Market volatility produced dramatic reversals of fortune for investment trusts over the last two qua...
Market volatility produced dramatic reversals of fortune for investment trusts over the last two quarters to 31 March.
According to Deutsche Bank, the most extreme example of the effect of volatility was on GT Japan. The £218m trust's NAV outperformed the Topix by 32.5% in the final quarter of 1999, but in the following quarter it lagged behind the index by 13.1%. The trust's combined weighting of 16.6% in Hikari Tsushin and Softbank, which both fell in the first quarter of 2000, does much to explain the differential, said Martin Fothergill, an investment trust analyst at Deutsche Bank.
Globally the technology rally ran out of steam during the first quarter of 2000. This led to a dampening of the outperformance of some trusts in the previous quarter. Apart from some Japanese trusts other sectors affected included smaller companies and Asia.
Fleming Asian's NAV outperformed its index, MSCI AC Asia Free, for the three months to the end of 1999 by 38.7%. In the first quarter of 2000 the outperformance was only 2.7%. Over the longer term Fidelity Japanese Values and Baillie Gifford Shin Nippon's track records fell foul of the increased market volatility. Both trusts outperformed the TSE Second Section during all quarters from 1 April 1998 until the end of 1999. For the first quarter of 2000 Shin Nippon underperformed by 15.5% and Japanese values lagged by 9.7%.
Edinburgh Smaller Companies' NAV beat its benchmark by 25.4% in the fourth quarter of 1999 but underperformed by 16.3% in the first quarter of 2000. Fothergill said: "Investors should look at performance relative to benchmarks. Some investors do not want to take huge risks and want to avoid trusts with high volatility."
He thinks the star trust of the last quarter was TR European Growth, run by Henderson Investors. The trust demonstrated low volatility, with a consistent level of modest outperformance of the FTSE Europe ex UK index in 1999.
All the other trusts in the European sector were unable to consistently outperform their respective benchmarks in terms of NAV returns in 1999.
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