The MoneyWeek portfolio of investment trusts – December 2022 update

Ten years ago we thought we would put some of our money where our mouths were and set up the MoneyWeek portfolio of investment trusts. 

Why investment trusts? Because they have a record of beating unit trusts, and tend to be cheaper; and because their closed structure means they can more easily make long-term value investments.

So with help from a small group of specialists we set up a portfolio of six good ones. 

The MoneyWeek portfolio of investment trusts has changed slightly over the past decade but the six in the portfolio today are Scottish Mortgage Investment Trust (LSE: SMT), Personal Assets Trust (LSE: PNL), Mid Wynd International Investment Trust (LSE: MWY), Caledonia Investments (LSE: CLDN), RIT Capital Partners (LSE: RCP) and Law Debenture (LSE: LWDB). 

Here's our fourth quarter update on the state of the portfolio of investment trusts. 

Table updated 09 January 2023

How has the MoneyWeek portfolio of investment trusts performed? 

So how has it gone? As with all things to do with investment, it rather depends what you measure. Over one year the six together are down roughly 11%, much the same as the FTSE World Index. 

Over five years they are up by 43%. They have slightly underperformed the world over five years – but have, as you might imagine, massively outperformed the FTSE 100 and 250. 

However, this hardly tells the whole story. That’s partly because Mid Wynd is a new entrant, but also because this is supposed to be an equal-weight portfolio so we have said over and over again that you must constantly rebalance it. The spreadsheets of managing all this are out of control (I have given up). But if you have done that your performance will be fabulous over most time frames. If, on the other hand, you did not recycle profits into the more defensive names and you went into the collapse of the great growth bubble over the last year hugely overweight Scottish Mortgage, you will have had a horrible year (although not necessarily a horrible five years). 

There are also dividends to take into account. Over five years, the Law Debenture share price is up by 25%. Add in reinvested dividends and your return is well over 50%. Finally, a reminder that we are looking at share prices, not net asset values (NAV) – on the basis that this is the price at which you sell. But the managers might point out that with many investment trusts trading at unusually large discounts to NAV this year, ignoring that isn’t entirely fair.

Hang on to Scottish Mortgage in the investment trust portfolio

So what next? Firstly, Scottish Mortgage. James Anderson has recently retired. It started to perform horribly at the end of his term and has continued to do so ever since (down 43% in the past year). The trust was (and is) jammed with overpriced growth stocks. It was late to recognise that the changing environment in China was a real problem for some of its major tech holdings and there is also some worry over the private assets. 

A year ago they made up 20% of the portfolio. Today that’s more like 30% (on paper at least). Tom Slater, the current co-manager, assures me that the valuations are valid: the holdings are constantly revalued in line with listed assets (ie, downwards). 

There is risk here, of course. But this is still one to keep. It is still huge (£11.4bn), it still offers you private-equity exposure (should you want it) at a much lower price than most other places, and it is still sticking to its (hopefully only temporarily unravelling) knitting. The key point, says Slater, is that everything in the portfolio is currently mispriced. Most are too expensive (they will fail). But a few – the crucial few – are far too cheap relative to the extraordinary futures they have ahead of them. You don’t want to be without exposure to all this over the long term. For more on all this listen to my final interview with James on the MoneyWeek podcast and my recent one with Tom on my Bloomberg Merryn Talks Money podcast (both available via any podcast provider). 

Next, Personal Assets. There is little to say about this, except that it is doing exactly what it promised us it would – protecting our capital. Hang on to it. The same goes for Law Debenture. It promises value and yield and that is exactly what you have got. It yields 4% and is jammed with value names. It’s even up by 2% over the past year and is the best-performing income trust in the UK over three and five years.

Next, one that is not doing quite what it says on the tin, RIT. Long-term performance is excellent, and on an NAV basis things look okay. However, the shares are down 20% over the past year, something that Investec’s Alan Brierley says reflects the idea that it is no longer the diversified low-risk portfolio it once was. Instead the huge exposure to private equity (45% of the assets) represents a “material increase in the risk profile”, particularly given that 4% of the trust is now in “blockchain/crytpo”. Not one to buy any more of at present! Caledonia also has significant non-listed holdings (around 30%) but is performing fine: up 42% over five years and 7% in the past year. 

The trust is a well-established dividend hero (the payout has gone up for 55 years in a row) and is, I think, a long-term hold. Finally, Mid Wynd. I am ambivalent on this one. When we put it in the portfolio I fretted about its big tech. I still do. It is up a little since we bought it (no small feat) but I’d call it more of a hold than a buy. I won’t be updating this portfolio again now that I have left. Overall, however, I have been pretty happy with the results of our decade-long experiment. It’s been diversified, low-cost, interesting and pretty lucrative. Let’s hope it stays that way.