How to compare Investment Trust performance

For most investors investing should be considered a long-term commitment. In an ideal world, investors will be holding on for at least five years, and – as with any good relationship - it is important to get the right fit. Comparing investment trust performance is about more than just finding those trusts that have gone up the most in the past.

Your investment trust research will probably begin with a look at how a trust’s share price has performed historically. While that’s a good starting point, any past gains or losses cannot be guaranteed in future and also need to be put in context. For example, if a technology-focused trust has risen 20% in a year, investors may feel they have picked a good option. However, if the rest of the sector has risen 40%, there may be a better choice. Equally, a trust may have seen its share price fall, but if its peer group has fallen far more, it may still be worth looking at it.

You should be looking at the net asset value return as well as the share price return. This tells you the performance of the underlying assets held within the trust and therefore can be a better reflection of the skill of the trust’s manager. The share price can be influenced by short-term fads and fashions – if investors are pessimistic on the prospects for an individual sector, a trust may trade below its net asset value, and if they are very optimistic, a trust’s share price may be higher than the value of the underlying assets.

Past performance needs to be used carefully. A long track record of strong performance may be a sign that a trust is run by a capable manager. However, it may also be a sign that their particular investment style has been in favour, or that they have made one or two good investments. It is important to look under the bonnet and judge performance over a long time period. Is it repeatable and consistent?

Investing for income

For investors who want an income from their investments, it is also worth looking at the dividend history of a trust. Does it have a track record of growing its payouts to shareholders over time? If it does, it suggests the investment management team are adept at finding the right investments, and the board is good at holding them to account.

It is also important to look at the risks a trust has taken to achieve their return. If a trust has had good performance, but the share price has moved around a lot, it may suggest the manager is taking a lot of risk to achieve that return. This may suit some investors, but they will need to be prepared for a bouncier ride. 

Ultimately, assessing performance is not just about finding the top performing trusts over any given year. It is about finding trusts that may be able to deliver on their objectives and investment goals over the long term.