Here’s my portfolio review for 2023. I ended the year up 9%, global markets rose around 15%, and the investment trust index gained 5%.
This table summarises both my recent and longer-term performance against a range of comparators:
|Vanguard FTSE Global All Cap (fund)
|Vanguard LifeStrategy 60 (fund)
|Vanguard UK All-Share Index (fund)
|FTSE Closed-End Investment (index)
Notes: The Vanguard global tracker fund is my main benchmark and I have a stretch target of beating it by 2-3% per annum over the long term which looks more ambitious with each passing year. 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 are included as additional reference points. All returns are measured in sterling using a unitised method that adjusts for any money put in or withdrawn. All my trading and admin costs are included in my returns but no such costs are included for the fund and index returns.
What a difference a few months makes. The last hike in the UK base rate was in early August. The Fed in the US has stayed put since late July and even hinted at rate cuts during 2024. That lead to a sharp rally in the final quarter of the year. Like most folks, I’m surprised that rates were hiked so fast and so quickly without causing more damage to the economy or breaking an arcane corner of the financial system that turned out to be a lot more leverage than people appreciated.
Inflation isn’t back down to the 2% level yet, of course, and we don’t know what sort of level UK rates will settle at before the next crisis comes along and shakes things up again. The Bank Of England’s central case is a slow drift downwards to around 4% over the next three years. That suggests there could be some relief for the alternative asset trusts that have struggled over the past year or so but no near-term return to the sort of premiums they enjoyed previously.
My portfolio lagged global markets in 2023, being underweight the big US stocks that powered ahead once again. Sterling strengthened against the dollar during 2023 so while unhedged global trackers (which is the vast majority of them) were up around 15%, hedged versions were up around 22%. The total return for the S&P 500 was around 26% while the Nasdaq 100 gained 54% so that cancelled out the 33% drop it had in 2022. UK markets weren’t able to keep up with US markets but still ended the year with a reasonable single-figure gain.
While I’m happy enough with my 9% gain for the past twelve months, I’m now lagging global markets by a disappointing two percentage points a year since the start of 2018. The fact that I’m still ahead of the 60/40, the UK market, and the investment trust index provides some comfort but the global tracker is my main reference point for assessing my longer-term returns.
My performance by holding
Here’s how my positions did on a share price and NAV basis along with their year-end premium/discount to NAV. The column headers should be sortable although this may not work on some mobile devices.
|JPMorgan Global G&I (JGGI)
|Vanguard All-World ETF (VWRL)
|Lindsell Train Global
|RIT Capital Partners (RCP)
|Keystone Positive Change (KPC)
|Gresham House Energy Storage (GRID)
|Bluefield Solar Income (BSIF)
|HICL Infrastructure (HICL)
|Bellevue Healthcare (BBH)
|Worldwide Healthcare (WWH)
|International Biotechnology (IBT)
|Baronsmead Venture (BVT)
|Henderson Smaller Companies (HSL)
|BlackRock Smaller Companies (BSRC)
Note: the links go to my trust profiles, all of which were written some time ago. My views on most of them probably haven’t changed that much but the information they contain will be quite dated.
The weighted average discount across all my positions was 4.9% at the end of December. That compares to 5.9% at the end of September (so there was a marked improvement in the final quarter) and 4.0% at the end of 2022.
Trading-wise, I added to both Bluefield Solar and Gresham House Energy Storage (twice) in the fourth quarter having also topped up both of them in the third quarter as well. Earlier in the year, I added to HICL, Bellevue Healthcare, HgCapital, Keystone, and the Vanguard global tracker. Discounts and tweaking my position sizing were the main drivers of what I topped up and when.
Looking at the NAV returns for my trusts, I didn’t suffer any material negatives in 2023. At the start of the year, there were valuation concerns over the unquoted positions in RIT and HgCapital but both of these held up relatively well. Likewise, for my three alternative asset trusts, although higher discount rates did reduce valuations, these drops were largely cancelled out by higher inflation assumptions and trading income. Baronsmead saw a 5% decline but its December valuation hasn’t come through yet and this will probably be the first valuation point that would have fully reflected the rebound in markets we’ve seen over the last couple of months.
Turning to the individual holdings, here are some thoughts on their progress…
Global positions make up around two-thirds of my portfolio and I largely just let them do their thing. I regard Keystone and Smithson as the riskiest of these holdings so they are smaller positions than the others.
Keystone Positive Change is one of two of my holdings that has attracted the attention of Saba, the US-based activist hedge fund run by Boaz Weinstein. Saba has an 11% position and that’s probably why Keystone has recently started buying back its shares after resisting doing so because it didn’t want to reduce the size of the trust any further (its market cap is only £140m).
Keystone’s directors have also proposed a continuation vote in early 2027, which will be after five full years of Baillie Gifford’s management and adopting its revised investment strategy. The board said, “If, at that time, shareholders decide not to support the Company’s continuation, we will consult with shareholders and propose an outcome that we believe to be in the best interests of shareholders as a whole, which will include a return of capital at close to NAV.”
RIT Capital Partners bought back around 5.5% of its shares in 2023 but its discount remains historically very wide at 21%. It seems it needs to do more to convince investors about the valuation of its private assets and we’ll hopefully see a bit more information on this in its next annual results in late February/early March. RIT’s monthly NAV releases now usually contain some extra commentary, which is a welcome improvement. On a sadder note, following the terrible events in Israel and Gaza, Ron Tabbouche has left the firm to join his family in Israel with Nick Khuu replacing him as CIO.
JPMorgan Global Growth & Income has been the standout performer among my global holdings again and the only one to outpace VWRL, my developed markets global tracker. JGGI continues to trade at a small premium to NAV and its market cap recently rose above the £2bn level for the first time having issued around £150m of new shares during the past year. I wouldn’t be surprised if it swallowed up another trust in the next year or so although there are fewer obvious candidates.
Fundsmith and Smithson have had the edge on Lindsell Train Global this past year in terms of returns. Both Fundsmith and Smithson have seen a higher rate of portfolio turnover again but well within my tolerance levels.
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Renewables and Infrastructure
HICL Infrastructure‘s interims to 30 September contained few surprises but an increase in the discount rate used from 7.2% to 8.0% knocked the NAV a little. It’s possible that could reverse a little in the next set of results given how bond yields have fallen. Recently announced disposals should see debts at the trust level decrease from £620m to £360m versus a £3.5bn portfolio valuation. That debt is still quite expensive so I wouldn’t be surprised to see a few more disposals.
In late December, Bluefield Solar Income revealed a strategic tie-up with GLIL, a venture set up by various pension funds that has £3bn of infrastructure assets. The idea is to provide a flexible source of funding while renewable energy infrastructure trusts are unable to raise new equity capital because they are trading at sizeable discounts to NAV.
Bluefield will invest £20m from its operating cash flow to take a 9% stake in one project that has 247MW of solar assets with GLIL owning the remaining 91%. Bluefield will also sell a 50% stake in 100MW of its existing portfolio to GLIL and use the proceeds to repay part of its revolving credit facility.
By way of comparison, Bluefield’s current portfolio capacity is 754MW of solar and 58MW of wind. The price for the 100MW deal is yet to be agreed but presumably, it will be close to the current valuation of the assets concerned. Bluefield has a NAV of £834m so its NAV per MW of capacity works out at £1.03m.
GLIL will also commit capital to Bluefield’s development pipeline for assets that are expected to be connected to the grid over the next two to three years. It’s not clear yet how many assets this might involve, how ownership will be divided, or what will happen should the renewables sector begin trading at a premium to NAV once again. Nevertheless, this seems like a promising solution to the current funding dilemma facing the sector. The news was only announced on the Friday before the Christmas break, so there hasn’t been much in the way of a share price reaction to it yet.
I looked at Gresham House Energy Storage in some detail in my last review. I’m pleased to see communication has improved here with one release about a new project coming online and further updates regarding a new system National Grid has implemented regarding a key revenue source called the Balancing Mechanism. The changes to the Balancing Mechanism should lead to higher revenues for battery owners although it’s a gradual process and it could take eighteen months for the full impact to come through. GRID’s lead manager Ben Guest also made a rare media appearance on the Money Makers podcast.
New battery projects still seem to be facing delays with the timelines set out as recently as September not being achieved. Battery revenues in the UK recovered a little in October according to Modo Energy but then fell again in November and December. That suggests the dividend will have been uncovered in the final quarter of 2023 and will continue to be so until either revenues improve or the various projects nearing completion become operational.
It was interesting to listen to the manager of the more internationally diversified Gore Street Energy Storage on the Citywire Funds Fanatic podcast recently. He thinks UK battery revenues are more likely to remain at current levels whereas Ben Guest at GRID believes we are in a cyclical downturn. The market for battery storage is still at a very early stage so we’ll just have to wait and see who is more correct.
Tech-Focused Private Equity
HgCapital has continued to drip out news of disposals, refinancings, and new investments. It’s upped its stake in Visma again, for many years either its largest or second-largest position, but reduced its holding in IRIS, which was its seventh-largest. Its NAV was up around 10% for 2023, which I would have happily accepted at the start of the year, and its discount has come in a little. Its share price is back above £4 again but is still a little way short of the £4.54 it hit in April 2022.
Biotechnology and Healthcare
International Biotechnology, BB Healthcare, and Worldwide Healthcare all had a small positive return on an NAV basis continuing their disappointing form in the past few years. I did note in the recent results from Worldwide Healthcare that the directors said they continue “to monitor performance closely and will further report on it in the full-year results.” That should be in early June although I would be surprised to see any drastic changes. We might see something like a performance-based tender offer put in place.
UK Small Caps
Saba Capital has also built up a stake in BlackRock Smaller Companies but seems to have reduced it somewhat in recent weeks. Saba owned nearly 14% of BRSC in late November but it is now back down below 10%. Both this trust and Henderson Smaller Companies have rebounded strongly in the last couple of months but remain a long way below their 2021 peaks. I wouldn’t be surprised to see both of these trusts perform strongly over the next couple of years should investors regain their appetite for UK small caps.
The final slice of my holding in Baronsmead Venture will be five years old in February so I will then be free to sell my whole position without losing the income tax rebate that I received when I purchased them. I will probably sell this position gradually as I want to keep these funds within a tax-sheltered account if possible.
KR1 is still my smallest position and by far the riskiest holding I have. But it had a stellar Q4. Not only did most crypto tokens rise in price due to the possibility of a Bitcoin ETF being approved in the US, but KR1’s holding in Celestia has done spectacularly well. It initially invested $75,000 in early 2021 and this seed investment gave it 7.5m Celestia tokens which began trading at $2 each at the end of October. By the end of December, they had leapt to $12.50! So KR1’s stake in Celestia is worth nearly $100m and makes up close to 40% of its NAV. It’s locked in for a year and doesn’t become fully unlocked until October 2026 so these gains will remain unrealised for some time.
KR1 shares more than doubled in the fourth quarter but are still below the level they were at the end of 2021 and my average buy price as the bulk of my purchases were in late 2021 and early 2022.
The 2024 Handbook is out now
The Investment Trusts Handbook 2024 was published a few weeks ago. As with previous editions, the e-book version is free and the hardcover retails at £29.99. There are all the usual contributors and this latest version is the longest to date at over 340 pages. I’ve contributed again this year with profiles of F&C, Murray International, and Polar Capital Technology.
Read my fund profiles at Money Makers
I’m continuing to produce detailed fund profiles over at Money Makers, where I’ve recently looked at Schroder Asian Total Return, JPMorgan UK Smaller Companies (in the process of merging with JPMorgan Mid Cap), VinaCapital Vietnam Opportunity, BlackRock Greater Europe, International Biotechnology, Fidelity Asian Values, Nippon Active Value, Balanced Commercial Property, Brunner, Pacific Assets, City Of London, and International Public Partnerships.
The profiles are published on Wednesday mornings and there are around 130 of them available to view in our back catalogue. I don’t usually cover very small trusts, those with very niche mandates, or those winding down or undertaking strategic reviews so there are probably another 100 or so that I intend to review.
Here is the sign-up page if you’d like to find out what else you get as a subscriber to Money Makers. There is also a free sample you can download containing the fund profile that I did previously on European Smaller Companies.
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