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.
Since inception (15 June 2012), up to Tuesday 15 September, the MSCI World index has returned a total of 50.1% (in sterling, rather than dollar terms to reflect the fact that we're assuming you're a UK investor), the FTSE All Share has managed 34.4% and your portfolio has given you 50.9%. That's not bad for a defensive portfolio in a bull market.
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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.
| 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 |
| 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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