The Money Observer Investment Trust Awards are based on three-year returns and cover a period that started soon after stockmarkets bottomed in March 2009 and ended before escalating worries about stuttering economic growth and the eurozone.

F and C Global Smaller Companies Trust (FCS) scoops this award for the second year running. It is the only trust with a genuinely globally-diversified portfolio focusing only on smaller companies.

Manager Peter Ewins believes smaller companies have greater growth potential than larger companies because they start with a much smaller market share. In addition, in today’s fast-moving global marketplace, companies need to be able to react quickly to changing conditions and this tends to be easier for smaller companies than for bureaucratic larger entities.

Also there are so many of them, and so many new and exciting things are emerging, he says, and it is easier to add value through stock selection in the smaller company sphere than in the better-researched larger company world.

Good stock selection is vital to capitalising on the opportunities, and the F&C team has done well on this front. Robert Siddles, who manages the US portfolio with a strong value-oriented bias, has a great long-term record, while the European portfolio has picked up strongly in the past two years.

Paras Anand, who was brought in to head F&C’s pan-European team in 2007, has moved on to Fidelity. But Ewins says he contributed to an overhaul of the team’s approach that is continuing to show through in above-benchmark returns for both the European portfolio, managed by Sam Cosh since October 2011, and the UK portfolio, which Ewins manages.

Exposure to Japan, the rest of Asia and the developing world is secured through a mix of trusts and funds managed by third-party specialists, including Aberdeen and First State. On average, these have also produced benchmark-beating returns.

Ewins is responsible for asset allocation and favours a contrarian approach: buying into weakness and selling into strength, which worked well in the period under review. The US continues to account for 40% of the portfolio, a much higher figure than at most other global trusts.

The time to avoid smaller companies is when the economy is heading into deep recession, as investors then favour liquidity, but I don’t feel we are in that situation, Ewins says. Corporate results remain encouraging, despite low growth and smaller company valuations are not overly expensive. However, they are not cheap, which is why the trust’s gearing is modest.

Law Debenture combines a global growth investment trust, managed by James Henderson of Henderson Global Investors, with an income-producing independent fiduciary business, managed by Caroline Banszky.

Income from the fiduciary business has grown steadily over the past five years, supporting a 3.1% yearly increase in the dividend. As a result, Law Debenture shares yield 3.5%, which is above average for the sector. This has contributed to them trading on what looks like a substantial premium. However, the net asset value attributes no worth to the fiduciary business.

Oriel Securities reckons that if it were valued at 10 times earnings, this would add 72p to the net asset value, putting the shares on a double-digit discount. They deserve a higher relative rating.

Henderson follows the same value-driven style that has served him so well as manager of Lowland Investment (LWI), but says that he holds fewer smaller companies and deploys less gearing at Law Debenture. This has resulted in less dynamic but less volatile performance.

When I invest, I think about the pain threshold of trust shareholders. They may invest in Law Debenture as a one-stop-shop, so it needs to be more conservative than Lowland, he says.

The UK accounts for two-thirds of Law Debenture’s portfolio, and Henderson contends that the trust would have been more rewarding, if more volatile, without overseas holdings. He looks to overseas holdings to provide exposure to the companies he can’t get in the UK, such as Microsoft (MSFT), Cummings, Caterpiller (CAT) and Toyota (TM).

However, he says: Overseas exposure has not added value against the UK on a 20-year view. The claim that overseas diversification reduces risk is not valid.

Readers can track the progress of the award winners in the investment trust section of Interactive Investor. We hope they continue to outperform their benchmarks, and put passively-managed funds in the shade. A full explanation of the methodology behind the awards is available here .