I matched the global indices last year with a return of 21.9% and a solitary losing position of just 1.2%. But few years are likely to turn out this well, so it’s important not to get carried away.
Mostly buys but some sells
From a high-level viewpoint, my portfolio remained largely unchanged. But I did a little rejigging…
- In February, I subscribed to a fundraising for Baronsmead Venture Trust.
- In April, I sold some Caledonia Investments and used this money to take an initial position in Gresham House Energy Storage and to add some Princess Private Equity. I also topped up Smithson.
- In June, I sold out entirely from City of London Investment Trust and reinvested the proceeds across six existing positions: HICL Infrastructure, Gresham House Energy Storage, JPMorgan Global Growth & Income, Murray International, Acorn Income, and Henderson Smaller Companies.
- In the last few months, I have topped up Bluefield Solar Income, BlackRock Smaller Companies, and Lindsell Train Global Equity.
In all, that’s one new position (Gresham House Energy Storage), one outright sale (City of London), one trim (Caledonia) and 12 top-ups (one of which was the new position).
My investments in RIT Capital Partners, HGCapital, Fundsmith Equity, and Vanguard All-World ETF are the only ones I haven’t touched at all.
The Caledonia trim and the City of London sale probably accounted for around 5% of my portfolio value at the start of the year, so my overall portfolio turnover was pretty low.
My performance in 2019
I consider Vanguard LifeStrategy 100 to be my main benchmark, as its 25% UK weighting is fairly close to my own.
Vanguard has said the UK weighting of this fund is likely to decline over time, so it may become a little less relevant for me, but I will cross that particular bridge when we come to it.
I use Vanguard global and UK funds as additional reference points.
And I use funds rather than indices as I find them easier to monitor and they reflect the actual returns that investors can achieve.
|Vanguard FTSE Global All Cap (fund)||21.5%||16.1%|
|Vanguard LifeStrategy 100 (fund)||21.0%||14.9%|
|Vanguard UK All-Share Index (fund)||19.0%||7.6%|
I’m still ahead since 1 January 2018, when I started to measure my portfolio using the unitisation method.
Two years is a very short time in investing so I regard that as nothing more than a mildly promising start.
Over the long term, say 10 years plus, I’m aiming to beat the Lifestrategy fund by around 2-3 percentage points a year. I would regard that as an excellent result.
Returns by holding
Here’s a breakdown by position. These are total share price returns, so they assume any dividends are reinvested:
|Henderson Smaller Companies||46.3%|
|BlackRock Smaller Companies||45.8%|
|Princess Private Equity||37.4%|
|JPMorgan Global G&I||26.2%|
|Bluefield Solar Income||22.1%|
|Vanguard All-World ETF||22.0%|
|Lindsell Train Global||19.6%|
|RIT Capital Partners||12.5%|
|Gresham House Energy Storage||7.9%|
|Baronsmead Venture Trust||-1.2%|
It’s been a stellar year for HGCapital, although a large part of its gain has come from its discount narrowing from 15% to a small premium. It’s been issuing a few shares in recent weeks, which may help fund its commitments to the various HG funds it supports.
Perhaps more remarkable is the rapid climb of the UK smaller company trusts. Henderson was up just a few per cent in mid-August but ended the year up over 45%. BlackRock came from around 10% up at the same time.
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The now infamous ‘Boris Bounce’ played a part in this, although most of the gains came before the election. Narrowing discounts have again been a factor. Whereas a discount of 10-11% was standard beforehand, these trusts now trade around their net asset value.
Smithson has done a little bit better than Fundsmith Equity. It ended the year with the same small premium it started with, so this difference is entirely due to the performance of its investments. It’s my smallest position but a candidate for topping up in 2020 so that it becomes a more meaningful holding.
My more conservative positions — RIT, Caledonia, Murray in the global sector and my three renewable/infrastructure trusts — have done well this year. But I wouldn’t expect them to keep pace with a market that’s up more than 20% in a year.
Indeed, it’s been a remarkable year overall in that my second worst position has returned +8% and my worst lost just 1%. I don’t expect that to happen very often.
The wider world of investment trusts
The average discount across all investment trusts narrowed from 4.3% to 1.5% during 2019, almost most of that drop occurred in the last few weeks of the year.
This continues the trend of recent years with discounts getting smaller and smaller. I must admit, I thought this process would be tailing off by now, but as has been the case ever-decreasing bond yields, it’s difficult to know how far this will go.
It’s still rare for trusts that trade in listed equities to command a premium of more than a few per cent. Any prolonged move above 5% for the most popular trusts would make me twitchy, though.
The rise of alternative asset funds has certainly been a big factor in the average discount narrowing. And as these funds, and others that trade at a premium, issue more and more new shares, it narrows the average figure that little bit more.
For me, it’s more an issue of being mentally prepared to see discounts widen again if the markets took a nasty tumble and not too overreact to that.
Gearing fallen a little further to 7.0% — it was 9.2% when 2019 began. Unsurprisingly, managers remain a little more cautious given the gains of the past twelve months.
The AIC’s end of year review is always worth a read. Here are a few key points that I noted:
- There were 8 new issues, raising a total of £1.4bn. 20 is a fairly typical year, so that’s well below average.
- Existing trusts issued around £7bn in new shares, which is an all-time high.
- Industry assets exceeded £200bn for the first time in July. They’ll probably hit another new high when the figures for December 2019 are released.
- 41 companies (about a tenth) cut their fees in 2019.
- Around 40% of trusts now have tiered fees that reduce as their assets surpass certain levels. This is double the level that had tiered fees five years ago.
Looking back over a decade
It’s the end of the decade, depending on which way you lean, not just the year.
I don’t have exact return figures but on a crudely calculated basis, I reckon I am up about 170% over the last 10 years. That compares to 118% for the UK market, 180% for all investment trusts, and 199% for the MSCI All Countries World Index GBP.
There’s some survivorship bias in that investment trust figure as it only includes trusts that were in existence 10 years ago that are still alive today.
The strength of US markets was a big driver for global returns relative to the UK. The S&P 500 was up 257% in US dollar terms and even more when measured in sterling.
My portfolio and investing style have changed beyond all recognition over the last decade. RIT Capital Partners and Baronsmead are the only two holdings from 2010 that are still in my portfolio today.
Back then, about a third of my portfolio was in speculative small-caps and a couple of more speculative investment trusts. Another third was in UK equity income funds (part of which was managed by a certain Mr Woodford).
My speculative holdings have gradually been sold and I am now scratching my small-cap itch with well-regarded investment trusts.
The UK element of my portfolio is down to around 30% with UK equity income ditched in favour of various global funds.
When I look back at some of my past holdings, the fact that I’ve managed to beat the UK market so convincingly is something of a minor miracle. Perhaps it’s more an indication of just how badly oil, mining, and banks — the mainstays of the FTSE 100 — have performed in recent years.
I’m not too surprised that I trail the average investment trust, though, given where I started from. And the high proportion I had in the UK until the last few years has made the global index even tougher to beat.
I’ve continued to add to my portfolio each year and all dividends have been reinvested. I’ve certainly found that compounding and regular investing are a powerful combination.
I’m not expecting the 2020s to be as dramatic in terms of returns and overall portfolio growth.
My annual contributions are now much smaller compared to the value of my portfolio and I think a 100% gain for world markets over the next decade — just over 7% a year — would actually be a pretty decent result.
Since the start of 1988, global markets are up 9.2% a year in sterling terms, so 7% a year would be below that longer-term average.
For the 2010s, global markets returned around 11.6% a year, so that was comfortably better than the trend of recent decades.
I’ve seen some people say that we could have another bumper decade in 2020s, as we did in the 1990s after a stellar performance in the 1980s.
Hopefully, both I and this blog will still be around to find out!
Please note that I may own some of the investments mentioned above -- you can see my current holdings on my portfolio page.
Nothing on this website should be regarded as a buy or sell recommendation as I'm just a random person writing a blog in his spare time and I am not authorised to give financial advice. Always do your own research and seek financial advice if necessary!
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