.  

Despite being constructed mostly of holdings in UK listed companies, the managers describe the portfolio as being “jam packed with predominantly global businesses”. The trust’s largest holdings evidence this with, RELX, AstraZeneca, Unilever, Diageo and TotalEnergies of France being the top five.   

A similar trust in many ways – City of London Investment Trust – remained in eighth. Its unbroken record of annual dividend increases began in 1966 and it currently trades close to par with a yield of 5.2%. Please note, this yield is not guaranteed. 

Like Murray Income, this trust has a high exposure to successful global names trading at internationally low valuations (Shell, BAE Systems, RELX, HSBC and Unilever are the top five). The trust recently noted 69% of the revenues of the companies it was invested in came from overseas5.  

Alliance Trust, the second on this list to have achieved a dividend increase every year since 1966, was in ninth position. This highly selective investor in global shares benefitted from overweight holdings in a diverse bunch of companies last month, ASML, MercadoLibre (Latin America’s eBay equivalent) and the Japanese bank Mitsubishi UFJ being among them6. The trust draws on several stock pickers with varying investment styles to get results. 

Rounding out the top-10 was another new entry – Fidelity China Special Situations.  

China’s stock market posted a deeply disappointing return in 2023, reflecting China’s slow climb post Covid. With the property market still in the doldrums, sentiment in the country’s burgeoning domestic consumer economy remains poor.  

Investors clearly sense a contrarian opportunity. They could be right too, given the decision has now been taken to permit the liquidation of China’s second largest developer – the highly indebted China Evergrande – to take place. However, the trust continues to pursue a highly selective strategy. It has recently taken the opportunity to invest more in companies trading at compelling valuations that have strong cash flows and dominant their markets in China. 

Fidelity China Special Situations, which currently trades at a 9.6% discount to its net asset value, agreed to a merger with the smaller abrdn China Investment Company last November. 

For more investing ideas, see the latest Investment Outlook

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

  1. Fidelity Special Values PLC 
  2. Scottish Mortgage Investment Trust
  3. JPMorgan Global Growth and Income PLC 
  4. Polar Capital Technology Trust 
  5. Fidelity European Trust PLC 
  6. Allianz Technology Trust PLC 
  7. Murray Income Trust 
  8. City of London Investment Trust 
  9. Alliance Trust 
  10. Fidelity China Special Situations PLC 


Source: Fidelity Brokerage, 1-31 January 2024 

Source:  

1 Scottish Mortgage, 09.02.2 

2 JP Morgan, 31.01.24 

3 Polar Capital, 31.01.24 

4 abrdn, 14.02.23 

5 Janus Henderson, 13.02.23 

6 Alliance Trust, 31.01.23

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.

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