MoneyWeek’s model investment trust portfolio – update February 2017

In 2012, we decided to put our money where our mouths are: we introduced a recommended portfolio of six investment trusts that we figured would suit pretty much all of our readers as a “lock up and leave” long-term portfolio.

The idea was that I would review it every six months to consider whether we should make any changes to it. My hope was that I would make almost no changes (trading being both boring and expensive), but that the group would be well balanced enough that we’d make regular, mildly market-beating returns anyway.

It’s working out pretty well so far. I’ve made a few changes with help and advice from our panel – Sandy Cross (who I confess to spending more time talking to about investment trusts than many would think healthy), Alan Brierley and Simon Elliot. BH Macro and 3I Infrastructure were sold. Caledonian and Law Debenture replaced them. But in six years, that’s it.

The good news is that it is going just fine. Since June 2012, the cumulative total return from the portfolio comes to 88%. That nicely beats inflation (around 10% since 2012), the FTSE 100 and the FTSE All Share (53% and 59% respectively). It hasn’t beaten the MSCI Global index in sterling terms (up 109%), which is a shame, but also something we can partly blame on post-Brexit sterling weakness.

Company Price at 31/1/17 Premium/discount Dividend Buy/sell
Caledonia (CLDN) 2,720p -14.8% 1.9% HOLD
Personal Assets (PNL) 39,250p 1.1% 1.4% HOLD
Scottish Mortgage (SMT) 342.5p 1.0% 0.9% HOLD
RIT Capital (RCP) 1,860p 8.7% 1.7% HOLD
Law Debenture (LWDB) 531p -14.0% 3.0% HOLD
Temple Bar (TMPL) 1,220p -6.1% 3.3% BUY
Finsbury Growth (FGT) 654.5p 0.7% 2.0% SELL

So what next? The obvious answer is “nothing”. The portfolio is doing well – so why mess with it? I have mild concerns about Finsbury Growth & Income (LSE: FGT), which (very unusually) underperformed in the second half of 2016. Is the manager’s style (buying quality for the long term) going out of fashion in favour of value (see page 22)? We might worry about Scottish Mortgage (LSE: SMT) in the same way. It is gorgeously high conviction, but with high conviction comes risk – particularly given the trust’s exposure to expensive tech. It has also underperformed in the last few months. That said, both trusts are low cost (Finsbury is down to about 0.7% a year); they have done us very well for years; and other parts of our portfolio should balance out their risk.

Take Law Debenture (LSE: LWDB). It’s an unusual structure – half global investment trust, half independent fiduciary business. But both bits are good and the investment side runs a good value/contrarian strategy that offsets the concerns above to a degree. It also trades on a 12% discount – so there is a margin of safety.

We then get excellent asset class diversification and a focus on capital preservation from Personal Assets (LSE: PNL) – if the market is about to turn the fact that the trust is 10% in gold bullion should help – and from RIT Capital Partners (LSE: RCP). Finally there is Caledonia Investments (LSE: CLDN), a trust with an eye firmly on the long term (it is still nearly 50% owned by its founding family, the Cayzers). Performance is fine, costs are OK (around 1% – I’d like them a bit lower) and there is a margin of safety in the 15% discount.

My inclination – if I were to fiddle – would be to swap in a clearly value-orientated fund for Finsbury and add one more focused on small caps. But this portfolio isn’t about fiddling too much. So for now we will just make one change: Finsbury goes, to be replaced by Temple Bar (LSE: TMPL), a trust suggested by both Elliot and Brierley for its UK-centric approach to value investing. It has solid long-term performance, low ongoing charges of 0.49%, and a dividend yield of over 3%. And that’s it. Another thoroughly boring review of a pretty boring portfolio.

  • Colin Day

    Good day,
    If I was to start investing into this investment trust portfolio now (as opposed to 2012), is it too late?

  • S Francis

    Out of interest whatever happened to your “Lifetime Wealth” strategy. I appreciate this is not the same as you IT portfolio but if intended as a strategy for life it is rather worrying if dropped from your portfolio of services after just a year or two?

    • John Osborne

      No-one from Moneyweek has responded – but it still appears to be there under
      Managed by Chris Sholto Heaton

      • Jonathan Summers

        That’s were it is alright but since it was moved to Southbankresearch not a lot seems to happening. Is that a good sign? I know we are supposed to leave well enough alone (trust the force!?) but the last briefing was last October. I reckon it’s time we started asking questions. Don’t you?

        • Daniel Mcshane

          I was enquiring about this a month or three ago and emails got bewildered sounding replies.

          • John Osborne

            Bewildering is the word. On one hand there is Chris S-H promoting a tracker based pension investment system, whilst Moneyweek are now printing articles warning against the drawbacks of trackers in developed markets.
            In my opinion we could do a lot worse than just investing in a well spread IT portfolio such as the Moneyweek recommended one, also including some gold, capital preservation, infrastructure, property and private equity investments.

            • Andrew Abram

              The lack of any comment from Moneyweek about Lifetime Wealth is the main reason I have cancelled my subscription today. It was their brainchild after all. I was also less than impressed about a recent piece about Volvo stopping making petrol and diesel cars which was badly worded and misleading.
              Shame, as I am a big fan of Ms Somerset-Webb

              • Nigel Beevers

                I have also made inquiries and am told that the LTW bulletins are embedded in the London Investment Alert and will be infrequent as it is mostly about re balancing. There are to be some income elements provided by David C Stevenson. The LTW is a much more precisely guided and structured portfolio than the MW IT group which MerrynSW “sometimes” updates. LTW subscribers are as I understand it, automatically subscribers to London Inv Alert.

  • AlexH

    I thought I read that Merryn was going to publish a review of the portfolio – have I missed it?

    • Tim Richards

      does anyone from moneyweek read the comments ? would be helpful to know.

      • Nigel Beevers

        I think you have your answer Tim.

        • Tim Richards

          Thanks Nigel. Disappointing that they cant be bothered to do that 🙁

          • I did reply, below… An update should be along very soon.

    • Yes, Merryn did say a while ago (the end of September) that she’d review it in “a few weeks” – but she hasn’t done that yet. I’m sure she hasn’t forgotten, but I’ll remind her just in case.

      • Nicholas Hedley

        I too share the disappointment in the seeming demise of Lifetime Wealth. I was a subscriber. I thought the idea was great for someone who has neither the time nor inclination to run an active portfolio, which is what Southbank Research are concentrating on. It may be that the portfolio is just too boring but I believe many other Moneyweek subscribers agree with the statement by M S-W: “In 2012, we decided to put our money where our mouths are: we introduced a recommended portfolio of six investment trusts that we figured would suit pretty much all of our readers as a “lock up and leave” long-term portfolio.” However, there must also be confidence that it will be reviewed periodically (every six months is fine) and not overlooked. May I suggest half a column every six months in the magazine itself.

        • Hi,
          Merryn is going to update the investment trust portfolio in this week’s mag (8th December edition).

          • Nicholas Hedley

            Thanks Ben. That is useful. Can we expect a more or less regular 6 monthly review going forward?

            • That is the plan, but then that was always the plan. It is quite a flexible plan.