If we are to see year-end rallies for stock and bond markets, it will be from a lower starting point after October’s declines. America’s S&P 500 Index fell for a third consecutive month, while US government bond yields rose above 5%. Both events were down to the lack of a clear consensus about whether interest rates have peaked and, if they have, when they will start to come down.
Against this backdrop, the technology mega-caps that have become the largest contributors to global stock indices still found the going difficult. Quarterly results from the main players were good-to-mixed, but October became a month to zero in on the negatives.
A prime culprit was slower-than-expected increases in sales of cloud services, for example, at Alphabet and Amazon. That might suggest businesses are spending more cautiously than expected on IT, including AI, for fear of the economic downturn that may lie ahead.
Fidelity European Trust rose to the top of the tree in October. This trust continues to invest in large businesses differentiated by virtue of their resilience and pricing power.
Among its largest holdings currently are companies with strong retail brands, including Nestlé, LVMH and L’Oreal, along with the global healthcare providers Roche and Novo Nordisk. The trust currently trades at a 9% discount to its net asset value.
Scottish Mortgage in second place has seen its discount narrow modestly since late summer, suggesting investors have been taking a slightly rosier view of the trust’s prospects versus the broader stock market. However, at 17%, the discount remains wide by most measures.
The trust’s active style remains firmly in evidence. For example, only three of the so-called “Magnificent Seven” technology stocks – Tesla, NVIDIA and Amazon – appear among the trust’s top-10 holdings. Apple and Microsoft are both out of the portfolio.
There’s no doubt technology remains a focus, but that’s now largely via some moderately less familiar names. The Dutch chipmaker ASML (7.3%) was still the largest holding at the end of September¹.
The JP Morgan Global Growth & Income was the month’s third most popular choice. This trust’s total return remit implies a more balanced investment approach compared to the out-and-out growth strategies followed by some others on this list.
Even so, owing much to the increased dominance of technology in global stock indices, four of the trust’s top six holdings – Microsoft, Amazon, Taiwan Semiconductor and NVIDIA – currently make up around 18% of the portfolio. The trust is roughly neutral the technology sector overall.
The trust aims to beat the MSCI All Countries World Index over the long term, which it has succeeded in doing since stock markets bottomed in 2020. Reflecting this continued success, it now trades at a 1.1% premium to its asset value.
A prospective dividend yield of around 3.9% looks attractive in an environment where interest rates and inflation are expected to fall below this level². Please note, this yield is not guaranteed.
City of London Investment Trust traded at a small discount to its asset value at the end of October, having enjoyed a small premium during the summer. This is the second trust on this list aiming for a combination of long-term income and capital growth, but this time from a portfolio of mostly UK shares.
The trust’s large position in BAE Systems served it well over the month, as hostilities broke out in Israel and Gaza. However, oil’s see-saw ride in October resulted in Shell and BP eventually giving back early gains.
One of this trust’s current attractions is its exposure to successful global names trading at internationally low valuations. Another is 56 years of unbroken dividend growth and a current yield of just over 5%³. Please note, this yield is not guaranteed.
Another trust aiming to capitalise on the low valuations of UK equities is Fidelity Special Values. It was October’s fifth best seller. It aims to seek out underappreciated companies primarily listed in the UK and is an actively managed contrarian trust that thrives on volatility and uncertainty.
Manager Alex Wright is cautious on the prospects for companies in the near term after recent rate rises. Businesses with lower debt levels and the resilience to navigate uncertainty are favoured. At the same time, the trust’s gearing is being kept low, partly to leave room to take advantage of future opportunities.
However, Wright also reports being pleasantly surprised by the earnings resilience of his portfolio holdings this year.
For more investing ideas, Fidelity’s final Investment Outlook for 2023 is out now.
Top 5 best-selling investment trusts on Fidelity’s Personal Investing platform in October 2023
- Fidelity European Trust PLC
- Scottish Mortgage Investment Trust
- JPMorgan Global Growth and Income PLC
- City of London Investment Trust
- Fidelity Special Values PLC
Source: Fidelity Brokerage, 1-31 October 2023
Source:
1 Scottish Mortgage, 30.09.23
2 JP Morgan, 29.09.23
3 Janus Henderson, 31.10.23
4 Colombia Threadneedle, August 2023
