Beating the FTSE 100 Index over a six-month period does not require as much investment skill as many investors would think. Even a strategy based on choosing stocks at random would stand a reasonable chance of doing better than a benchmark index such as the FTSE 100 in such a short span of time.
The FTSE 100, considered to be the a leading indicator of UK stocks, hasn’t had the best starts to 2018 either — it’s broadly unchanged since the start of the year. That’s because, besides ongoing uncertainty about the UK’s long-term relationship with the EU, worries over global trade and the prospect of an interest rate hike later this year have weighed heavily on the share index.
Outperforming the FTSE 100
Still, there may be some value to knowing which funds have been significantly outperforming the FTSE 100 so far this year. This short period is significant because, whether you’re a trader or a long-term investor, the first six months can give some meaningful clues about where the market could be headed next.
For example, sector funds which are leading the market right now can tell us about investible themes and help us to identify bullish trends. Meanwhile, country-specific or regional funds can inform us about which markets are holding up better than the rest.
With this in mind, here’s a look at three investment trusts that have been outpacing the FTSE 100 so far this year. These may not the absolute top performers of the year, but I reckon they are among the most outstanding and insightful of the top-performing investment trusts in 2018.
Technology
Technology has, once again, been the standout sector in the market this year. And one fund in particular which has really taken off is the Allianz Technology Trust (LSE: ATT).
Driven by stocks such as Amazon and Netflix, which have gained 50% and 118%, respectively, since the start of the year, the Allianz Technology Trust is up by just under 30% so far. This performance compares favourably not only against the FTSE 100, but also against its benchmark index, the Dow Jones World Technology Index, which returned only 15% over the same period.
Strong earnings expectations
Despite a wobbly start in the first quarter of 2018, the technology sector has picked up some steam in the second quarter. Buoyed by strong earnings expectations, technology stocks have shaken off much of the regulatory and protectionist concerns that had been holding them back earlier in the year.
Still, not everyone is enthused. Analysts from Morgan Stanley reckon that already priced into tech valuations is an expected strong earnings season, while sector valuations trade at a significant premium to the market even as uncertainty created by US tariffs (and the threat of retaliatory tariffs) looms large.
Track record
With the FTSE 100 having so few technology stock constituents, the Allianz Technology Trust is a particularly good choice for domestically-exposed investors to get more exposure to the technology sector. The fund has an impressive long-term track record of delivering attractive capital growth, with a five-year cumulative share price return of 260%.
Emerging markets
Surprisingly, another fund which also did particularly well since the start of the year was one which invested in emerging markets. Even as trade war anxiety ruffled on emerging equity markets, the Gulf Investment Fund (LSE: GIF) was one of the best performing funds after having delivered total shareholder return of 14% since the start of the year.
The fund, which seeks exposure to emerging investment opportunities in the Gulf Cooperation Council, or the GCC region, has no doubt benefited from the region’s much-improved economic prospects, which look a lot brighter thanks to rising oil prices.
Financial sector
But although the region is heavily exposed to the oil and gas sector, the fund manager is more keenly invested in the financial stocks, which account for 48.9% of its total assets. The utilities sector is its next biggest exposure, representing 9.6% of assets. This is followed by the energy sector, which represents a further 8.6%.
The fund’s investment adviser believes the GCC banking sector enjoys strong capitalisation and is well placed to benefit from increased infrastructure spending, improving economic growth, and favourable demographic trends. Banking stocks are also attractive due to strong government support for the sector and the recent string of rate hikes by the region’s central banks, which is expected to improve their profitability.
Certainly, the Gulf Investment Fund may not be suitable for all investors as the value of its investments can experience high levels of volatility. That said, as shares in the trust trade at a 15% discount to its net asset value (NAV), it may be worth a closer look for those with a bigger risk appetite seeking an undervalued opportunity.
UK smaller companies
Meanwhile, the BlackRock Throgmorton Trust (LSE: THRG) is a fund to consider for investors seeking to invest closer to home. Shares in the UK smaller companies investment trust have gained 18% year-to-date, making it one of the best-performing funds in the UK small- and mid-cap space.
Fund manager Dan Whitestone reckons there isn’t an industry that’s not facing some form of disruption and that this new wave of disrupters is changing consumer behaviour. As such, his strategy rests on identifying those companies that are disrupting established industries.
Holy trinity
Whitestone has a preference towards companies that have in place the “holy trinity” of a strong management team, a great product, and one that is operating in an attractive sector. The fund’s top five holdings at the end of May included Ascential, Dechra Pharmaceuticals, Integrafin, Robert Walters and Fevertree Drinks.
Fees for the BlackRock Throgmorton Trust are moderate, with an ongoing charges ratio (including performance fees) of 2.2% for its last financial year.
