The MoneyWeek portfolio of investment trusts – March 2023 update

In 2012, we had been telling investors what to do with their money for 12 years, and readers suggested that it was high time we put our money where our mouth was. 

So we did. We found six British investment trusts to give readers a global portfolio comprising a wide array of assets and investment styles. We have always preferred investment trusts to unit trusts as they tend to be cheaper and perform better over longer periods. 

What’s more, the closed-ended structure ensures that you can sell your shares on the stockmarket without any trouble if the underlying assets are illiquid and hit turbulence – witness the recent turmoil at unit trusts that made poor investments in commercial property. 

There have been a couple of substitutions over the years, (the last one was in 2020) but today the portfolio comprises 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 27 March 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

We have advised readers to rebalance the portfolio regularly to avoid it becoming too skewed towards a couple of successful trusts. Long-term investors who had forgotten to rebalance would have been walloped by the slump in SMT’s share price in 2022 following its outsized gains in the previous years (which would have produced a huge weighting towards SMT).

We are value investors, so our portfolio has a broad skew towards value and solidity, but we also like to hedge our bets and diversify, so we included a growth trust – or the growth trust. SMT’s share price has risen 15-fold in 20 years and fivefold in ten, although it slumped last year as the technology sector lost its footing and value investing came back into fashion. 

However, its phenomenal record suggests that its managers should continue to identify world-changing stocks (the biggest holding is currently Moderna, the biotechnology group that produced a Covid vaccine) and private equity investments. So long-term investors should be patient. 

UK holdings, growth and value

Mid Wynd (named after an obscure alley in Dundee), also in the global equities sector, dabbles in growth and value: it focuses on identifying long-term global trends, which implies a growth bias, but it takes a disciplined approach to valuation. The portfolio’s two biggest sectors, for instance, are information technology and healthcare, comprising a respective 21% and 20% of assets. Holdings in gas, oil services and Japan all look promising. There is scant overlap between its top ten holdings and SMT’s. The stock’s total return (capital gains plus reinvested dividends) has trebled in the past ten years. 

Our holding in the UK equity income sector is Law Debenture. This is an unusual fund because it has two divisions: a professional services company and the investment portfolio. The former provides recurring income that helps fund the investment portfolio and pay dividends (most trusts rely on the income from their dividend-paying stocks to fund the payout). The managers anticipated higher inflation several years ago, which helps explain why the fund has produced a total return of 160% in the past ten years, compared with the FTSE All Share’s 85%. The trust yields 3.5%. 

From value and yield to capital preservation. Personal Assets Trust is a defensive choice for nervous investors. Its mission is to “protect and increase (in that order)” shareholders’ money. It currently has 36% of its assets in US inflation-linked bonds and 8.9% (the biggest holding beyond government debt) in gold bullion. About 22% of the portfolio is in defensive equities. In the three – unusually volatile – years to the end of November 2022, the fund’s total return was 18%, compared with the FTSE All Share’s 12%. 

Dabbling in unlisted companies 

Some of the most promising companies in the world are not listed on stockmarkets, so we wanted some exposure to private equity. Caledonia offers a great deal of it, with about 30% of the portfolio invested in direct private equity and private-equity funds respectively. Approximately 30% is accounted for by quoted equities, a similar proportion to its overall exposure to the UK (its biggest regional weighting). The share price’s total return over three years has been 50%, compared with the flexible investment sector’s average of 15%. 

Our final trust, RIT, we have lost confidence in it and decided to replace it. 

A new holding for the portfolio 

The new member of the portfolio? 

AVI Global Trust (LSE: AGT). This ticks several MoneyWeek boxes. It has a value remit and a global outlook, with 39% of assets in Europe, 28% in North America and 17% in Japan. It focuses on three main areas: investment trusts on a discount to their net asset value (NAV, the value of the underlying portfolio); family-controlled holding companies with good track records; and Japanese stocks, longstanding MoneyWeek favourites. 

The fund recently invested in private equity trusts, so it looks beyond listed companies too. 

The top holding is Pershing Square, a US trust run by a hedge fund, while the second-largest is EXOR, a conglomerate controlled by the Agnelli family. The trust is currently on a 10% discount to NAV. So we are getting £1 of assets for 90p. Fingers crossed.