MoneyWeek portfolio: How our trusts have fared – September 2015 update

published 18 September 2015

Merryn Somerset Webb reviews our portfolio of investment trusts.

When I launched the MoneyWeek investment trust portfolio, I did warn you that it was to be held for the long term and that you probably shouldn't expect much by way of updates or changes. I hope you all remember that bit of the deal, because you have, as you might have noticed, had precious little in the way of updates or adjustments. On the plus side, our neglect has been firmly endorsed by one of our economic heroes, Richard Thaler (the less attention you pay, the more money you'll have) and the strategy hasn't done badly either.

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The main drivers have been Scottish Mortgage and Finsbury Growth & Income (up 103% and 81% respectively). 3i Infrastructure has also done very well (60%), as has our one addition so far, Caledonia (up 28% since 9/10/13). Finally, RIT Capital (after a nail-bitingly slow start) appears to have come good (29%).

There is, however, one laggard Personal Assets Trust (PAT) which is off just over 2.5% since June 2012. This doesn't bother us at all. PAT is in the portfolio as insurance to save our bacon when markets collapse again (as they surely will). When I asked our expert panel (Alan Brierley of Canaccord Genuity, Sandy Cross of Rossie House, and Simon Elliott of Winterflood) what they wanted to take out or add to the portfolio, there was unanimous support for the trust and its manager, Sebastian Lyon. His "time will come", says Brierley. And probably quite soon: Brierley reckons that with an increasingly large "gap between valuations and fundamentals", there is one last rally left in the global bull market before a messy "rush to the exits". So PAT stays in.

The panel struggled to see any reason to remove any of the other constituents. We all like Scottish Mortgage. It will underperform horribly when thenext crash comes (Brierley rates it a "tactical hold"), but if you want to be exposed to growth and innovation(and we do) it is a fabulous fund to hold for the long term (which is all we care about). The same goes for Finsbury. It is a quality trust investing in good companies for the long term. Some of those companies are now rather more expensive than we would like, but again, this portfolio is about low turnover and a 10- to 20-year view.

We are happy with Caledonian and RIT as well. Both offer nice non-equity diversification and we like that. Finally, 3i. This is the only one there is some dissention on. It has done well for us so far, says Elliott, but it has recently reset its target return objectives and "we suspect it will not perform as strongly in the future".

So if it went, what would replace it? Murray International (LSE: MYI) perhaps. This is a contrarian play.It's off 23% in the last year, and is trading on a 4% discount to its net asset value (NAV) at a time when the discounts for most trusts are near historic lows (for those unfamiliar with investment trust jargon, when a trust trades at a "discount" it essentially means that you can buy the underlying portfolio for less than its actual value, whereas when a trust is trading at a "premium", it means you are paying more than the underlying portfolio is worth).

The panel reckons thistrust is worth looking at for its Asian exposure and the low share price. We even discussed swapping it with Scottish Mortgage. But in the end the verdict was: tempting, but not tempting enough. It's one to keep an eye on though.

The other option that came up was the Law Debenture Corporation (LSE: LWDB). Look at the literature on this particular investment trust and you will see that it is trading at a 7% premium to its NAV. You might think that looks bad. But it isn't. The trust owns an income-producing trustee business that isn't included in the official NAV.

Cross and Brierley are both huge fans. It is in Cross's personal portfolio and also in those of many of his clients. Brierley also puts it at the top of the list of investment trust candidates for his own pension he reckons that Henderson, which focuses very much on small and medium-sized value investments, is a "brilliant manager".

Other suggestions for alternatives were thin on the ground for three main reasons: Elliott reckons our portfolio is well placed for "all weather"; there isn't much cheap stuff around; and we are all loath to fiddle for the sake of fiddling (we're sure that Thaler would approve).

So what to do? Much thinking later we have decided to swap 3i for Law Debenture in the hope that Henderson's valuation-based stock-picking approach will offer a little more protection when the downturn comes. This is only our second change in three years, so I hope you won't think us overactive. However, just in case, I promise to neglect the portfolio for as long as usual this time, and probably to change nothing the next time we review it.

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BH Macro	BHMG	15/06/12	1,948p	11/10/2013	2,056p	5.5%	5.5%
Caledonia Investments	CLDN	11/10/13	1,830p	n/a	2,236p	22.19%	27.7%
Personal Assets	PNL	15/06/12	36,000p	n/a	33,130p	-7.97%	-2.57%
Scottish Mortgage *	SMT	15/06/12	642p	n/a	250p	94.63%	103.33%
Finsbury Growth	FGT	15/06/12	331.75p	n/a	560p	68.8%	80.69%
RIT Capital	RCP	15/06/12	1,238p	n/a	1,517p	22.54%	29.33%
3i Infrastructure	3IN	15/06/12	124p	SELL NOW	167.2p	34.84%	60.10%
Law Debenture Corporation	LWDB	BUY NOW	494.5p	n/a	Row 7 - Cell 5	Row 7 - Cell 6	Row 7 - Cell 7
Portfolio return**	Row 8 - Cell 1	Row 8 - Cell 2	Row 8 - Cell 3	Row 8 - Cell 4	Row 8 - Cell 5	40.29%	50.93%
FTSE All Share	Row 9 - Cell 1	Row 9 - Cell 2	Row 9 - Cell 3	Row 9 - Cell 4	Row 9 - Cell 5	18.94%	34.44%
MSCI World***	Row 10 - Cell 1	Row 10 - Cell 2	Row 10 - Cell 3	Row 10 - Cell 4	Row 10 - Cell 5	37.78%	50.10%
* Return adjusted for 5-for-1 stock split on 30/6/14
** Assumes BH Macro holding rolled into Caledonia
*** Returns in pounds sterling

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BH Macro	BHMG	SOLD 11/10/13	Row 0 - Cell 3	Row 0 - Cell 4	Row 0 - Cell 5	Row 0 - Cell 6	Row 0 - Cell 7
Caledonia Investments	CLDN	2,311p	2,730p	18.1%	-26.28%	-17.9%	2.3%
Personal Assets	PNL	33,675p	33,580p	-0.28%	6.46%	-0.6%	1.7%
Scottish Mortgage	SMT	138.7p	245.5p	77.0%	-8.02%	1.2%	1.2%
Finsbury Growth	FGT	328.2p	545p	66.1%	1.07%	4.2%	2.1%
RIT Capital	RCP	1,211p	1,540p	27.2%	2.18%	0.9%	2.0%
3i Infrastructure	3IN	119p	166.5p	39.9%	4.03%	0.1%	4.2%
Law Debenture Corporation	LWDB	461p	Row 7 - Cell 3	Row 7 - Cell 4	8.5%	Row 7 - Cell 6	3.2%

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Merryn Somerset Webb started her career in Tokyo at public broadcaster NHK before becoming a Japanese equity broker at what was then Warburgs. She went on to work at SBC and UBS without moving from her desk in Kamiyacho (it was the age of mergers).

After five years in Japan she returned to work in the UK at Paribas. This soon became BNP Paribas. Again, no desk move was required. On leaving the City, Merryn helped The Week magazine with its City pages before becoming the launch editor of MoneyWeek in 2000 and taking on columns first in the Sunday Times and then in 2009 in the Financial Times

Twenty years on, MoneyWeek is the best-selling financial magazine in the UK. Merryn was its Editor in Chief until 2022. She is now a senior columnist at Bloomberg and host of the Merryn Talks Money podcast - but still writes for Moneyweek monthly.

Merryn is also is a non executive director of two investment trusts – BlackRock Throgmorton, and the Murray Income Investment Trust.