Q2 2021: A Move To Money Makers, Photo by Pang Yuhao on Unsplash

Q2 2021: A Move To Money Makers

Before I get into my usual portfolio review, I have some personal/blog news.

I’m excited to say that I am teaming up with Jonathan Davis, editor of the Investment Trusts Handbook and host of the Money Makers weekly podcast.

Jonathan has created the Money Makers circle, a premium website that focuses primarily on investment trusts but touches upon open-ended funds and individual shares as well.

I have just started producing detailed trust reviews for Money Makers, in a similar vein to the ones that have appeared on this blog over the last three years.

Jonathan produces regular in-depth Q&As with leading industry figures, using his extensive network of contacts built up over the last few decades, weekly news round-ups, and much more.

We’re planning to add additional types of content as the Money Makers site continues to develop however we intend to keep the emphasis firmly on quality rather than quantity.

If you’d like more details about what you get as a member of the Money Makers circle, just click here. I hope that you’ll join us.

What’s happening to this blog?

I’m planning to continue running the IT Investor blog but, as you might have already surmised, the majority of the content that I write will now be only available via the Money Makers circle.

I suspect the pieces that do appear here will be a little shorter and less frequent than before and there’s likely to be a summer lull while I juggle getting up to speed on Money Makers and the ongoing demands of small children.

Overall performance to 30 June 2021

My performance perked up a little in the second quarter.

Annualised since January 2018, I’m now up 11.6% compared to 9.9% at the end of March 2021. I’m ahead of the global tracker once more, but only by a smidgen.

Portfolio / BenchmarkQ2
Jan 2018
My portfolio+7.9%+1.8%+11.6%
Vanguard FTSE Global All Cap (fund)+6.9%+4.0%+11.3%
Vanguard LifeStrategy 60 (fund)+4.5%+0.9%+7.1%
Vanguard UK All-Share Index (fund)+5.6%+5.7%+2.3%

The usual explanatory note: I use the Vanguard global tracker as my main benchmark. The more conservative LifeStrategy 60 fund (essentially a global 60% equity/40% bond portfolio) and UK index tracking fund provide additional reference points.

It’s been a peculiar quarter with markets continuing to grind higher at much the same rate they did in the second half of 2020.

So-called value stocks have continued to do well but both quality and growth seem to have made a comeback in recent weeks as well.

Inflation worries seem to be top of mind for many investors with much debate on whether the recent pick-up is temporary or permanent. I suspect it’s the former — I’m in the camp that thinks the deflationary effect of our lives becoming ever more digital will overcome any short-term supply or wage increase issues. We should find out soon enough.

I’m not planning to alter my overall strategy or holdings, preferring to pick what I believe to be good managers and durable themes that can thrive whatever the macro environment.

The yield of 10-year US Treasury bonds, seen as a key indicator of expectations about the economy by many, rose from its low of 0.5% last July to around 1.7% at the end of March 2021.

It’s since slipped back to around 1.5%, which is similar to the lows hit in 2012 after the Greek Financial Crisis and Brexit in 2016, and that’s helped 60/40 equity-bond portfolios improve on their lacklustre first-quarter performance.

Up just over 5% for the first half of 2021, the 60/40 seems to be doing ok for a strategy that’s been written off as dead in the water. Again, time will tell and it will largely depend on just how far rates do rise.

Most major markets are up double-digits in US-dollar terms in 2021, with the US 15% higher and the UK rising 12%.

Canada and Russia have been the best-performing among major economies (both up 22%) while China and Japan (both up 2%) have been the laggards.

The pound has strengthened slightly against the US dollar which is why the plain vanilla global tracker is up 11% in pound terms over the first half of 2021, lower than the nominal gains in the US and Europe.

For basic planning purposes, my default expectation is still for a period of lower returns over the next several years than we’ve seen since the Great Financial Crisis.

For example, VWRL is up 14.8% a year over the last five years and 13.8% since it launched in May 2012.

Longer-term, the MSCI World Index is up around 11% a year since the mid-1970s. What’s more, the mid-1970s was a relative low point for most markets and the 70s, 80s, and 90s were a time of much higher inflation.

My trading

There’s not much to report on this front since my Q1 2021 update, in keeping with my usual policy of trading as little as possible other than reinvesting dividends on a regular basis.

I took advantage of a small dip in Bluefield Solar Income a couple of weeks ago to make a little top-up. It’s since announced a 1 for 5 open offer to fund the purchase of some wind assets, so I may add to my position again later this month.

In the first quarter and the very start of the second, I tidied up some of my taxable holdings by moving them into my ISA. There was a little left over after this exercise and that went into VWRL.

Prior to that, I sold out of Caledonia in February and March, using the proceeds to increase my positions in Keystone and the three biotech/healthcare trusts I already owned.

Performance by holding

Here’s how my individual holdings have performed so far this year and in 2020. The names link back to my most recent review of each holding.

HoldingH1 20212020
RIT Capital Partners+18.6%-0.4%
Henderson Smaller Companies+18.2%-0.6%
Baronsmead Venture Trust+14.5%+6.2%
JPMorgan Global Growth & Income+13.6%+15.9%
BlackRock Smaller Companies+13.4%+4.1%
Acorn Income+12.8%-14.1%
BB Healthcare+13.3%+29.1%
Fundsmith Equity+11.8%+18.4%
Vanguard All-World ETF+11.1%+12.2%
Caledonia (sold by Mar 2021)+11.1%-5.9%
Gresham House Energy Storage+10.7%+10.8%
Lindsell Train Global+5.4%+11.9%
Worldwide Healthcare+3.4%+19.9%
HICL Infrastructure-2.3%+7.0%
Bluefield Solar Income-3.7%-2.5%
Keystone Positive Change-5.4%-0.8%
International Biotechnology-11.0%+35.6%

No spectacular winners or spectacular losers this year, so far at least.

My Keystone/Caledonia switch looks poorly timed with the benefit of hindsight. As it was done in stages, I haven’t calculated the exact damage done, but Caledonia rebounded 20% in Q2 while Keystone gained 10% and the three biotech/healthcare trusts rose maybe 5%.

Selling out the final chunk of Caledonia a few weeks before its major NAV update for 31 March 2021 was a bit daft so perhaps that’s a small takeaway for future reference. But once I’ve decided on a course of action like this, I prefer to get things done rather than let them linger.

Keystone has performed similarly to many other Baillie Gifford trusts since it switched managers in February 2021. So while it’s a disappointing start, I’m more than happy to stick with it and see how it progresses.

My three infrastructure and three healthcare trusts have had a mixed 2021 so far.

Long-term power price forecasts, the planned corporation tax rise, and inflation worries have dented Bluefield with HICL suffering from the second and third of these factors.

However, power prices have actually been very strong so far in 2021 (£78 per MWh in June compared to £26 in June 2020 and £40 in June 2019) so I’m curious to see whether that’s reflected in Bluefield’s next NAV update and results.

I haven’t been tracking the healthcare trusts that closely in recent months so I’m not aware of any major reason for them lagging a little, other than many biotech stocks getting hit alongside other growth stocks earlier this year.

It’s nice to see RIT continue to forge ahead after a slower few years and that my faith in the UK small-cap sector over the last few years is being repaid.

Acorn Income plans to swap managers to  BMO and become a global sustainable income trust. It’s fair to say the news has received a mixed reception so far and there’s a lot of detail we still don’t know. I’m still minded to hang on for now and to see how things proceed, with the 18% discount hopefully cushioning any major downside risk.

A round-up of sector stats and news

Across for the wider investment trust sector, the second quarter saw discounts narrow a little from 3.5% to 2.0%, similar to the level they started the year at. The average gearing level has held steady at 8%.

Key Information Documents continue to be an issue with trusts stuck with producing them despite their, er, major quirks but other funds exempt for a few more years.

The AIC has added a new tab to its company information pages, listing out each trust’s ESG policies.

VCT fundraising remained high, with around £700m in new money raised for the fourth successive year since the major changes in VCT rules were introduced.

New issues so far this year have included:

  • Cordiant Digital Infrastructure (CORD);
  • Digital 9 Infrastructure (DGI9);
  • VH Global Sustainable Energy Opportunities (GSEO);
  • Aquila Energy Efficiency (AEET); and
  • Taylor Maritime Investments (TMI).

Collectively they have raised £1.2bn however, both Cordiant and Digital 9 have gone back to investors already, raising a further £0.4bn.

Seraphim Space Investment Trust is set to list in mid-July followed swiftly by HydrogenOne — they will be the first trusts to specialise in space technology and clean hydrogen. But the IPO of Liontrust ESG Trust, due to take place this week, was pulled after it failed to raise the £100m it was looking for.

Investor demand for alternative assets has remained extremely strong, despite the fears about rising rates, with major secondary fundraises from the likes of:

  • Schiehallion (MNTN) – £498m
  • Chrysalis (CHRY) – £300m
  • Renewables Infrastructure (TRIG) – £240m
  • Hipgnosis Songs (SONG) – £75m plus £150m proposed
  • LXi REIT (LXI) – £125m plus £100m proposed
  • Greencoat UK Wind (UKW) – £198m
  • Tritax Eurobox (EBOX) – £198m
  • SDCL Energy Efficiency (SEIT) – £160m
  • Supermarket Income REIT (SUPR) – £153m
  • Gore Street Energy Storage (GSF) – £135m
  • Polar Capital Global Financials (PCFT) – £122m
  • Sequoia Economic Infrastructure (SEQI) – £110m
  • Urban Logistics REIT (SHED) – £108m

The AIC reckons secondary fundraising is at £5.1bn already for 2021, closing in rapidly on the record of £7.4bn set in 2019.

Some trusts have decided to call it a day — both Gabelli Value Plus+ and KKV Secured Loan are looking to wind down. Crystal Amber looks like it may struggle to survive a continuation vote later this year after a major shareholder said it would vote against carrying on.

City Merchants High Yield and Invesco Enhanced Income, which were managed by the same team, have joined forces to become Invesco Bond Income Plus (BIPS). And a consortium is reportedly interested in buying GCP Student Living.

Performance-wise, I reckon the average return for non-VCT investment companies is +11.3% for this year across 350 trusts.

Electra Private Equity, another trust in the process of winding down, is the top performer with a gain of 121%. DP Aircraft I, which probably should be put out of its misery, is down 40% and has fallen 96% since it peaked three years ago.

Picking out a few notable movers from trusts that I don’t own:

  • Chrysalis (CHRY) +31%
  • River & Mercantile UK Micro Cap (RMMC) +41%
  • Draper Esprit (GROW) +37%
  • Oryx International Growth (OIG) +38%
  • Mobius Investment Trust (MMIT) +33%
  • Schiehallion (MNTN) +31%
  • Scottish Mortgage (SMT) +10%
  • Polar Capital Technology (PCT) +3%
  • Allianz Technology (ATT)  -1%
  • JPMorgan Global Core Real Assets (JARA)  -11%
  • Syncona (SYNC)  -20%

38 trusts have gained 25% or more so far this year and 297 are in positive territory with just 15 showing double-digit percentage losses.

That’s it for this quarterly roundup. I hope to see you over at Money Makers!



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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11 Replies to “Q2 2021: A Move To Money Makers”

  1. Congrats! I thought the quality of your content was too good to be free (& is better than a lot of professional content), so I’m delighted to hear you’ll be getting some remuneration!

  2. enjoyed reading your blog over the years, shame I wont be willing to pay yet another subscription to read your future pieces

  3. Congratulations on the move! I’m a Money Makers subscriber and I think Jonathan provides exceptional content. In fact I would say your blog is about the only other thing I read regularly on investment trusts, so now it will all be in one place!

    As you are churning through your fund profiles, can I make a plea for you to cover the Mobius Investment Trust? There is always coverage of Templeton, JPMorgan, and probably now the new Fidelity trust which does look quite interesting, but I think it’s a hit of a blind spot that MMIT receives such little coverage. Mobius is a hugely successful investor, and clearly he still has his marbles and is very engaged. But even if he were not, Hardenberg and his team are heavily invested and out to make a name for themselves in an area they know well. Combine that with an element of activism and a mid cap (as opposed to large or mega cap) focus, that seems like quite a compelling proposition. The charges are high I grant you, but its been on a tear of late and the discount is now almost closed, so they may be able to start issuing new shares which will increase the size of the trust and start to reduce the charges somewhat. Would be very interested in your thoughts as I feel this is a trust that deserves more coverage.

  4. Thanks for this.

    You are always very good at covering all the points.

    I am sworn to the leagues of Index investing. I know you too are a fan of Vanguard.

    I was chatting to an FA the other week who deals only with HNW individuals. So you would assume they are quite demanding individuals who won’t accept bull.

    He respected my views on indexing and accepted I wouldn’t go wrong. But he told me that I should at least look into private equity as it may emerge as a champion of the 20’s and 30’s.

    I have started to delve into this and indeed the average private equity fund throughout the 80’s, 90’s and 2000’s delivered 3% more than the S & P 500. So some delivered less and some delivered more. Without luck onside and with fees in mind these returns seem negligible.

    Having said that I can see that there is a stronger argument for private equity now than ever before. There is far more money swishing about that can delay an IPO and thus my ‘Index access’ to these businesses.

    The fees are the lowest they have ever been – I’m thinking of Scottish Mortgage Trust at 0.3% (+ platform).

    You may not have the time to share your thoughts. The argument for private equity appears stronger than ever. But do you think that the recent emphasis on private equity is an attempt to attract investors away from the ever growing Index funds and do you think that there is an argument for strong performance from private equity over the next 20 years.

  5. Hi Mark,

    I suspect the 3% outperformance you quote is probably after fees but there’s a fair amount of debate as to how accurate these return figures are. It’s difficult to define the sector, data isn’t always publicly available, PE funds were perhaps more highly geared in the past, and so on.

    And there’s a large subset of funds that you can’t get access to as a private investor, so it may not be possible to replicate the average return even if the basic figure is more or less accurate. There seems to be some consensus that returns in the 2010s were fairly similar to public markets but then it was a period that public markets, particularly in the US, performed very strongly.

    All that said, 3% outperformance after fees does seem quite high to me, as that would imply the underlying returns were 5-6% higher a year, which seems a bit of a stretch.

    I’ve held a few private equity trusts in the past, like F&C Enterprise and Princess Private Equity but HgCapital is the only one I’ve still got. I’ve cooled towards the sector over time as I’ve got a greater appreciation for their underlying costs, which seem to be in the region of 1.5% pa plus a 15% performance fee over 8% annualised returns. Certainly, a lot of managers like private equity because the fees they can charge are so much higher and there’s less pressure to reduce costs because indexing is hard to do.

    Private equity fund of funds like Harbourvest and Pantheon probably given the broadest access to the sector for UK private investors. A lot of the more traditional private trusts still sit on large discounts, due perhaps to a little suspicion about their charges and the fact some of them struggled in the financial crisis because they had a little too much borrowing.

    Some of the newer PE specialists often trade at premiums however. Scottish Mortgage’s fees are very low but they only invest around 20% in unquoted companies. Schiehallion, also run by Baillie Gifford, gives you more direct exposure to unlisted companies but it’s primarily aimed at ‘sophisticated’ investors. Newer funds like Chrysalis and Draper Esprit seem to be doing very well of late, although they are focused on technology plays I believe.

    I’m not sure I buy the argument that the performance gap between private and public companies will be wider in future. Some companies are staying private for longer but there’s a lot of money chasing these firms and that suggests entry prices will be higher and therefore returns will be lower.

    So a difficult one and I don’t think I have any particularly strong conviction one way or the other. Pick the right PE fund and you could do very well of course!

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