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.
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.
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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).
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)|
|Row 1 - Cell 0||Price||Yield||Prem/Disc||Total Exp. Ratio|
|Caledonia (LSE: CLDN)||3,085p||1.97%||-16.7%||0.94%|
|Personal Assets Trust (LSE: PNL)||42,050p||1.33%||1.59%||0.91%|
|Scottish Mortgage (LSE: SMT)||520p||0.6%||-2.36%||0.37%|
|RIT (LSE: RCP)||2,140.5p||1.6%||9.91%||0.68%|
|Law Debenture (LSE: LWDB)||608p||3.13%||-8.63%||0.45%|
|Temple Bar (LSE: TMPL)||1,348p||4.1%||-2.04%||0.47%|
|Average||Row 8 - Cell 1||2.12%||Row 8 - Cell 3||0.64%|
Why independent boards matter
One of the attractions of investment trusts is their board structure and the way it should mean that the funds are run in the interests of shareholders rather than fund managers. (I'm on the board of three investment trusts by the way see moneyweek.com for details). Not all boards are up to much. That of the Woodford Patient Capital Trust did a lousy job of reining in Neil Woodford and Alan points to questionable governance at Jupiter US Smaller Companies (where the chair has spent 26 years on the board and isn't planning to resign any time soon) as an example of how things can go wrong. But the recent change of manager at the Edinburgh Investment Trust is a good example of a board acting as it (probably) should. The trust's £1.3bn has been run by Invesco's Mark Barnett (who previously worked very closely with Woodford). Performance has been poor and in mid-December the board announced that he is to be replaced by James de Uphaugh of Majedie Asset Management.
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.
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