After three and a bit years, I’ve slipped back to being level with the global tracker that I use as my main benchmark.
Overall performance to 31 Mar 2021
|Portfolio / Benchmark||Q1 2021||Annualised|
since Jan 2018
|Vanguard FTSE Global All Cap (fund)||+4.0%||+9.9%|
|Vanguard LifeStrategy 60 (fund)||+0.9%||+6.2%|
|Vanguard UK All-Share Index (fund)||+5.7%||+0.7%|
The usual explanatory note: I use the Vanguard global tracker as my main benchmark. The more conservative LifeStrategy fund (essentially a 60-40 equity/bond portfolio) and UK index tracking fund
make me feel a lot better provide additional reference points.
I’ve switched the column for longer-term returns to an annualised measure rather than a total figure. I think that’s more informative now I’m looking at multiple years.
It’s obviously a little disappointing to lose my lead over the global tracker but returns of 10% a year seem pretty decent considering I’m taking a relatively conservative and diversified approach, typically holding between 15 and 20 trusts and funds.
What’s more, this period contained a big slide in the markets at the end of 2018 and the COVID pandemic.
I’d be happy with this level of return over the long term although I’m still aiming to beat the global tracker by 2-3% a year as a stretch target.
Admittedly, that’s looking tricker now. However, it was only a year ago that I was 8% ahead (which was 3.4% annualised).
How quickly things change!
I was a little surprised to see that the FTSE All-Share Equity Investment Instruments index, a useful measure of the investment trust sector, was up just 0.4% in the first quarter of 2021.
I suspect that’s because nearly a fifth of this index is made up of Baillie Gifford trusts, which have nearly all seen their share prices slide in the last couple of months.
Value vs. growth
This topic has been done to death so I won’t dwell on it.
As my portfolio leans more towards factors like growth and quality rather than value, you can probably guess my thoughts on this subject.
The mood certainly shifted with the news of the first vaccine in early November and it’s picked up steam in 2021.
In US dollar terms, the MSCI World Value Index was up 9.8% in the first quarter while Growth rose just 0.3%. That’s a sizeable gap.
Go back a year, though, and the Growth index still leads Value by 58.5% to 49.4%.
And the UK, a value index in all but name, is only marginally ahead of global markets this year and behind the S&P 500 when both are measured in their local currencies.
The UK has also got a long way to go before it reverses its underperformance in 2020, let alone since 2013 when US markets started to outpace pretty much everything else apart from Bitcoin.
I’ve made a few portfolio changes although some of them were tidying up a collection of small non-ISA positions I had built up over the years.
Although we found out last month that no imminent changes to the capital gains tax regime seem to be planned, I still think it makes sense to use up my annual CGT allowance where possible.
As part of this exercise, I sold a small slice of RIT Capital Partners and reinvested the proceeds into Vanguard’s All-World ETF (VWRL).
I might need to start decumulating my portfolio in the next few years and my VWRL position could be the thing I tap first.
My thinking here is that it would be a market-neutral way of accessing cash. In other words, I don’t need to worry about whether a particular trust or fund is looking over or undervalued should I need to sell something.
Cutting out Caledonia
But the main change I’ve made so far in 2021 was to completely sell out of Caledonia. I had already reduced my position late in 2020 but I’ve dumped the rest in the last few weeks.
The proceeds mostly went into Keystone Positive Change plus a little into my biotech and healthcare basket (Worldwide Healthcare, BB Healthcare, and International Biotechnology).
When I last reviewed Caledonia in early December, I was minded to give it a little more time. But it’s lagged behind in 2021 after having also fallen short in 2020, struggling in two very different market environments.
With concerns over the quality of its private equity skills plus the high level of director pay combined with low performance-fee hurdles, I’ve belatedly decided my money can do better elsewhere.
I still have RIT and three infrastructure trusts in my portfolio as my more defensively minded holdings.
Speaking of which…
Performance by holding
Here’s the usual breakdown by position:
|RIT Capital Partners||+16.2%||-0.4%|
|Henderson Smaller Companies||+11.3%||-0.6%|
|Baronsmead Venture Trust||+8.6%||+6.2%|
|BB Healthcare *||+8.2%||+29.1%|
|JPMorgan Global Growth & Income||+7.7%||+15.9%|
|Vanguard All-World ETF||+4.1%||+12.2%|
|Gresham House Energy Storage||+3.4%||+10.8%|
|BlackRock Smaller Companies||+2.6%||+4.1%|
|Bluefield Solar Income||+1.9%||-2.5%|
|Worldwide Healthcare *||-0.8%||+19.9%|
|Lindsell Train Global||-2.7%||+11.9%|
|International Biotechnology *||-9.7%||+35.6%|
|Keystone Positive Change *||-15.1%||-0.8%|
* = bought in 2020, # = sold in Q1 2021
There’s the usual wide range of returns, even over a period as short as three months.
RIT sits at the top of my tree. It reported a strong rise in its net asset value for December 2020 in early January and has also benefited from the IPO of Coupang (previously a 4% position). Its small discount has become a small premium.
My collection of UK small-cap trusts (I include the Baronsmead VCT in this group) has done well, too. Their net asset value increases have been fairly similar but discount changes have resulted in a wider variation in share price returns.
The aforementioned biotech/healthcare basket has been a mixed bag with biotech companies getting hit in a similar fashion to highly rated growth stocks. So BB Healthcare has held up well while International Biotechnology has suffered the most.
International Biotechnology has also seen its lead manager of several years depart, with his two deputies stepping up to co-manage in his place. One has been with the trust for a long time and the other for a few years, so I think it should be a fairly seamless handover.
Tougher times for quality
My ‘quality stocks’ threesome (Fundsmith, Smithson, and Lindsell Train Global) has largely tread water in recent month. Most trusts and funds that follow this style have seen similar returns so I’m more than happy to stay put.
However, my initial foray into the world of Baillie Gifford with Keystone Positive Change has not got off to a good start.
The switchover from Invesco in mid-February pretty much took place right at the recent peak for growth stocks.
I’ve been buying Keystone in stages both before and after the changeover, taking advantage of the fall in share price to build up my position a little more quickly than originally planned.
The more I listen to Baillie Gifford’s managers across all of its trusts and funds, the more I like what I hear with regards to their long-term approach. I suspect I may look to add another one or two of their trusts over the next couple of years.
They are volatile beasts, as we’ve seen ample evidence of recently, so sensible position sizing is even more important than usual.
In terms of detailed trust reviews on this blog, I have written about all of my holdings at least once now and I plan to cover most of them between every 1 and 2 years going forward.
JPMorgan Global Growth & Income, Acorn Income, and Gresham House Energy Storage are probably the ones I will review again next.
And when Keystone publishes its first set of results as a Baillie Gifford trust, I will probably look at that, too.
Acorn Income is the smallest trust I hold (with less than £100m in assets) and also one of my smallest positions. But it’s an interesting situation right now.
Three-quarters of its portfolio is in UK small caps with the remainder in corporate bonds. However, it’s heavily geared via zero dividend preference shares.
However, it looks like it will have to cut its dividend in 2021 and it faces a regular continuation vote at its next Annual General Meeting, likely to be held in August.
Despite being highly geared, its share price hasn’t seen a particularly strong recovery since late March 2020 and its performance is now well behind many other UK small-cap trusts. So I don’t think it’s a done deal that it will survive.
Its next results are due later this month and it’s sitting on a 15% discount so I’d like to see how things pan out before deciding what to do with my own position.
A vote against continuation could see the trust’s discount narrow if we end up something like a tender offer, roll-over into another vehicle or the full disposal of the portfolio to fund a cash return.
A round-up of sector stats
As for the investment trust sector as a whole, the first quarter saw discounts widen out a little from 1.3% to 3.5%.
It also revealed research saying that 85% of equity-based trusts maintained or increased their dividends in 2020, with many of them tapping into their revenue reserves.
I’m still of the view that this could mean lower dividend increases than the wider market going forward, as these revenue reserves are built back up again.
We also heard that the CEO of the AIC, Ian Sayers, is stepping down after a long and successful tenure, most notably helping trusts reclaim over £200m in VAT.
We’ve seen three sizeable new issues: Cordiant Digital Infrastructure (£370m), Digital 9 Infrastructure (£267m), and VH Global Sustainable Energy Opportunities (£243m).
There has been a lot of secondary fundraising as well with Greencoat UK Wind, SDCL Energy Efficiency, Chrysalis, Renewables Infrastructure, and Tritax Eurobox all raising around £200m or more.
In fact, the total of £2.9bn raised in the secondary market in the first quarter could herald a record year, surpassing the £7.4bn raised in 2019.
Finally, we have three new trust sectors — China/Greater China, India, UK Property: Logistics.
Books I’ve been reading
There’s a new investment trust book in town. Written by Andrew McHattie, it’s called Investment Trusts: A Complete Guide.
I’ve known Andrew for many years and he has been publishing the Investment Trust Newsletter since 1996 so few people have more experience of the sector.
There’s not that much overlap with the recent series of Investment Trust Handbooks edited by Jonathan Davis with Andrew taking a more holistic view of how the sector has developed over the last two and a bit decades.
There are also some good explanations of some of the quirkier aspects of investment trusts, with numerical examples using well-known names to make things clearer.
The year-by-year recap of the sector that closes out the book was particularly revealing as it reminded me just how many trusts have disappeared or rebranded themselves. This keeps the sector healthy but shows you can never take a hands-off approach, especially when you’re investing in more specialised trusts.
I’m also enjoying reading Built On A Lie which is one of two recent books on the rise and fall of Neil Woodford. I’m only about halfway through, but I’d forgotten just how dominant a force Woodford was at first Perpetual and then Invesco Perpetual before setting out to start his own firm.
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!
A free share with Freetrade
Do you fancy a free share worth between £3 and £200 plus commission-free trading? Then why not sign up to Freetrade using my referral link?
Your free share is selected at random and usually awarded a week or so after you have funded your account with at least £1. I also receive a random free share for each completed sign-up. You could get an individual company share, an ETF or, if you're really lucky, an investment trust!
Subscribe to IT Investor
Get an email alert every time I publish a new article (usually once a week). Your email address won't be used for anything else.