Questor: coronavirus has hit these four trusts hard. Is it time to cut our losses and sell?

Shares in smaller British companies have been among those hardest hit during the pandemic. How have Questor’s four investment trusts in this sector fared – and should we now discard some of them?

It turns out that the trusts, Aberforth Smaller Companies, Henderson Smaller Companies, BlackRock Smaller Companies and Montanaro UK Smaller Companies, vary widely in their performance.

Throughout the pandemic, Montanaro has been the pick of the bunch. Its maximum loss at the very trough of the market on March 19 was less severe than that of the other three and it has recovered better. The shares now stand 16.3pc below their level on Feb 21, just before the virus sent markets sliding.

The Henderson and BlackRock funds have moved broadly in unison. BlackRock Smallers is now 31.9pc below where it was before the trouble began and Henderson is 28.5pc down. Aberforth Smaller Companies is by some distance the worst performer: its loss over the period is 40.6pc.

We should say in passing that we have also tipped Aberforth Split Level Income, which is similar to Aberforth Smaller Companies but employs “gearing” or borrowing to amplify gains. Gearing also accentuates losses when markets fall so this trust has lost more than 50pc since Feb 21.

If we look back at how these portfolios have performed since we tipped them, we find a similar pattern.

Montanaro UK Smallers has again been a strong performer: it has risen by 19.1pc since our tip in February 2017 and has outperformed the FTSE 100 index by 40.6 percentage points. Next relative to the index is the Henderson fund, whose shares have risen by 19.7pc since September 2016 for a 33.6 point outperformance.

BlackRock Smaller Companies has produced only a modest rise of 3pc since June 2017 but relative to the index it has done well, outstripping the FTSE by 26.8 points.

Again, Aberforth Smallers is the exception: it has lost 38.1pc since January 2018 and is the only one of the four trusts to have underperformed the blue-chip index, by 9.3 percentage points.

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What do all these figures tell us? The most obvious lesson is that the “value” style of investing, practised in full-blooded fashion by the managers of the Aberforth trust, remains firmly out of fashion.

We have said in the past that we think a diversified portfolio should involve a mixture of investment styles because trends such as the current obsession with technology stocks tend not to last forever. So, hard as it may seem in the teeth of such dispiriting returns so far, we will stick with Aberforth Smallers.

We can take extra comfort from the fact that its actual holdings belie the “value” label in that they do not all belong to the moribund industries that are being sidelined by technological advances.

Its largest holdings at the end of last month included SDL, the translation firm being taken over by RWS, a rival, CMC Markets, the financial derivatives dealer, and Vectura, a pharmaceuticals firm.

What of the other three trusts? All invest in broadly the same way, in “quality” stocks that make high returns on capital, which can be reinvested for compounded returns.

This column has had the good fortune to meet the managers of the Montanaro and Henderson trusts, Charles Montanaro and Neil Hermon, in person and believes that each has the experience and strength of character to ride out this unprecedented crisis without abandoning the investment discipline that has served their investors well in the past. We will hold both.

When we tipped the BlackRock trust it was in the care of another very experienced investor, Mike Prentis. However, Mr Prentis retired last summer. His replacement, Roland Arnold, was previously deputy manager and had worked closely with Mr Prentis for more than a decade. BlackRock also employs plenty of analysts who support its fund managers.

Winterflood, the broker, said in June: “The BlackRock emerging companies team is a significant investor in UK mid and small caps, with assets under management of around £4.5bn. This is reflected in the fund’s strong long-term performance record, which has been sustained since the retirement of Mike Prentis last year.” Hold.

Questor says: hold

Tickers: ASL, HSL, BRSC, MTU

Share prices at close: 845p, 759p, £12.10, 116.5p

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