Ian Cowie: how my ‘forever fund’ fared in first quarter of 2023

Our columnist runs through the winners and losers among his 19 investment trust holdings over the past three months.

In like a bull, out like a bear, the first calendar quarter (Q1) of 2023 proved a troubling time for this investment trust shareholder. Please don’t laugh but only five of my 19 investment trusts managed to deliver a positive return during the difficult last three months.

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Never mind the winners, for now, because I know that some of you enjoy my losers much more. So let’s do the pain before the pleasure and see if there is anything to learn from my mistakes.

The laggards

Digital 9 Infrastructure (LSE:DGI9) was the stand-out stinker during Q1, turning £1,000 at the start of the year into just £752 by the end of March, according to independent statisticians Morningstar. As if to demonstrate the dangers of single-theme funds, shares in this data banks and subsea cables specialist, that I bought for 86p last December, fetched just 65p this week.

To be fair, two quarterly payments have already been received and a prospective four-figure annual income may serve to soften the blow of such swift capital destruction. Even so, DGI9’s current yield of 9.2% looks like yet another example of this investor for retirement income being too greedy about dividends and not careful enough about capital preservation or growth.

Against all that, the sudden departure of this fund’s managers has made a bad situation worse. More positively, demand for digital infrastructure should grow. So DGI9’s current 41% discount to net asset value (NAV) may prove excessive and its shocking short-term performance might improve over the medium to long-term.

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As usual, Schroder UK Public Private Trust (LSE:SUPP) was dreadful, turning £1,000 into £776. Regular readers will know that I am hanging on to this shocker only to try to deter me from doing anything similarly stupid again in future.

Marketed on the strength of a supposedly ‘star fund manager’ - Neil Woodford, gone but not forgotten - and intended to monetise scientific innovations by UK universities, SUPP serves as a warning against current political calls for company pensions to be forced to back British start-ups. Sad to say, patriotism is no substitute for profitability.

Very disappointingly, my triumvirate of terrible trusts in Q1 is completed by Gore Street Energy Storage (LSE:GSF), the industrial scale batteries specialist that shrunk the same capital outlay to just £912. As discussed here before, GSF’s dismal negative ‘return’ of -5% over the last 12 months is all the more painful because it contrasts with a positive return of nearly 19% over the same year by its same-sector rival, Gresham House Energy Storage (LSE:GRID). I remain mystified by the divergence but aim to seek enlightenment soon.

On a brighter note, all my other losers suffered smaller losses. Several setbacks were very marginal, such as Ecofin Global Utilities & Infrastructure (LSE:EGL), ending the quarter with £986 on the standard capital outlay.

The winners

Better still, Tufton Oceanic Assets (LSE:SHIP); Canadian General Investments (LSE:CGI); European Assets (LSE:EAT); and Gulf Investment Fund (LSE:GIF) all proved marginally positive, with Q1 returns of £1,010; £1,014; £1,023; and £1,035 respectively.

More meaningfully, Polar Capital Technology (LSE:PCT) turned the usual investment at outset into £1,153 by the end of the quarter. This former top 10 holding in my ‘forever fund’ suffered horribly last year, when Mr Market lost his taste for ‘jam tomorrow’ stories.

But its Q1 bounce-back shows why long-term investors - I have been a PCT shareholder for more than a decade - should not be unduly shocked by short-term setbacks. Such stuff makes good copy but is scarcely the basis of serious strategies for wealth accumulation.

Similarly, Nick Britton, head of intermediary communications at the Association of Investment Companies (AIC), observed: “It was a quarter of two halves, with initial new year optimism melting away into worries about the banking sector and persistent inflation. The net result is that the average investment company finished the quarter pretty much where it started, with a total return close to zero.

“It’s been interesting to see some of last year’s beaten-up sectors reassert themselves in 2023. Technology & Technology Innovation, for example, is the best-performing sector in the quarter, up 14%, as tech giants such as Apple Inc (NASDAQ:AAPL) have bounced back strongly.

“Private Equity has also done well with a 12% return. Caution is clearly the watchword until investors feel confident interest rates have peaked and inflation is under control.”

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As I quipped elsewhere, it was hard cheese for global stock markets that a big Swiss bank’s books turned out to be full of holes. The collapse of Credit Suisse (SIX:CSGN) was a double-entry disaster; on the left there was nothing right and on the right there was nothing left.

Fortunately, such drama has not proved a drum-roll for a sequel to the 2008 collapse of another investment bank, Lehman Brothers, that prompted the global financial crisis. Not yet, anyway. Either way, long-term investors may have to survive further short-term shocks and hope that the rest of 2023 proves better than Q1.

Ian Cowie is a freelance contributor and not a direct employee of interactive investor.

Ian Cowie is a shareholder in Apple (AAPL), Canadian General Investments (CGI), Digital 9 Infrastructure (DGI9), Ecofin Global Utilities & Infrastructure (EGL), European Assets Trust (EAT),  Gore Street Energy Storage (GSF), Gulf Investment Fund (GIF), Polar Capital Technology (PCT), Schroder UK Public Private Trust (SUPP) and Tufton Oceanic Assets (SHIP) as part of a globally diversified portfolio of investment trusts and other shares.