What investment trusts did investors buy in August?

World markets turned more volatile in August, amid growing unease about the valuations of AI-related shares. Markets also became more questioning about the robustness of the US economy, after previous jobs figures saw a significant downward revision.

An unwinding of the so-called “yen carry trade” also temporarily unsettled markets. This came about after the Bank of Japan raised interest rates at the end of July, in the process removing the possibility of borrowing at near zero cost to invest in higher yielding assets.

Shares ended the month on a positive note with the Dow Jones Industrial Average reaching a succession of new all-time highs. Data released towards the end of the month showed the US economy grew at a revised 3.0% annual rate in the second quarter¹. This reinforced hopes the economy will achieve a soft landing after a year of elevated interest rates.

Trusts focused on technology and income producing assets remained in firm evidence in August, along with a new entrant specialising in commercial property. Generally speaking, the discount on trusts focused on technology moved out a little, reflecting increased nervousness about valuations and world growth.

Fidelity China Special Situations returned to the top-10 most bought trusts in first place in August. The move came despite a challenging market environment in China, with shares weighed down by a slowing consumer economy and weak housing market.

On the plus side, China’s stock markets have probably factored in a good deal of bad news: Chinese shares now trade on about 8.9 times forward earnings compared with about 18 times for world markets². The economy grew at an annual rate of 5.3% in the first quarter of the year and 4.7% in the second³.

In an interview with Fidelity’s Tom Stevenson in May, the trust’s manager Dale Nicholls reported that clear winners were emerging and that some Chinese companies are delivering better shareholder returns in terms of buybacks and dividends. The trust currently trades at a 10% discount to its net asset value.

Scottish Mortgage was pushed back into second place. Following a steady recovery since last autumn, the UK’s largest investment trust has traversed several bumps in the road since early July. The trust continues to buy back its own shares in volume, as part of the £1 billion share buyback it announced in March. That will have helped keep the discount steady at around 9% - 10% mark over the past month, about half the peak levels recorded last summer.

The trust remains focused on global tech companies and can invest up to 30% of its portfolio in private businesses. Nvidia and ASML remain the trust’s top holdings, although their weightings have decreased over the past month from around 9.3% to 6.8% and from 7.7% to 6.5% respectively. The mRNA vaccines specialist Moderna (6.1%) is still the third largest position⁴.

In third, up one place from July, was the first of two pure technology plays – Polar Capital Technology Trust. During August, the trust’s managers concluded the economic outlook has not changed enough to derail AI fundamentals. Further, they continue to believe AI will reshape most industries and redistribute existing profit pools.

The trust’s largest holdings at the end of July were Nvidia and Microsoft, with Apple succeeding Alphabet as the third largest holding compared with the month before. The trust currently trades at a discount of around 11.7%, up from 10.0% a month previously⁵.

JP Morgan Global Growth & Income dropped a couple of places to fourth. This trust continues to perform well against its MSCI All Countries World Index benchmark and, after recent market falls, offers a prospective dividend yield of around 4.0%⁶. Please note, this yield is not guaranteed.

The trust currently trades close to par, 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 alongside income producers including Munich Re and Nestlé. One of Japan’s largest chemicals producers Shin-Etsu also makes the top-10.

F&C Investment Trust advanced a place to fifth. The world’s oldest investment trust is currently invested in more than 400 companies spread over 35 countries, partly due to its multi-manager investment process. It owns a lower exposure to America’s mega-cap tech companies compared with many other global funds. At 3.4% of the portfolio, Nvidia became the largest holding in July, relegating Microsoft (3.2%) into second place.

This trust has a very long track record (53 years) of consistent dividend growth. It aims to grow its dividend faster than inflation over the long term while also smoothing out the overall returns from stock markets. The trust currently yields about 1.5%⁷. Please note this yield is not guaranteed.

Allianz Technology Trust also rose one place, to sixth. This trust values the close proximity of its investment team to Silicon Valley and ventures deep into mid-cap tech companies alongside the six Magnificent Seven companies its holds among its top 10. Recent additions include Netflix, the database software provider Oracle and the German enterprise software company SAP. The trust currently trades at a discount of 11.6%, up a little from 9.1% a month ago⁸.

Fidelity Special Values, up one place to seventh, is a contrarian 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 117 holdings. Notable too is its 23% exposure to financials, AIB Group (Allied Irish Banks) Aviva and Standard Chartered being the top holdings in this category. In the portfolio overall, Imperial Brands has recently pushed the Irish sales and marketing company DCC into second place. The trust currently trades at an 8.4% discount to its asset value, compared with about 6% a month ago.

City of London Investment Trust lost three places in August to end in eighth. The trust continued to hover around par for most of the month and currently trades at a small (1.5%) discount to its asset value. The trust yields around 4.8%⁹. Please note this yield is not guaranteed.

This trust adopts a conservative investment approach with a strong bias towards FTSE 100 companies. This has led to relatively stable capital returns and underpinned a long history (57 years) of continuous dividend growth. While it invests mostly in UK shares, over 60% of the underlying revenues of the companies it is invested in come from overseas. The largest non-UK investment is the French oil giant TotalEnergies.

A new entrant – TR Property Investment Trust – took ninth place. As an investor in UK and European commercial properties, the trust has benefitted so far this year from the prospect of lower interest rates as well as decent economic growth in the UK. It currently trades at an 8% discount with a 4.5% yield¹⁰. Please note this yield is not guaranteed.

The trust was further boosted in early September by the announcement of takeover bids for two other property trusts – Balanced Commercial Property Trust and Tritax Eurobox.

Finally, another multi-manager trust, Alliance Trust, made a return in tenth place. In June, Alliance Trust announced it would join forces with Witan Investment Trust to create an investment trust potentially large enough to enter the FTSE 100.

Owing much to its “best ideas” approach, Alliance Trust continues to look very different from its global benchmark with, for example, the US insurance broker Aon and British beverages group Diageo among its top 10 holdings. Alliance Trust is well diversified with 205 holdings and currently trades at a discount of 6.0%¹¹.

Dropping out of the top 10 in August were Greencoat UK Wind, Fidelity European Trust and the tech-focused Manchester & London Investment Trust.

Source:

¹ BEA, 29.08.24
² MSCI China Index, 30.08.24
³ National Bureau of Statistics of China, 15.07.24
⁴ Scottish Mortgage, 06.09.24
⁵ Polar Capital, August 2024
⁶ JP Morgan, 09.09.24
⁷ F&C, 09.09.24
⁸ Allianz Global Investors, 09.09.24
⁹ Janus Henderson, 09.09.24
¹⁰ TR Property, 06.09.24
¹¹ Alliance Trust, 10.09.24

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

1. Fidelity China Special Situations
2. Scottish Mortgage Investment trust
3. Polar Capital Technology Trust
4. JPMorgan Global Growth and Income
5. F&C Investment Trust
6. Allianz Technology Trust
7. Fidelity Special Values
8. City of London Investment Trust
9. TR Property Investment Trust
10. Alliance Trust

Source: Fidelity Brokerage, 1-31 August 2024

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.