Just a handful of investment trusts have managed to make positive returns in 2022, amidst soaring inflation, interest rate hikes, and geopolitical tension. The first half of the year proved to be one of the worst starts in recent history, with broad-based sell-offs taking place. While sentiment has improved in recent weeks, positive progress has been a challenge across the board.
In this article, we take a closer look at how the mainstream equity and flexible investment trusts have fared this year. Despite the challenging market conditions, there have been a few sectors that have shown promise. Let's dive into the best and worst investment trusts of 2022 so far.
Trust Sectors and Returns
As expected, most trust sectors have recorded losses since the beginning of the year, reflecting the state of the open-ended fund universe. However, there are three peer groups that have managed to show a positive average return for 2022. These sectors include IT Latin America, IT Infrastructure Securities, and IT Commodities & Natural Resources. These trusts invest in assets that offer inflation protection, making them particularly attractive in the face of soaring inflation rates.
On the other hand, the worst average returns have come from the IT Growth Capital sector. This sector focuses on investing in unquoted shares of early to maturing companies. Additionally, IT European Smaller Companies, IT Global Smaller Companies, and IT China/Greater China have also seen significant losses. IT UK All Companies, while not as risky as the aforementioned sectors, is not far behind in terms of losses.
Top-Performing Investment Trusts
When we analyze individual investment trusts, only 41 out of the 219 trusts we looked into have managed to generate a positive return this year. The highest return from the mainstream AIC sectors has been achieved by Riverstone Energy, with a remarkable 43.7% gain over the period under review.
Riverstone Energy invests in the global energy industry across various sectors and has a diverse portfolio with around 20 holdings. Its investments span across oil & gas, midstream, and energy services in regions such as the US, Western Canada, Gulf of Mexico, Latin America, and Europe. As energy commodities have soared in price due to supply bottlenecks and geopolitical conflicts, trusts like Riverstone Energy that invest in this space have generated impressive returns.
Many of the top-performing investment trusts in 2022 also directly invest in energy and other commodities companies or countries that are major commodity exporters. Examples include BlackRock Energy & Resources Income, CQS Natural Resources Growth and Income, Qatar Gulf Investment Fund, and BlackRock Latin American IT.
Bottom Performers
Conversely, at the bottom of the performance tables, we find JPMorgan Russian Securities, which has suffered the biggest loss. The poor performance of this trust is largely attributed to Russia being sanctioned and frozen out of financial markets following its invasion of Ukraine.
The majority of trusts at the bottom of the table invest in unquoted or small companies. Investors have been selling out of these positions due to concerns about higher interest rates and the risk of an economic slowdown.
Conclusion
Despite the challenging market conditions in 2022, a few investment trusts have managed to deliver positive returns. Trusts focused on sectors such as IT Latin America, IT Infrastructure Securities, and IT Commodities & Natural Resources have thrived due to their investments in inflation-protected assets. Meanwhile, trusts like Riverstone Energy, which have exposure to the energy and commodities sectors, have also performed exceptionally well.
On the other hand, trusts invested in riskier sectors, such as IT Growth Capital and IT European Smaller Companies, have suffered losses. JPMorgan Russian Securities, impacted by geopolitical tensions, has had the worst performance.
Investors must closely monitor the evolving market dynamics and consider the performance and risk factors associated with different investment trusts to make informed decisions.