Out with the new, in with the old

Unflashy, old school businesses may still deserve a place in your portfolio – writes David Kimberley

If you were to take a time machine back to the 1970s today then you may find it something of a struggle to convince people you really were from the future.

“There’s an energy crisis, inflation is really high, and we’re fighting a proxy war of sorts with Russia,” you’d say breathlessly.

“Yeah, OK pal,” your interlocutor would respond, “that sounds really different to today.” And then he’d head off to a Derek and the Dominoes concert and leave you on the street trying to convince someone else that you weren’t crazy.

For investors, the economic and political situation in which we find ourselves isn’t the only thing making us feel a bit of déjà vu. Look at the companies in the City of London’s (CTY) portfolio and you will see plenty of old faces.

Companies like British American Tobacco, Rio Tinto, and Shell make up a substantial part of the trust’s total holdings. The trust has also managed to deliver total NAV returns of 4.4% in the year to date, which is remarkable given how poorly markets have performed in that period.

What’s more amazing is that this is occurring in the wake of a boom market where we were told these sorts of companies, particularly those in the hydrocarbons sector, were doomed to failure and soon to be confined to the annals of history.

That may be the case in the long-run but we cannot simply will drastic change into existence, meaning oil and gas will be with us for a while yet. Similarly, just as the macroeconomic conditions may have been ripe for growth stocks to succeed over the past decade, it’s plausible that could change in the near future. Rising rates, for example, seem likely to boost lending revenue at banks.

Last month we wrote about how managers should retain a level of flexibility and be able to adjust their approach to the market if its warranted. For individual investors, that may mean companies which have been neglected for much of the past decade may find a place in their portfolios again.