This third part of a trilogy is reposted to correct errors in calculations of compound growth rate entries in the table. The relevant section of the commentary has been amended accordingly. Other data and remarks thereon stand.
---------------------------------------------------------------------------------------------------------------------------------------------------

After all has been said about their record as income-payers (#17852, #17857) and financial strength (#17901), how have the 41 large generalist investment trusts of this ten-year survey handled a dreary stock market?

Seekers after long-term capital growth-- still the goal of most trusts solely or partly-- expect them to surmount flatlining and occasional nosedives. They must keep moving ahead of equities at large, if only by enough to preserve and in time enhance the purchasing power of what one gave over to the managers' care. Ultimately that is what a 'trust' is. Have they looked after those funds well, or merely lined their own pockets through better and worse times in the familiar manner of the Wise?

This table summarises experience since early 2002, when the previous bear market was working itself out. Billed at the time-- as such panics tend to be, once they have become unfamiliar to younger participants-- as the worst since the Great Depression, it has since been put in the shade by the short but very sharp V-shaped crisis in share prices of 2007-09, from which recovery has been moderate and uncertain. So one can be reasonably content with the topline findings:

PERFORMANCE
Trust                       NAV chg (%)   Discount (%)  Price chg (%)  Price v. FTAS   NAV cagr (%)  Price cagr (%)     FE Risk       Latest      Sector
                                  (10Y)      (10Y ave)          (10Y)   yrs u/perf         (10Y)          (10Y)          Score      discount (%)
 
 
Aberforth Smaller Cos             68.8           14.7           52.0         4              2.1            1.0            103           15.3      UK Smaller Cos
Alliance                          22.5           14.5           17.2         8             -1.2           -1.7            87            15.5      Global Gwth
Bankers                           49.5           11.8           37.0         3              0.8           -0.1            98             7.9      Global Gwth
BlackRock World Mng              527.0           14.7          554.4         3             15.9           17.3            158           13.4      Commods
British Assets                   -15.4            8.6           -3.8         4             -5.0           -3.7            107            4.6      Global G & I
British Empire                   148.4            4.9          152.7         3              6.2            6.4            99            12.7      Global Gwth
Brunner                           10.4           19.4            1.4         5             -2.3           -3.2            88            12.8      Global Gwth
Caledonia                         78.3           16.3           75.3         4              2.7            2.6            118           24.2      Global Gwth
City of London                    30.4            5.7           33.2         5             -0.4           -0.2            91             2.5      UK G & I
Dunedin Inc Gwth                  -2.2           11.9            0.2         7             -3.3           -3.1            113            3.4      UK G & I
Edinburgh                          3.6           12.1           17.8         4             -2.9           -1.6            87            -5.1      UK G & I
Edinburgh UK Tracker              17.7            7.2            6.7         5             -1.6           -2.6            100            4.6      UK Gwth
Finsbury                          72.7            4.7           90.2         3              2.3            3.3            80            -0.8      UK G & I
Foreign & Colonial                30.1           12.0           30.2         6             -0.6           -0.6            90            10.3      Global Gwth
F&C Cap & Inc                     11.2            1.7           27.6         5             -2.2           -0.8            87            -0.2      UK G & I
F&C Global Smaller Cos           124.6           10.3          168.5         3              5.1            7.1            101            1.6      Global Gwth
Invesco Inc Gwth                  18.1            9.4           16.2         3             -1.5           -1.7            89             2.6      UK G & I
JPM Claverhouse                    7.4            6.3           -3.8         5             -2.5           -3.7            109            7.8      UK G & I
JPM Emg Mkts                     351.6           13.2          375.4         2             15.6           16.3            110           10.4      Emerg. Mkts
Keystone                          49.6           10.8           57.8         2              0.9            1.4            91             0.8      UK Gwth
Law Debenture                     45.2           -4.6           42.8         4              0.6            0.4            105           -7.6      Global Gwth
Lowland                           73.8            2.7           73.3         3              2.4            2.3            98             1.5      UK G & I
Mercantile                        74.5           12.4           65.8         3              2.6            2.0            116           14.8      UK Gwth
Merchants                         -2.5            8.7           -6.9         6             -3.4           -3.9            107            4.5      UK G & I
Monks                             74.4           12.9           73.3         5              2.6            2.5            94            15.5      Global Gwth
Murray Inc                        20.0            6.8           32.9         4             -1.3           -0.3            97            -0.7      UK G & I
Murray Intnl                      90.6            5.7          127.4         2              3.4            5.3            95            -6.1      Global G & I
Perpetual Inc & Gwth              54.0            5.7           70.2         4              1.2            2.2            91             0.5      UK G & I
Personal Assets                   65.6           -1.4           62.6         6              2.0            1.8            59            -1.4      Global Gwth
RIT Capital Ptnrs                158.9            3.4          187.4         3              6.2            6.7            115            6.7      Global Gwth
Schroder Inc Gwth                 18.4            5.5           24.3         6             -1.2           -0.7            96             2.2      UK G & I
Scottish                          30.4           13.2           25.9         5             -0.6           -0.9            95            10.8      Global Gwth
Scottish American                 -9.0           12.0            8.4         6             -4.2           -2.5            93            -0.8      Global G & I
Scottish Mortgage                 87.8           14.7           91.9         5              3.4            3.6            130            8.3      Global Gwth
Secs Tst of Scotland              -8.7            7.4            4.3         5             -4.1           -2.7            87            -2.7      Global G & I
Shires Inc                       -47.4            5.9          -41.5         7             -9.4           -8.5            116           -4.6      UK G & I
Std Life Equity Inc               19.0            5.1           26.3         5             -1.5           -0.9            110            6.3      UK G & I
Temple Bar                        42.1            4.7           40.7         3              0.3            0.2            97            -2.0      UK G & I
Templeton Emg Mkts               335.1           12.4          370.8         2             12.7           13.6            128            9.0      Emerg. Mkts
Troy                             -26.0           -1.4          -30.1         5             -6.2           -6.8            90            -0.8      UK G & I
Witan                             20.4           13.2           15.1         4             -1.4           -1.9            100           11.6      Global Gwth
.
AVERAGES (41)                     66.4            8.7           72.5         4              0.8            1.1            101            5.1
 
AVERAGE (B8)                      16.0            8.1           19.8         5             -1.7           -1.4            97             0.9
AVERAGE (B7)                      51.6            6.6           56.8         4              0.8            1.0            99             3.7
GROWTH (10)                       49.5           11.3           52.5         5              0.6            0.7            100            8.1

Net asset values and prices: ten years on

Over their past ten full financial years, these ITs have on average raised net asset value per share (NAV) by two-thirds and their share prices by almost three-quarters, while the All-Share Index (the closest to a universal benchmark) increased by about 15%. Only seven trusts saw an actual decline in NAV, and only five a falling share price.

First for growth were BlackRock World Mining (BRWM), JPMorgan Emerging Markets (JMG) and Templeton Emerging Markets (TEM; these outshone conventional global growth funds with their emphasis on younger boom economies and the demand for natural resources that goes with the tectonic shift of wealth and enterprise eastward. Hanging on to Wall Street or EU bourses did not cut it: the seven which shed NAV in the decade were all Growth & Income sector members which had put their money on mature companies based in old economies.

That said, some of the best cultivators of shareholders' funds include RIT Capital Partners (RCP), British Empire (BTEM) and Murray International (MYI), which hold more orthodox old-economy portfolios. Murray International is the sole G&I trust to score highly for asset growth, the sector's divided aims hobbling others. But among Global Growthers, the maverick Scottish Mortgage (SMT) and the small-cap specialist F&C Global Smaller Companies (FCS) did better than the mainstream ones such as Alliance (ATST) and Witan (WTAN).

Income growth is eventually, if spasmodically, reflected in the share price. For the Basket of Seven (B7), selected for potential to raise dividends rather than instant high yield, prices averaged a 57% increase; whereas for the Basket of Eight drawn from the major G&Is, prices added only one-fifth, barely outrunning the All-Share Index and beaten by retail price inflation of about 37% in 2002-12.

Share-price swings over the decade are also affected by shifts in the discount or premium to NAV. Here the G&Is, pedestrian though their investment performance may have been, come into their own simply because a yield typically a percentage point or more over the market's has become so desirable.


Discounts

It must first be said, however, that there has been a narrowing of discounts across the board since the early 2000s, and that many animadversions on the recent trend are not founded on a longer knowledge of how variable they can be (see Investing for Income, #3677). The table shows both the average financial year-end discount or premium in the decade and the latest (as of Tue. night). Thirty of 41 trusts sell on narrower margins between price and NAV than throughout the period, ten on wider ones and one is in line. The G&Is have gained the most, the B8 average discount narrowing from 8.1% to 0.9% whereas for the B7 it went from 6.6% to 3.7%, and for the unloved Growth Ten from 11.3% to 8.1%.

The five biggest status changes for the better were all G&Is: Securities Trust of Scotland (STS), Shires Income (SHRS), both recipients of reconstruction, Murray International for its adroit market tactics, Scottish American (SCAM) thanks to its high yield, and Edinburgh (EDIN) in its Neil Woodford renascence. A few were cast deeper into darkness. Caledonia Investments (CLDN) is a family 'conviction' vehicle whose direction often felt unconvincing. British Empire lost kudos when the Eurozone, on which it had put its shirt, sank into despondency. RIT Capital Partners is another conviction/family bandwagon whose wheels began to squeak, while Monks (MNKS) probably got left behind because it paid no heed, until lately, to the yen for dividends.


Hits and misses, year by year

A middle column gives a rough idea of how calmly trusts navigated the decade's squalls between these starting and finishing lines: in how many financial years out of ten did each underperform the All-Share Index? The overall shortfall was 4.3 times, the other 5.7 giving the trust universe its outperformance of the FTAS in the decade, but the B7 undershot in only 3.5 years on average.

Trusts with the smartest footwork were three we have already identified as stars: Templeton, Murray International and JPMorgan Emerging Markets, plus Keystone (KIT): all beat the index in eight years. KIT is not otherwise a stellar performer, but must have a nose for danger. The least likely to stay up with the market, behind the index eight times, was Alliance. It could not do right for doing wrong, although its results were dragged further down by losses at its broking platform, Alliance Trust Savings. Seven 'fails' out of ten were racked up by Shires and by Dunedin Income Growth (DIG).

Others halfway into the doghouse with six undershoots were City of London (CTY), despite its reputation as a safe pair of hands, Schroder Income Growth (SCF), Foreign & Colonial (FRCL), Personal Assets (PNL), Scottish American and Merchants (MRCH). This is a mix of G&Is which were probably trying too hard to preserve revenue growth and growth-minded trusts which stuck to their guns or missed turns by accident. Ideally one would accept performance out of line with the broad market as the quid pro quo for sensationally surpassing it in the 'up' years, but this is not generally so: PNL has a lower total return than other conviction operations, Foreign & Colonial is mediocre in its mediocre sector, and B8 trusts cannot upend their shareholdings so as to let rip on capital gain for a few months lest they garble their income streams.


Compounding growth

A further insight into the outcome for the whole period is given by real compound annual growth rates (cagr) for asset value and share price through each trust's decade. (Real means after inflation as logged by the Retail Prices Index.) For all 41 trusts, the average cagr was 0.8% in NAV, 1.1% in price; but the B8 shrank in NAV by 1.7% and in price by 1.4%, for all the closing of their discounts. So buying the industry, or this large chunk of it, would have kept one more than abreast of the cost of living, preserving the nest egg's worth: 1.1% cagr is a rise in purchasing power of 12% over the decade, besides dividends in between times. But the odds on getting such preservation were less than half and half, with 22 trusts showing negative share-price cagr, so one is not spared from having to pick winners.

BlackRock's share price compounded fastest, by 17% pa, followed by JPMorgan Emerging Markets and Templeton in double figures. No other IT has come near such a bonanza. Next best for asset backing were RIT and British Empire, though as we have seen both have come off the pace latterly; meanwhile F&C Global Smaller Companies illustrated the reverse of the maxim that elephants don't gallop. In the mainstream Murray International has been the most potent LTBH counter, by going abroad.

Twenty-one of the 41 exhibit cagr shrinkage on asset value, down to minus 5% or more at British Assets (BSET), Troy (formerly Glasgow Income) and Shires: funds which in the past, and in BSET's case the present, paid out too much. Fifteen of the 22 companies whose price shrank lie in Growth & Income: that is what becomes of the growth aspiration in a Lost Decade. Perhaps the only one to pull off a neat balance between the twin aims on the home front is Lowland (LWI), whose manager picks a different type of British share from his contemporaries.

The ins and outs, ups and downs of individual trusts during the period will be probed more in next month's six-monthly comparison of funds over short and long spells.


Risky business

If Benjamin Graham was right about stock markets being weighing machines for the long term, what of their voting-machine penchants? The FE Risk Score measures how prices have ducked and weaved over the last three years, relative to the whole market and other classes, on sentiment which may not relate to the cagrs and other yardsticks of the decade. Taking cash as 0, the ultimate in non-volatility, and the FTSE 100 as 100, our big ITs have in aggregate behaved as one would foresee collective, conservatively managed and legally hidebound vehicles behaving. Their average Risk Score is 101. Basket shares, with more of an income cushion, come in a little below 100, indicating less propensity to shift around than the market: a facet I will be posting about soon.

Seven trusts venture far out enough on a limb to score over 115: BlackRock World Mining, with little yield to tamp it down and in the thick of an industry always swept by rumours and politics, scores 158. Scottish Mortgage, an individualistic position-runner which demands to be assessed by half-decades or longer, is on 130, and Templeton runs close behind. And though JPMorgan Emerging Markets rates only 110, one sees a trade-off between the decade's stars and the turbulence that comes with the deal.

Then there are the placid issues whose risk is rated at under 90, led as ever by Personal Assets. Its don't-lose-money deterination gives it a score of 59, though for some reason that was lifted from under 40 recently. Finsbury Growth & Income (FGT) is a more pastel version of PNL, but the low risks attributed to such as Alliance and Brunner (BUT) may be more about lack of inspiration in their portfolios. Edinburgh, F&C Capital and Income (FCI) and Invesco Income Growth (IVI) are basket shares which have supplied a well-cushioned ride; Dunedin and JPMorgan Claverhouse (JCH) have been more spasmodic than they should have been. In the B7, Mercantile (MRC) is the most volatile because of its midcap focus and assiduous disposals of companies when they become too big for its brief.


Conclusion: no sectoral surprises

Reverting to the question posed at the beginning: have these large trusts merited confidence in their conductors' skills when it comes to keeping your hard-earned safe?

Three-quarters have outstripped the All-Share Index, but that is Hall of Mirrors talk for the pros to bicker about. Twenty-four of 41 did not lift their realisable values between 2001-02 and 2011-12 by as much as inflation, which was c. 40%. On average they bettered the rise of the RPI by one-fifth, but the average is misleading, skewed substantially by a few blazing performances at the top of the table.

The sectoral division of sheep and goats is stark. Seven of the ten best were in the growth, commodities and natural resources or emerging markets camp. The highest placed growth and income member, Murray International, was also 'global', while Finsbury is not your everyday G&I. Only Lowland, as I said, carried the British G&I banner for All-Share outperformance, and only in tenth place.

You could have pinned down a fat starting income from G&Is, you had a modicum of real expansion of it in this benighted decade, and there may be more to come, if not as much; but you could not look for capital's purchasing power to be protected as well. Conversely, though they may be becoming a little keener on paying out, the trusts which target growth stocks have been the ones the investor should prefer if profit by buys and sales of stocks is her aim as well. The middle way is the B7 species of income-growing vehicle. These give some attention to growing capital also, and reap a moderate harvest of each commodity. Only Claverhouse in the B7 wound up in the basement with the B8s, and has accepted its change of spots by migrating from UK Growth to UK G&I.

Big trusts mostly run true to type. Disparate types do what they say on the tin; Trading Standards Officers can leave them be. Not like, say, a High Yield Portfolio, vintage 2000, which promised you rising income, failed to supply it but produced handsome gains in the capital which its promoter kept telling you did not matter.