IT Investor: My Q3 2023 Portfolio Review

 

 

 

Here’s my portfolio review for the third quarter of 2023. I am up 2% year-to-date having been up 4% at the end of June. Global markets have risen 8% year-to-date while the investment trust index has lost 3%. 

 

 

My performance

 

 

This table summarises both my recent and longer-term performance against a few comparators: 

 

 

Portfolio/comparators	Q1-Q3 2023	FY 2022	FY 2021	Annualised since Jan 2018
My portfolio	+2.0%	-13.0%	+16.2%	+5.7%
Vanguard FTSE Global All Cap (fund)	+7.9%	-8.0%	+18.9%	+7.8%
Vanguard LifeStrategy 60 (fund)	+3.8%	-11.2%	+9.9%	+3.5%
Vanguard UK All-Share Index (fund)	+4.5%	+0.3%	+18.2%	+3.2%
FTSE Closed-End Investment (index)	-3.1%	-16.6%	+12.8%	+4.1%

 

 

Notes: The Vanguard global tracker is my main benchmark and I have a stretch target of beating it by 2-3% p.a. The more conservative LifeStrategy 60 fund (a global 60% equity/40% bond portfolio), a UK index tracer, and an index of UK investment trusts are also included. Returns are measured in sterling adjusted for money added or withdrawn; my trading and holdings costs are included in my returns but not for the fund and index returns. 

 

Global markets ended Q3 more or less where they started, but my portfolio and the broader trust sector slipped a little. Widening discounts explain part of the difference but UK small-caps and healthcare, two of the four themes I have money in outside of my core global holdings, have struggled for a while; my infrastructure/renewable holdings have also lagged. 

I still like all of these themes and remain confident of their long-term performance, but it looks like (even more) patience will be required. My long-term plan has been to add to each theme on weakness, to benefit from any greater volatility, but it’s not always easy! 

 

 

My performance by holding

 

 

Holding (ticker)	Share price return Q1-Q3 2023	Net asset value return Q1-Q3 2023	Premium/ (discount)
KR1 (KR1)	+64.0%	+12.7%	-8.0%
HgCapital (HGT)	+13.1%	+5.0%	-18.8%
JPMorgan Global G&I (JGGI)	+12.4%	+10.1%	+1.6%
Vanguard All-World ETF (VWRL)	+8.4%	+8.4%	+0.0%
Fundsmith Equity	+5.6%	+5.6%	+0.0%
Lindsell Train Global	+2.4%	+2.4%	+0.0%
Smithson (SSON)	+0.0%	+4.2%	-11.9%
Keystone Positive Change (KPC)	-0.8%	+0.2%	-13.9%
Worldwide Healthcare (WWH)	-3.3%	-1.8%	-9.2%
Baronsmead Venture (BVT)	-4.4%	-4.1%	-5.0%
BlackRock Smaller Companies (BSRC)	-5.6%	-5.5%	-13.3%
Bellevue Healthcare (BBH)	-6.4%	-7.4%	-8.1%
RIT Capital Partners (RCP)	-8.3%	+1.3%	-20.1%
Bluefield Solar Income (BSIF)	-8.5%	+2.7%	-16.0%
International Biotechnology (IBT)	-8.6%	-5.8%	-5.7%
Henderson Smaller Companies (HSL)	-11.9%	-8.5%	-12.8%
HICL Infrastructure (HICL)	-21.2%	+3.3%	-26.5%
Gresham House Energy Storage (GRID)	-32.2%	-2.2%	-27.7%

 

 

Note: the links go to my trust profiles, all of which were written some time ago. My views probably haven’t changed much, but the information they contain will be quite dated. 

 

The weighted average discount across all my positions was 5.9% at the end of September, compared to 5.7% in June, 4.7% in March, and 4.0% at the end of 2022 – a little wider each quarter. 

Trading-wise, I added to both Bluefield Solar and Gresham House Energy Storage in the last quarter. Earlier in the year, I topped up HICL, Bellevue Healthcare, HgCapital, Keystone, and the Vanguard global tracker. 

 

Here are some quick thoughts on my holdings, including a more detailed look at the three infrastructure/renewable trusts that I own. 

 

 

Global

 

JPMorgan Global Growth & Income remains the stand-out performer; Smithson and Keystone have fallen back to roughly break even after their strong start to the year. Fundsmith and Lindsell Train slipped back but to a lesser extent. RIT Capital Partners bought back about 5% of its shares, adding roughly 1% to its NAV. 

 

 

Renewables and Infrastructure

 

 

A small part of my portfolio but one I topped up most recently after some big share price declines; I believe some of the falls are justified due to interest rates, but discounts on many of these trusts look excessive, especially those with longer track records. 

HICL Infrastructure sold nearly 10% of its portfolio and issued £150m of long-term debt; its shares sit on a very wide 26% discount with the flat dividend in recent years not helping. Some of its assets paused shareholder distributions in recent years but seem to be restarting. Dividend cover was 1.03 x last year and I might add to it if it continues to improve; it needs to hit 1.1 x before any increase is entertained.  

Gresham House Energy Storage (GRID) has taken a real beating – from the only renewable trust trading at a premium to a hefty 28% discount due in part to slow investor communication. Revenues from energy storage aren’t subsidised and so are far more variable than other renewables. From dividend cover of 1.3 x in 2021, in H1 2023 it was just 0.6 x. 

Many new projects have taken longer to complete than expected and shareholders haven’t really been kept up-to-date; however, its interim results indicated that little needs to be done before the projects are ‘energised’, increasing overall battery capacity by 60%.  

Ben Guest, GRID’s lead manager, seems confident that higher revenues from servicing the National Grid and energy trading will return, but warns shareholders will need to get used to their cyclical nature. 

 

I only recently came across Modo Energy which publishes monthly figures for the UK battery storage industry, and clearly shows the variation in the revenue earned per month by the typical battery storage firm. 

The total UK battery storage market is reckoned to be around 3,000MW so GRID has a 20% market share, down from the 30% it had for the last few years. 

Although I am annoyed at the slow investor communication, I’m culpable as well. I knew monthly revenues would be volatile, although I didn’t appreciate how much, and I should have paid closer attention to industry data to get a better feel for this. 

Three of the five directors took part in the placing in May, and have been investing since; Gresham House, the trust’s management firm, and Guest remain major shareholders, which is good to see. 

GRID’s placing was to build out a new project in the US, and it may dispose of a few smaller UK sites to complete the funding and avoid using its eye-wateringly expensive loan facility. 

I did buy a little more GRID last week after its half-year results were released; it’s a complicated situation there, but intriguing. 

Bluefield Solar Income‘s recent results were more serene, with an 8.6p dividend; cover is around two times, thanks to the strategy of fixing power prices between a few months and a few years ahead, and should remain so for the next year or two. 

Debt has risen a bit at Bluefield, and with a massive pipeline equivalent to one and a half times the capacity of the current portfolio, some assets may be sold off either before or after construction. If energy storage assets are retained Bluefield’s revenue profile could become much more volatile. 

Bluefield’s discount of 16% is narrower than most other renewables trusts; of the three, I have the most confidence in its management team so I can see myself adding to this position again. 

 

 

Tech-Focused Private Equity

 

 

HgCapital released a solid set of interim numbers last month and there have been numerous disposals above carrying value. Its discount has narrowed a little but is still around 20%; its shares have made three moves above the £4 in the last few months, falling back each time. 

 

 

Biotechnology and Healthcare

 

International Biotechnology is now at Schroders Capital with Ailsa Craig and Marek Poszepczynski continuing as co-managers. No major changes are expected to the overall strategy, which is what I was hoping for. 

 

 

UK Small Caps

 

Nothing of note other than rumblings about what might happen to around a third of AIM companies, if Inheritance Tax was to be reformed. Henderson Smaller has around 30% in AIM, BlackRock Smaller about 45%, and Baronsmead 30%. If AIM tax reliefs were scrapped, it could cause some further pain, and some of AIM’s recent poor performance could be because of these concerns. 

 

 

Crypto

 

KR1 keeps ticking along. It made an early investment in a project called Celestia that might launch by the end of the year so that could help its NAV. 

 

 

Join me over at Money Makers

 

I’m now writing regular articles for Money Makers, a site set up by Jonathan Davis, the editor of the Investment Trusts Handbook. For more information on what you get as a member, simply click here 

 

 

 

 

The 2024 Handbook is out soon

 

 

The Investment Trusts Handbook 2024 is due to be published on 12 Dec 2023. As with previous editions, the e-book version is free and the hardcover retails at £29.99. 

You can click here to pre-order the print version at Amazon and it is also available at Harriman House.