What investment trusts did investors buy in July?

STOCK markets continued in a positive vein in July, despite the prospect of further rises in short term interest rates. Falling inflation helped markets look forward to a reversal in the current interest rate trend. Meanwhile, resilient consumers continued to dampen recession fears and bolster hopes for Goldilocks economic conditions – “not too hot, not too cold” – both here and in the US.

The US corporate earnings season generally delivered better-than-expected results. It remains the case, however, that a strong rally in earnings multiples rather than earnings themselves have been driving markets over recent months. 

The optimistic tone in markets was reflected in the continuing popularity of Scottish Mortgage. It topped the charts once again, as investors continued to back an anticipated revival in the trust’s fortunes.

While there were some high profile disappointments for investors to take account of in July – for example, underwhelming results from Netflix and Tesla – the earnings season generally proved supportive. Meanwhile, NVIDIA extended its exceptional run.

That said, the trust now trades at an even larger discount today of around 19.5%, compared to 16% at the start of June. Given the trust’s solid share price performance last month, that suggests sentiment still has some catching up to do¹.

Elsewhere, investors displayed a more contrarian approach, with a focus on the laggard markets of the UK and China.

The City of London Investment Trust, in second position, remains a high quality, quite conservative play on the UK stock market. The trust is approaching its 57^th year of unbroken dividend growth, and its present-day yield of just over 5% remains an attractive proposition. Please note, this yield is not guaranteed.

Both factors are reflected in the trust currently trading at around a 1.5% premium to its net asset value². That suggests investors still have faith in the catch-up potential of the trust’s high quality portfolio, especially given the internationally low valuations of leading global earners like Shell and Unilever.

Fidelity China Special Situations was in third place in July, despite continued rumblings about China’s latest economic slowdown. Short-term hopes rest partly on the government’s response. However, thus far, limited stimulatory measures have disappointed investors, leaving fears about a slow pickup in consumer confidence and heavily indebted property sector to dominate.

In the opinion of the trust’s manager Dale Nicholls, the present environment is throwing up considerable opportunities for stock picking strategies focused on underlying earnings growth. You can read more about what Dale thinks about the current clutch of opportunities in this latest article which includes a video interview with him.

Fidelity European Trust remained investors’ top pick for Europe. This trust continues to invest in large businesses differentiated by virtue of their resilience and pricing power. Among the trust’s largest holdings currently are companies with strong retail brands, including Nestlé, LVMH and L’Oreal, and the global healthcare providers Roche and Novo Nordisk.

Greencoat UK Wind – the eighth largest constituent of the FTSE 250 Index at the end of June – also attracted strong support. Its high exposure to inflation-linked revenues, high power prices and the energy transition clearly remain firm attractions.

Interim results released at the end of July confirmed solid progress, with a difficult fundraising environment for the wind industry generally further enhancing the available investment opportunities. At the end of the month, the trust confirmed it had agreed to take a 13.7% stake in the London Array offshore wind farm³.

Top 5 best-selling investment trusts on Fidelity’s Personal Investing platform in July 2023

1. Scottish Mortgage
2. City of London Investment Trust
3. Fidelity China Special Situations PLC
4. Fidelity European Trust PLC
5. Greencoat UK Wind

Source: Fidelity Brokerage, 1-31 July 2023

¹ Scottish Mortgage, 14.8.23
² Janus Henderson, 14.8.23
³ Greencoat UK Wind, 27.7.23

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.