Here’s my portfolio review for the fourth quarter of 2022. I ended the year down 13% while global markets fell 8% in sterling terms.
My performance
I’ve been tracking my portfolio returns on this website for five years although I started out as an active investor back in 1995. Here’s a quick summary of my performance against the usual range of comparators:
| Portfolio/comparators | 2022 | 2021 | Annualised since Jan 2018 |
|---|---|---|---|
| My portfolio | -13.0% | +16.2% | +6.2% |
| Vanguard FTSE Global All Cap (fund) | -8.0% | +18.9% | +7.4% |
| Vanguard LifeStrategy 60 (fund) | -11.2% | +9.9% | +3.3% |
| Vanguard UK All-Share Index (fund) | +0.3% | +18.2% | +2.8% |
| FTSE All-Share Equity Investment Trusts (index) | -16.6% | +12.8% | +5.3% |
Notes: I use a Vanguard global tracker fund as my main benchmark and I have a stretch target of beating it by 2-3% per annum over the long term (that looks very optimistic right now but let’s see how things play out). The more conservative LifeStrategy 60 fund (essentially a global 60% equity/40% bond portfolio), a UK index tracking fund, and an index of UK investment trusts provide additional reference points. All returns are measured in sterling using a unitised method for my portfolio that adjusts for any new money I put in or any withdrawals I make. Any trading and administrative costs I incur (typically 0.1-0.2% a year at a rough guess as I don’t trade that much) are included in my portfolio returns but no such costs are included in the comparator fund or index returns.
Well, I suppose it could have been worse! Given all that happened in 2022, a loss of 13% seems pretty mild compared to other recent major declines such as the initial COVID crash and the global financial crisis.
The weakness of sterling against the US dollar over the course of 2022 meant that global trackers held up surprisingly well and only suffered an 8% loss. In dollar terms, global indices fell around 18%. The pound went from 1.35 at the start of the year down to 1.07 in late September before recovering to 1.20 by the year end.
Quarter by quarter, my portfolio dropped 6% in the first quarter then another 11% in the second before adding around 2% in both the third and the fourth. I trailed global markets by around three percentage points in both of the first two quarters and made a tiny bit back in the last two.
Obviously, it’s disappointing to see my portfolio lagging a global tracker over the last five years, especially as I was a little ahead for the first two or three. I’m just over a percentage point a year down at this point so that’s quite a gap to close.
Across the major equity markets, those with a commodity/energy bias did the best. In sterling terms, Australia was up 7%, Brazil was up 26%, and India was up 4%. The UK was roughly flat as was Canada. The losers include China and Germany, both down 12%, the US at down 9% and Japan at down 5%.
The performance of the UK market is worth examining in a little more detail. The FTSE 100 rose by 5%, due to a small number of its largest constituents doing well. The FTSE 250 was down 17%, the SmallCap was down 14%, and the AIM indices dropped by more than 30%. Across the FTSE All-Share, which contains nearly 600 stocks, only 109 delivered a share price gain over the course of 2022.
It was a tough year for the investment trust index. It currently includes 189 trusts and represents around 70% of the sector by market cap. It’s a somewhat strange mixture of internationally focused growth trusts at one end and supposedly much more conservative alternative asset trusts at the other. Commodity and value-orientated trusts did pretty well, as did a few specialist areas like aircraft leasing. Growth-orientated trusts, technology, property, and smaller companies dominated the losers.
Although the investment trust index lost 17%, a significant chunk of this was due to the average trust discount going from 2% at the start of 2022 to around 14% by the yearend. Many net asset values across the property, infrastructure, and private equity sectors could be somewhat overstated, as their valuations tend to lag a little, so the true discount level might be a little less than 14%.
My performance by holding
Here’s how my individual positions did on a share price and NAV basis along with their current rating. The column headers should be sortable although they might not be on some mobile devices.
| Holding | Share price return 2022 | Net asset value return 2022 | Premium/ (discount) |
|---|---|---|---|
| Gresham House Energy Storage | +29.6% | +34.6% | +9.8% |
| Bluefield Solar Income | +16.7% | +22.3% | -3.0% |
| HICL Infrastructure | -2.3% | +11.3% | -0.2% |
| HgCapital | -15.0% | +3.9% | -21.8% |
| JPMorgan Global Growth & Income | -5.0% | -1.4% | -0.6% |
| Vanguard All-World ETF | -7.8% | -7.8% | n/a |
| Lindsell Train Global | -4.2% | -4.2% | n/a |
| Fundsmith Equity | -12.6% | -12.6% | n/a |
| Smithson | -35.3% | -28.3% | -8.4% |
| RIT Capital Partners | -21.5% | -10.9% | -13.0% |
| Keystone Positive Change | -33.6% | -25.1% | -14.3% |
| Bellevue Healthcare | -21.0% | -10.8% | -7.1% |
| Worldwide Healthcare | -9.8% | -3.6% | -7.1% |
| International Biotechnology | -1.5% | +0.1% | +0.8% |
| Baronsmead Venture | -13.9% | -15.1% | -4.3% |
| Henderson Smaller Companies | -30.1% | -31.8% | -10.5% |
| BlackRock Smaller Companies | -34.3% | -26.4% | -12.8% |
| KR1 | -75.4% | -67.9% | -36.5% |
The weighted average discount across all my positions (trusts, open-ended, and ETF) is 4% compared to a 1% premium at the start of the year. So that represents a 5% swing which is less than the index of investment trusts but still quite significant. Two of my trusts, Henderson Smaller and Baronsmead, saw their discounts narrow but only very slightly. I suspect the ratings across most of my trusts will improve a little over the next year or so, although I would be surprised if we got back to the levels we saw in late 2021.
Here are some quick thoughts on my individual holdings, grouped by categories:
Global
JPMorgan Global Growth & Income has almost tripled in size by swallowing Scottish Investment Trust and JPMorgan Elect. That’s seen its fees cut, although they were already quite low, but more pleasingly, the performance fee has been kicked into the long grass. This trust enjoyed a small premium rating for many years after adopting an enhanced dividend policy (paying out 4% of its NAV) but has recently slipped to a small discount. I’m not sure if that’s because of the increased number of shares now in issue outstripping demand or whether it’s simply due to the general discount widening we’ve seen. Its NAV loss of just 1.4% last year continues its recent run of outperforming its benchmark.
Lindsell Train Global also held up well over the past year, outperforming world markets although it still posted a loss. It also bought its new position for a number of years, taking a stake in FICO, the credit-scoring firm. Nick Train and Michael Lindsell said in June 2022 they planned to be around for at least seven more years so that should give me plenty of time to assess whether I am happy to stay put here beyond that point.
Fundsmith Equity has been less impressive and I think 2022 is the first calendar year since launch that it has underperformed the MSCI World Index. It’s been more active on the trading front, buying four new positions and selling five. Its move into big tech — it now owns Apple, Adobe, Amazon, and Alphabet in addition to its long-time holding of Microsoft — looks unfortunately timed. PayPal and Intuit were given the boot in December but Meta Platforms remains in the portfolio for the time being. Terry Smith’s shareholder letter should be published in a week or two and I would expect him to come out fighting but the next Annual Shareholders Meeting (which will presumably be in person for the first time since 2020) could be a spicy affair.
Smithson, the small-cap version of Fundsmith, got walloped and a discount opened up for the first time as well. Smithson has done some buybacks but so far has only repurchased 5.7m of the 177m shares it previously had in issue. It was a prolific issuer up until February 2022, with its share count more than doubling from 82m shares at its IPO in October 2018. Smithson bought three new positions in 2022 and sold three, its busiest trading period so far albeit not quite as active as Fundsmith Equity. While Smithson’s NAV performance is still ahead of its benchmark since inception, its share price return is now a little behind. Despite buying at the IPO and adding several times since, I’ve still got a relatively small position here so I am inclined to keep nibbling away, especially while it’s trading at a discount.
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Like Smithson, Keystone Positive Change saw a big drop although its discount is a little wider because the smaller size of the trust makes share buybacks unappealing. My timing here, buying my initial stake in late 2020 and early 2021, was obviously dreadful but I still like the underlying premise. Its NAV performance hasn’t been as bad as some other Baillie Gifford trusts and the wide discount has made it appealing as a top-up candidate every now and then.
RIT Capital Partners has seen its NAV slip gradually over the last 12 months but its discount widened out significantly at the tail end of the year, seemingly on the back of an Investec research note highlighting the increased percentage of 18% it has in higher-risk venture capital funds plus another 25% or so in private equity. It’s been buying back shares in the last few months, which is good to see and am hoping will continue. It’s my longest-standing position having started it back in 1996 and entirely held in a taxable account. Recently announced changes to the CGT allowance make it a little trickier to sell or reduce my position but for now, I am happy to keep holding.
Renewables and Infrastructure
After a strong 2021, Gresham House Energy Storage had an even more impressive 2022 and was my best performer in both share price and NAV terms. As well as being a beneficiary of increased energy price volatility, it has also seen valuation uplifts from projects moving from construction to operation, the latter using a lower discount rate. Battery storage falls outside of the (idiotic) UK energy levy announced in the Autumn Statement that hit most other renewable energy trusts but it may have knocked sentiment a little anyway. Gresham House Energy Storage recently extended its debt facilities, which should provide funding for a lot of its substantial near-term pipeline, and it still trades at a premium so should be able to raise fresh funds as well. It’s probably my most complex holding in terms of understanding its business model, so I continue to take a fairly cautious stance and haven’t increased my position size for some time now.
Bluefield Solar Income did get hit by the UK energy levy and also by higher corporation rates but it still posted an impressive 22% NAV return last year. Its move into wind power and battery storage doesn’t seem to have resulted in any loss of focus. With its shares at a small discount, raising more funds will be more challenging but this trust has proved itself to be an adept and nimble operator so I’ve been happy to add slightly to my position this year and may continue to do so.
HICL Infrastructure posted a small negative share-price return despite an 11% increase in its NAV. Its revenues have a very strong linkage to inflation rates but a few operational hiccups in recent years have meant that its dividend has been stuck at 8.25p since 2020. HICL reckons its dividend cover probably needs to exceed 1.1 times (it’s currently 1.03) before it entertains increasing its payout again. Although I sold a small chunk earlier in the year, I essentially repurchased it in a fundraising a few months later. It’s been more acquisitive this year, shifting more towards digital assets but with a portfolio valued at nearly £4bn the overall mix hasn’t changed too much.
I’ve been looking at some other renewable and infrastructure trusts for Money Makers recently and I may add a new position at some point with Pantheon Infrastructure as the most likely candidate. There is a risk that NAVs will suffer if higher discount rates are used in valuations but so far other factors like higher inflation rates seem to be offsetting any falls. Another risk for renewables is REMA, a UK government review on the energy market, due to be published later this year.
Tech-Focused Private Equity
HgCapital is a highly concentrated tech-focused private equity trust and its fortunes have been similar to much of the rest of this sector in 2022, i.e. despite posting slightly higher NAVs each quarter, it has seen its discount widen significantly. Although the underlying multiples used in its valuations have come down by 10-15%, the average multiple in its 30 September NAV figure rose slightly due to an increase in the valuation of Access, its largest position. The wide discount and Hg’s track record are enough for me to keep holding and I even added a small amount at roughly the current price several months ago.
Biotechnology and Healthcare
My three biotech/healthcare trusts have held up pretty well in NAV terms although both Bellevue Healthcare and Worldwide Healthcare have seen their discounts widen out a fair bit of late. The former has been buying back its shares recently, for the first time since it was launched in 2016, and has an annual redemption facility at the end of November each year. Worldwide has a discount control target of 6% so it’s been pretty active on the buyback front, too.
International Biotechnology has done the best of the three, which I was pleased to see after its two deputy managers stepped up to be co-managers in early 2021. I still think this sector is one that could do well over the next few years so I’m likely to add to these trusts during 2023.
UK Smaller Companies
UK small-caps were a difficult place to be last year and both Henderson Smaller and BlackRock Smaller suffered badly. Both these trusts are tilted towards growth but have been consistent performers over the long term. However, neither trust likes to do buybacks and they kept their hands in their pockets despite their discounts exceeding 15% at times. Henderson’s rating has improved slightly in the last couple of months while BlackRock’s hasn’t. BlackRock has also reduced its gearing to zero while Henderson’s has remained in the low double digits. I am dabbling with the idea of adding Odyssean to this sleeve of my portfolio as that continues to impress. It has a fairly young management team (i.e. they are younger than me!), less of a growth bias, but a very concentrated portfolio.
I normally consider Baronsmead Venture as part of my UK small-cap category as well. It continues to plod along although its new Chairman has resulted in the first dividend cut to the 6.5p minimum level it previously had in place for a number of years. The official policy is to pay out at least 7% of the opening NAV but this is the first time it’s been actually been enforced. The fact that Baronsmead has a load of cash yet to be invested has helped cushion its NAV decrease over the past year. Nearly all of my position can be sold now without losing the VCT tax benefits (the last slug needs to be held until February 2024) so that might spur me into action on tidying up this small, high-cost position.
Crypto
Last and very much least, we come to KR1. I kept my initial position size here very small and crypto markets have certainly helped keep it that way! My initial plan was to hold it for several years, primarily to learn about this space, and that remains my intention. The majority of my position was built up in 2021 and very early 2022 and although I resisted the temptation to average down for several months, I will confess to taking another small bite in October. Operationally, the business has carried on much as before, with no leverage and no need for fresh funds to support its operations. The reporting of its results still remains tardy, unfortunately.
My trading
As in recent years, nearly all of my trading has been small top-ups, essentially reinvesting dividends I have received. I like to have 20 positions or fewer (I have 18 at the moment) and if I were to add a new position I would probably look to sell one as well.
In 2022, I added to my existing positions in HgCapital, Bellevue Healthcare, Bluefield Solar Income, Henderson Smaller, Smithson, Worldwide Healthcare, BlackRock Smaller, International Biotechnology, Keystone Positive Change, Lindsell Train Global, KR1, and the Vanguard All-World ETF.
As mentioned previously, I sold a little HICL earlier in the year but then bought some in July when there was a fundraising offer. I also reduced my position in JPMorgan Global Growth & Income back in March as part of an ongoing process to tidy up my taxable positions. I didn’t do anything with my positions in Fundsmith, Baronsmead Venture, RIT, or Gresham House Energy Storage.
I reckon my portfolio turnover for the year was just 2%, which is very low even by my standards. It was 5% in 2019, 9% in 2020, and 7% in 2021. I suspect it could be a bit higher in 2023 but not by much. Although I may tinker with a few positions here and there, I am not planning any major changes to my basic set-up of a core group of global funds making up about two-thirds of my portfolio bolstered by side themes of biotech/healthcare, renewables/infrastructure, UK small-caps, and tech/private equity. I do have other assets outside of my portfolio, though, and that has a bearing on my overall strategy in that I can generally take a very long-term view with my holdings.
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And finally, just a reminder that The Investment Trusts Handbook 2023 is now available. I contributed again this year with a profile of BH Macro, which was a shortened version of one I previously did for Money Makers. As with previous editions, the e-book version is free and the hardcover retails at £29.99. You can click here to order via Amazon using my referral link and it is also available at Harriman House.
As always, thank you for reading!
Disclaimer
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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Commiserations on a tough year for most.
And thanks for an impressive write-up of BH Macro in the 2023 IT Handbook. I did a deep dive a couple of years ago (after an initial fascination in 2011) as if you don’t do it yourself, it is really rather opaque.
What I found interesting is that often (e.g. one of your tables) the bulk of returns come from rates trading, and the rest is relatively insignificant.
I have also assumed that the NAV is primarily in USD & that the GBP is hedged. But I’m not sure if I’ve ever found any evidence for this. Anyway holding the USD share class was obviously even more profitable last year. However the liquidity/spread of the USD share class is pretty hideous.
Fingers crossed it continues to do its thing – it is a quite amazing thing as it stands, but of course that could all change.
I always disregard the share price of my VCTs. My measure is that they will return the original investment and some in dividends with the tax rebate a bonus. That said I was particularly happy with my continued backing of Unicorn and less happy with Baronsmead.
Well done on solar I’m afraid for me this is an area that’s too specialised for me so I avoid.
Thanks Tom. Yes, the two versions of BH Macro were pretty evenly matched for the first ten years but have diverged a little since, pretty much coinciding with the big drop from 10m to 3m USD units! From memory, I don’t think there is any hedging difference between the two or else the difference in performance over time would have been significantly larger.
Not a bad idea JJ. I’m curious to see how easy the VCT will be to sell when I do get round to it! I started putting money into Baronsmead back in 2005 and it did very well for several years after that, which encouraged me to keep adding every few years. When it started to lag behind small-cap trusts, I was a little slow to catch on but the bulk of my money was already committed by then and it still probably made sense for me to hold for five years rather than lose the tax benefit.
As an aside, I suspect that the addition of the Mobeus team to Gresham House could help Baronsmead’s performance as their funds have been good performers over the last five and ten years, but it might be some time before any effect becomes noticeable.
Apologies if I’ve got this wrong, but if one class wasn’t hedged to the other’s currency, wouldn’t the share price NAVs be significantly different to reflect the change in GBP/USD from 2007 to now?
Looks like I need to brush up on my hedging knowledge Tom! Checking again the USD price has gone from $10 at the IPO to $46.40 but the GBP share price has gone from £10 to £45.40 so you would have done a lot better in the GBP class once you take the pound’s decline against the dollar into account. I thought the AIC performance charts, which come from Morningstar, adjusted for currency movements when you looked at multiple funds but it looks like they don’t.
Thanks for your review, interesting read as usual.
What do you think long-term about RIT since Lord Rotschild left? It seems they are doing some very weird investments (Coupang, Robinhood, Kraken).
Do you still believe they will perform long term? I’m a bit disappointed with their results compared to even Caledonia which outperforms them significantly. Makes me think I would be better off just buying VNGA80 or VWRL.
Overall, I still feel pretty comfortable holding RIT and I think the changeover from Lord Rothschild was probably less of a cliff-edge event than some people have made out. It seems to have taken place over several years with the trust gradually shifting its primary focus from direct investment to investing via funds.
The CEO was appointed in 2010 and the CIO in 2012 and I think Rothschild stepped back from day-to-day oversight not long after that and only retired as Chairman in 2019, when he was aged 83 and just a few months after his wife died. For example, the investment in Coupang was made in April 2018 so that was before he stepped back entirely. I doubt Rothschild would sit by idly, though, if he felt the team was making some rash decisions. It seems like a good time for them to get out there and promote their strategy a bit more rather than relying on broker notes to do that for them.
Caledonia has certainly done better over the last year or so but their long-term performances are still pretty similar and CLDN was underperforming RIT for much of the 2010s and these things do tend to switch around from time to time. Whether either of them will beat a global tracker is hard to say though. Sterling weakness and very strong US markets have worked in the tracker’s favour in recent years I would say and both these trusts probably take a slightly more conservative approach as they are designed to protect family wealth over generations.
However, I will be watching the NAV updates and results pretty closely this year to see what they do say about these VC investments!!
Thanks very much for the detailed reply. Great points about the team being there for almost a decade. I’m also waiting to hear about the VC NAV… expecting (hoping?) the discount to get smaller in a few weeks when that happens.
P.S. I’m a long time reader and subscriber to Money Makers, really enjoy reading your fund profiles. Great stuff.
Thanks! Glad you are enjoying Money Makers and the fund profiles.
I think the Dec NAV for RIT will still largely be based on 30 Sep fund valuations so probably won’t change that much unless they decide to make some further adjustments on top. We will probably see some expanded commentary in the NAV announcement and factsheet again as well.
Not super excited about the RCP NAV update… and it seems neither is the market.
Personally as a non-UK investor I think I made a mistake with RCP. Paying huge fees, taking the GBP risk, seeing big 15-20% discount while also underperforming a simple global index. I think I’ll wait until it recovers and discount closes, and then will sell and move to a simple cheap global ETF. Happy to be convinced otherwise but so far that’s how it looks.
Fair enough regarding the tracker and I wouldn’t want to convince anyone what to do with their own investments anyway. The currency situation with RCP is quite complex given its measures itself 50% against a sterling-hedged global index and 50% global index in sterling and it’s something I still struggle with a bit when trying to assess its performance.
However, I didn’t think the December NAV was too bad myself given that it was quite a bad month for world markets and it contained a six-monthly update for the directly-held private investments. But the majority of the fund investments are still valued on a 30 September basis and it may be the end of Feb or Mar NAV before we see that change significantly. I suspect the market will remain sceptical until those numbers are in and perhaps even a bit beyond that point if there is still suspicion across the market that PE firms haven’t reduced their valuation multiples sufficiently.
Sounds like it is just 3 weeks or so until the accounts are published and we get the expanded commentary that this brings. I would like to see more buybacks as that would indicate they had plenty of confidence in the NAV.
Sounds good, looking forward to that as well. I also don’t think that their NAV is too bad at all and overall happy with their NAV performance, just not with the discount. I guess that’s the risk (and opportunity) of investment trusts…
I would also like to see more buybacks, it seems they used to do daily buybacks a few weeks-months ago but then suddenly stopped. They seem to buy when discount is around 20%, maybe they know something we don’t?
It seems that while the market slightly recovered they are continuing to slump. Let’s hope this is a generational buying opportunity and they are not turning into Caledonia with their perpetual 30% discount.