investment trust


After a few decades of investing, it’s tempting to think that you’ve seen it all; but the stock market, not to mention the real world, never fails to surprise.


Taking stock


It feels like we’re through the first phase of this crisis right now; most developed countries are in lockdown and we’re waiting for new cases and deaths to decelerate, level off, and then hopefully decline.

It’s amazing to see so many people rally round and help others, not to mention the courage of those on the front lines of the NHS and other vital services.

Attention is already shifting to how long the lockdown will continue for and how quickly the restrictions might be lifted’; I expect most governments to be overly cautious, although things may speed up if China and South Korea don’t see cases rise again.

‘This crash has set records left, right, and centre’

Stock markets have risen a little from the lows of 23rd March and we’re seeing fewer days with major market moves.

But who knows what will happen next? Markets only started falling on February 20th, so did we really see the bottom less than five weeks later?

This crash has set records left, right, and centre; maybe it will surprise us on the way up as well.

The flip side is global markets are just back to the level they were in late 2018, having reached that point for the first time in mid-2017; on that basis, the fall looks a lot less severe.


A bruising three months


Despite a fall of just over 15%, I don’t feel too bad about my portfolio’s performance as most major markets have dropped even more.

The S&P 500 in the US is down some 20% and the UK market has fallen nearly 25%; a decline in the value of the pound against the dollar has meant global markets in sterling terms ‘only’ declined 17%.

UK markets were supposedly cheap at the start of 2020 but that hasn’t stopped them underperforming yet again; the big weighting towards oil stocks in the FTSE 100 hasn’t helped but there have been heavy drops more or less across the board.

Two-thirds of the FTSE 100 has dropped by 20% or more this year; a tenth has dropped by more than 50%!


stockmarket crash


HoldingQ1 2020
HICL Infrastructure-4.00%
Fundsmith Equity-7.90%
Bluefield Solar Income-9.60%
Lindsell Train Global-10.90%
HG Capital-12.10%
Gresham House Energy Storage-13.60%
RIT Capital Partners-14.60%
Vanguard All-World ETF-15.40%
JP Morgan Global G&I-15.50%
Baronsmead Venture Trust-16.30%
Princess Private Equity-17.90%
Murray International-30.60%
Acorn Income-33.50%
Blackrock Smaller Companies-34.60%
Henderson Smaller Companies-36.40%


Given the make-up of my portfolio, I expect to track global market indices fairly closely while hopefully eking out a few extra percentage points a year; that still seems to be the case, but I’m yet to hit the three-year mark measuring my returns in this way.

I have a core of global trusts and funds but 25-30% of my portfolio is weighted towards the UK; I consider the Vanguard LifeStrategy 100 fund the best benchmark to measure against (a global tracker with a 24% UK weighting).

I track my performance against standard global and UK trackers as additional frames of reference though, and use fund prices rather than actual indices to provide a better comparison against the returns I could get elsewhere.


Performance by holding


There’s a wide range: at the end of 2019, I was preening myself for having just one holding in the red, now I have a full set!

My three renewable/infrastructure funds have held up pretty well, though, as have the ‘quality’ end of my global funds (Fundsmith, Smithson, and Lindsell Train Global).

Those that said last year that markets were shifting away from growth and back towards value seem to have jumped the gun somewhat.

My private equity trio — HGCapital, Princess, and Baronsmead — have done OK but it will be a while until the new normal, gets worked into their net asset values.

My more conservative global funds — RIT, Caledonia, and Murray International — have been somewhat disappointing: RIT has been the best of the bunch, but had an alarming lurch downwards a couple of weeks back.

The Vanguard ETF I have did better than the Vanguard global tracker I measure against;  this might be a timing difference, with its price being taken at 4:30 pm on 31st March and US markets falling a bit later that day.

The three UK smaller company funds I own have taken an absolute hammering; both Henderson and BlackRock leapt 45% in 2019 so those gains plus a little bit more have now been wiped out.


ISA top-ups


I’m planning to put some more cash to work in the new ISA year; my plan is to split my contributions into two and possibly three tranches over a few weeks but I might just do everything at once to avoid obsessing over price movements.

The UK smaller funds and renewable/infrastructure trusts seem the most likely places I will invest; I’m building my positions here and will probably take a scattergun approach over several holdings.


Buying so far


This year, I’ve added a little Acorn Income and Bluefield Solar Income (before corona took centre stage) and some Smithson.

I haven’t sold any trusts or funds and have no plans to do so; when this crisis has passed, I will take a look at my position weightings and take a view whether to shift anything – I wouldn’t expect any major changes.


Dicey dividends


One thing I do like to do is reinvest my dividends and use the cash to tweak my position sizes and top up anything that seems to have fallen unduly harshly; that could be curtailed for the remainder of 2020, as I’m expecting a few holdings to cut their dividends.

Some have referenced futures pricing in dividend cuts of 30% across the UK market, but I can’t find a free online source for this information.

I’d be surprised if my holdings cut that far; my UK smaller company funds would seem the most vulnerable but no trust has announced anything yet, either with regards to future dividends or those already announced but yet to be paid.

Nine of my trusts, roughly half of my total number of positions, are due to announce dividends in late April or May so the picture should be a lot clearer then.


The wider world of investment trusts


Little to report – the average trust discount has gone from 1.4% at the end of 2019 to 8.5% at the end of Q1; however, it did spike a lot higher in mid-March.

Gearing has risen a bit, due to the underlying value of investments falling, but only from 7% to 9%, so absolute borrowing levels have reduced a little.

New issues have completely dried up, with just one IPO taking place;  Nippon Active Value joined the market on 21st February, just as prices started to decline, and raised £103m.

As of 20st March, it had only invested 29% of the cash raised so it has held up better than most’; it expects to take 6 months to deploy it all.

AIC has published a list of the longest-serving trust managers and their thoughts on how to invest now, plus an interesting look at the way the investment trust industry has changed over the last two decades.

They have also updated their list of dividend heroes and the next generation with over 10 years of increases; both lists could be a little shorter this time next year.


Keep safe


Our kids have been off school for three weeks now and we’ve settled into a fairly regular routine; there have been some virtual classes to break things up and the food shops seem to be mostly back to normal, but with every passing day, we’re getting closer to the end of this crisis.


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