Interactive Investor

Andrew Pitts' trust tips pull way ahead of benchmark indices in 2020

18th January 2021 10:53

Andrew Pitts from interactive investor

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Our adventurous and conservative trust portfolios gained 18.7% and 15.4% in the final quarter of 2020, comfortably outpacing the wider market.

Andrew Pitts’ trust tips were first introduced by Money Observer several years ago. In July 2020 Andrew took over the portfolios. The trust tips are made by Andrew and not interactive investor. There is an editorial update of the portfolios every quarter.

Something unusual happened in the final quarter of 2020. It wasn’t that global stock markets continued to defy gravity in the face of unprecedented economic contraction – investors have become accustomed (even complacent) to poor economic sentiment being reflected in ever higher market valuations. What investors have not been accustomed to is UK stocks outperforming world markets in aggregate.

A combination of a weaker US dollar versus the pound, coupled with increasing optimism that a Brexit trade deal between the UK and the EU would be agreed, saw the FTSE All-Share index rise 12.6% in the three months to end-December. That was usefully more than the 8.4% uplift for the FTSE All World index (which includes emerging and developed markets).

The FTSE All-Share may have ended 2020 with a flourish but it wasn’t enough to put the UK benchmark into positive territory for the year, ending down 9.8% versus a 12.4% gain for global stocks in sterling terms.

Happily for followers of the investment trust tips that were first introduced in Money Observer magazine, gains from several of the 20 trusts that are members of the adventurous and conservative portfolios make the index gains look pedestrian.

Over the quarter, the conservative portfolio gained an impressive 15.4% but the adventurous selections – as befitting the rampantly “risk-on” environment – soared 18.7%, taking the portfolio’s gain for the year to 25.7%, which was also well ahead of the conservative choices, up 17.7% in aggregate.

That final quarter’s performance helped to cement the superior longer-term gains from these portfolios – both of which are predominantly invested in equities. Over five years, for example, the adventurous and conservative portfolios have gained 126.4% and 87.6% respectively.

All the tips have been monitored as portfolios since August 2014 and the annual review will be conducted in July 2021. In this quarterly review we are not making any changes to the constituents.

UK smaller companies trust tops conservative portfolio gains

As befitting the welcome bounce-back in UK stocks, the largest contributor to the conservative portfolio’s overall 15.4% gain for the final quarter of 2020 was BlackRock Throgmorton (LSE:THRG). Shares in this smaller companies specialist flew up by 32.4%. That represents the best return among all 20 trusts in the conservative and adventurous portfolios. The share price total return over three and five years is also impressive, up 69.2% and 129.5% respectively.

Manager Dan Whitestone has the ability to use contracts for difference to bet against shares that he thinks have poor prospects, but this useful tool may not necessarily be reflected in comparatively superior share price performance when investors at large are running for the hills as they did last March. From end February to end November, the trust’s ‘short’ exposure fell from 8.9% to 1.9% of gross assets, indicating that Whitestone is generally more positive about smaller companies’ prospects than a year ago.

Having fallen to a 12% discount to net asset value (NAV) in March, the shares consistently traded at a small premium over the final quarter of the year, ending with a 12.9% gain for the year, a performance beaten only by peers in the UK smaller companies sector that focus on micro-cap shares.

It is unusual for another ‘conservative’ choice to be among the top performers when markets are going gangbusters. But the high technology-related exposure that JPMorgan Emerging Markets (LSE:JMG) trust provides has propelled it to third place in the overall rankings (behind ‘adventurous’ choice Baillie Gifford US Growth (LSE:USA)) with a 22% return over the quarter.

Taiwan Semiconductor (NYSE:TSM) has long been a favourite of veteran fund manager Austin Forey and the chip manufacturer is the largest holding, representing nearly 10% of assets. High-growth companies such as Alibaba (NYSE:BABA) and Tencent (SEHK:700) are other chunky positions, with the top 10 bolstered by other long-term favourites such as India’s Housing Development Finance and Tata Consulting.

This ii Super 60 constituent has an enviably superior long-term record: it is up 158% over five years, outstripping the 97% gain from the MSCI Emerging Markets index.

A near 20% return from private equity fund-of-funds trust Pantheon International (LSE:PIN) was not quite enough to turn performance positive over the year as a whole, but that was not true of JPMorgan Japanese (LSE:JFJ) and Henderson EuroTrust (LSE:HNE). Their 18.9% and 18.6% respective returns over the quarter propelled them to gains of 60.9% and 28.6% for the year as a whole, both usefully ahead of comparable benchmark indices.

Schroder Asian Total Return (LSE:ATR) and JPMorgan American (LSE:JAM) make up the seven-strong cohort to have notched gains of more than 10% over the quarter, with the first-mentioned trust’s 35.6% return for 2020 particularly notable given its focus on quality and capital preservation.

Capital Gearing (LSE:CGT)’s aim of providing a real return through thick and thin held it back, comparatively speaking, with a quarterly gain of 3.8%, but its 8.2% return over the year was among the best in the diverse Flexible Investment sector.

The defensively minded Troy Income & Growth (LSE:TIGT) failed to reflect the renewed investor interest in UK equity income strategies, with a 2.8% return on the quarter the lowest not only among our ‘conservative’ choices but also ranking in the fourth quartile in its sector.

How the 10 conservative trust choices and the portfolios are performing*
% return (with income reinvested):                                                                     

Conservative choices AIC sector 3 mths 6 mths 1 year 3 yrs 5 yrs
BlackRock Throgmorton UK Smaller Cos 30.6 37.2 12.9 69.2 129.5
JPMorgan Emerging Markets Global Emerging Mkts 22.0 32.8 24.9 55.3 158.1
Pantheon International Private Equity 19.9 28.9 -2.7 34.5 90.5
JPMorgan Japanese Japan 18.9 36.1 60.9 71.9 158.0
Henderson EuroTrust Europe 18.6 22.9 28.6 33.1 83.9
Schroder Asian Total Return Asia Pacific 14.7 33.2 35.6 42.1 180.3
JPMorgan American North America 12.3 20.8 21.2 48.5 122.9
Bankers Global 9.5 12.5 13.5 34.1 97.0
Capital Gearing Flexible Investment 3.8 6.3 8.2 21.3 48.1
Troy Income & Growth UK Equity Income 2.8 1.2 -11.3 2.0 19.9
Conservative portfolio return   15.4 23.3 17.7 36.7 87.6
Selected index benchmark returns            
FTSE All Share index   12.6 9.3 -9.8 -2.7 28.5
FTSE All World index   8.4 12.0 12.4 31.4 91.6

Notes: * Holdings ranked by three-month performance. Not all constituents were members of the portfolios over the time periods stated. Data source: FE Analytics as at 31 December 2020.

Baillie Gifford US Growth propels adventurous portfolio

The 10 trusts that comprise the adventurous tips portfolio typically have more focused underlying portfolios than the conservative choices and they are also more likely to employ gearing to enhance their gains (but this can also result in enhanced losses in more difficult markets).

So it is perhaps not that surprising to see that all 10 trusts recorded gains in excess of 12% over the final quarter of 2020.

Chunky positions in high-octane holdings including Tesla (NASDAQ:TSLA), Amazon (NASDAQ:AMZN) and Shopify (NYSE:SHOP) helped shares in Baillie Gifford US Growth (LSE:USA) trust to a 24.7% gain over the quarter and a stratospheric 133.5% uplift for the year as a whole. Those three shares alone account for more than 20% of the £900 million trust, shares in which have rocketed since the March market nadir. The trust can invest in up to 90 holdings and 50% of assets may be invested in unlisted securities. The trust has not yet reached that point, with 19 unlisted companies representing 12.2% of 62 holdings in the portfolio as at 30 November.

Its globally invested stablemate Monks (LSE:MNKS) also did investors proud: its 21% quarterly return propelled the £3.2 billion trust to a 42.1% gain for the year as a whole – more than three times that of the FTSE All-World index.

Fans of UK equities  – particularly smaller companies – will have been relieved to see a strong bounce back from our two UK trust choices. Standard Life UK Smaller Companies (LSE:SLS) and the equity income-focused Dunedin Income Growth (LSE:DIG) both outperformed index returns, up 20% over the quarter, while helping to bring both back into positive territory for the year as whole.

That was also true of private equity choice NB Private Equity Partners (LSE:NBPE), which gained 19.9% over the quarter, but can still be bought on a 25.1% discount to net asset value, although private equity trusts do generally trade on wide discounts.

Long-term investors in Allianz Technology Trust (LSE:ATT), a stalwart of the adventurous portfolio as its ‘specialist’ selection, will be happy to see yet another strong performance: its 18.3% return added to a stellar record that has seen it gain 154.1% over three years and 360.5% over five – by far the best returns among the current 20 members of both portfolios. Meanwhile, its 80.3% return in 2020 was not to be sniffed at.

Strong performance from Montanaro European Smaller Companies (LSE:MTE), Templeton Emerging Markets (NYSE:EMF) and JPMorgan Asia Growth & Income (LSE:JAGI) – with the trio returning between 18% and 15.9% – was not enough to lift them out of the third quartile of their respective sectors, but all three can boast among the best returns among trusts that pursue similar aims over both three and five years.

That is also true of Baillie Gifford Shin Nippon (LSE:BGS). At 12.2%, the Japanese smaller companies specialist may have made the weakest return among the 10 adventurous trusts in the final quarter of 2020, but its longer term record speaks for itself.

How the 10 adventurous trust choices and the portfolios are performing*
% return (with income reinvested):  

Adventurous choices AIC sector 3 mths 6 mths 1 year 3 yrs 5 yrs
Baillie Gifford US Growth North America 24.7 54.7 133.5    
Monks Global 21.0 29.1 42.1 79.2 223.6
Standard Life UK Smaller Cos UK Smaller Companies 20.4 32.4 0.6 33.1 78.6
Dunedin Income Growth UK Equity Income 20.0 16.2 3.7 28.6 61.9
NB Private Equity Partners Private Equity 19.9 28.6 0.5 25.7 98.1
Allianz Technology Technology & Media 18.3 31.7 80.3 154.1 360.5
Montanaro European Smaller Cos European Smaller Cos 18.0 39.2 48.5 108.2 194.1
Templeton Emerging Markets Global Emerging Mkts 16.6 24.4 17.1 32.9 160.4
JPMorgan Asia Growth & Income Asia Pacific Income 15.9 24.3 28.4 52.0 166.9
Baillie Gifford Shin Nippon Japanese Smaller Cos 12.2 38.5 48.5 50.0 187.3
Adventurous portfolio return   18.7 31.7 25.7 47.9 126.4
Selected index benchmark returns            
FTSE All Share index   12.6 9.3 -9.8 -2.7 28.5
FTSE All World index   8.4 12.0 12.4 31.4 91.6

Notes: * Holdings ranked by three-month performance. Not all constituents were members of the portfolios over the time periods stated. Data source: FE Analytics as at 31 December 2020.

These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser. Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

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