Six investment trusts for long-term investors

It’s no change once again as Merryn Somerset Webb delivers the latest update on our investment trust portfolio.

979_MW_P22_Invest-Trust

Since 2012, we have been suggesting a small portfolio of investment trusts for those of you who want to hold funds run by active managers, but not be particularly active yourselves. I promised when we first wrote about it that we would update you on it occasionally and change it even more occasionally. Since launch we have made three changes: selling BH Macro; 3i Infrastructure; and Finsbury Growth & Income trust; and replacing them with Caledonia Investments; Law Debenture Corporation; and Temple Bar. So far so good. On a capital return basis the portfolio is up about 106% since inception around 14% annualised. Add in a portfolio yield of around 2% and it doesn't look bad at all. We would have done far better to have been less cautious, less value-orientated and more open to US exposure over the last seven years (the S&P 500 is up 177% in sterling terms) and we have underperformed the wider market over the last year. But thanks to the inclusion of Scottish Mortgage with its huge exposure to the US tech sector in particular we have comfortably beaten the UK market since 2012 (the FTSE 100 has seen a capital return of more like 6% over the same period, albeit with a much higher yield).

So what next? Our panel of experts (Simon Elliott of Winterflood, Sandy Cross of Rossie House and Alan Brierley of Investec) are happy with the six trusts (see the table on the right). The average ongoing charge is reasonably low at 0.64%, and while this isn't an income portfolio, the yield of 2.12% is still useful. No one, says Alan, has much idea what is coming over the hill, but "I like the balanced nature of the current portfolio". Sandy agrees that we still have "a good, long-term portfolio". Simon notes that we are a "bit light on US equities", and suggests adding JPMorgan American. He also quite likes the look of Templeton Emerging Markets. We decide against making changes this time but they're both ones to watch.

Subscribe to MoneyWeek

Become a smarter, better informed investor with MoneyWeek.

Scottish Mortgage isn't performing as well as it was thanks to concerns about the valuations on growth companies but anyone who heard its manager James Anderson speak at our Wealth Summit in London last month will understand why we need it in our portfolio: most of the long-term returns in the market come from a few amazing companies and James sees his role as to find, hold and support those companies for us. Tesla (5% of the portfolio) may turn out to be a disaster. It may also turn out to be world-changing.

However, the possible change in sentiment makes hanging on to the likes of Personal Assets Trust vital too. It is managed by Sebastian Lyon of Troy Asset Management with a primary aim of avoiding the loss of capital (hence the holdings in gold, cash and short-dated government bonds, plus high-quality equities). Add it all up, say AJ Bell, and you get an "instantly diversified portfolio in just one holding". Temple Bar, meanwhile, takes a contrarian approach, investing in domestically focused UK companies that have fallen out of favour. That hasn't been particularly successful over the last three years (Brexit uncertainty!), but a solid yield of more than 4%, plus holdings in some very cheap companies, make it a keeper. I particularly like seeing BP and Shell in the trust's top holdings. The energy sector has been one of the worst performers of 2019: it is time for bargain-hunters to pay attention (as the FT says that Warren Buffett already is).

Advertisement
Advertisement - Article continues below

We are all also still happy with the other of our relatively recent acquisitions Caledonia. Like Scottish Mortgage, it gives us exposure to unquoted assets (37% of the portfolio) and on its current discount to net asset value (NAV), pretty clearly offers what Numis call "significant value for long-term investors". The one making us a little nervous at the moment is RIT. It is possible that some of its investments are undervalued (and hence its stated NAV too low), but none the less, we aren't mad for holding things on 9% premiums. We want to keep the holding, but would suggest that when you have time to do some administration at Christmas, make sure you rebalance your holdings. RIT has, for example, significantly outperformed Law Debenture (which is on a discount of 8.6%), so sell some of the former and buy some of the latter. If you haven't been rebalancing regularly (the idea is to hold equal weightings of all six trusts), you are also likely to find that you are overexposed to Scottish Mortgage. That's been fine so far but don't let it run so long that it isn't fine any more!

The MoneyWeek Investment Trust Portfolio (as of 9/12/19)
PriceYieldPrem/DiscTotal Exp. Ratio
Caledonia (LSE: CLDN)3,085p1.97%-16.7%0.94%
Personal Assets Trust (LSE: PNL)42,050p1.33%1.59%0.91%
Scottish Mortgage (LSE: SMT)520p0.6%-2.36%0.37%
RIT (LSE: RCP)2,140.5p1.6%9.91%0.68%
Law Debenture (LSE: LWDB)608p3.13%-8.63%0.45%
Temple Bar (LSE: TMPL)1,348p4.1%-2.04%0.47%
Average2.12%0.64%

Why independent boards matter

Advertisement

Recommended

Visit/investments/stocks-and-shares/share-tips/600641/share-tips-of-the-week
Share tips

Share tips of the week

MoneyWeek’s comprehensive guide to the best of this week’s share tips from the rest of the UK's financial pages.
17 Jan 2020
Visit/520115/investment-trusts-the-cinderella-of-investment-arrives-at-the-ball
Funds

Investment trusts: the Cinderella of investment arrives at the ball

Investors should look beyond the market noise of a single year and examine the bigger picture. Max King explains what we can learn from 25 years of in…
8 Jan 2020
Visit/519913/share-tips-8-stocks-for-robust-returns
Share tips

Share tips: eight stocks that should deliver robust returns

Ryan Ermey of US publication Kiplinger’s Personal Finance chooses his favourite stocks for the next decade, which should be able to grow for years.
28 Dec 2019
Visit/519724/share-tips-of-the-week-166
Share tips

Share tips of the week

MoneyWeek’s comprehensive guide to the best of this week’s share tips from the rest of the UK's financial pages.
20 Dec 2019

Most Popular

Visit/investments/stocks-and-shares/share-tips/600636/class-acts-going-cheap-buy-into-europes-best
Share tips

Class acts going cheap: buy into Europe’s best bargains

Value investing appears to be making a comeback, while shares on this side of the Atlantic are more appealing on metrics such as price/earnings ratios…
16 Jan 2020
Visit/currencies/600665/currency-corner-new-zealand-dollar-kiwi-vs-us-dollar
Currencies

Currency Corner: how is the New Zealand dollar doing against its US counterpart?

The New Zealand dollar has been doing well against the US dollar in recent months, but has started to wobble a little. Is it still a buy? Dominic Fris…
20 Jan 2020
Visit/investments/stocks-and-shares/share-tips/600641/share-tips-of-the-week
Share tips

Share tips of the week

MoneyWeek’s comprehensive guide to the best of this week’s share tips from the rest of the UK's financial pages.
17 Jan 2020
Visit/investments/property/house-prices/600638/uk-house-prices-may-be-heading-for-a-boris-bounce
House prices

UK house prices may be heading for a Boris bounce

The latest survey of estate agents and surveyors from the Royal Institution of Chartered Surveyors is "unambiguously positive" – suggesting house pric…
16 Jan 2020