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

What a difference a year makes. In 2022 many investors dumped technology shares on worries that much higher interest rates and inflation might prompt a global recession.

Now it is back to the future after fears about a credit crunch faded and, once again, tech stocks lead the charge into the new year. Some formerly forgotten emerging market investment trusts also returned to favour, alongside other funds focused on dividend-yielding utilities. 

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Above all, 2023 was a year that rewarded investors who held on for the recovery. Nearly three-quarters of my investment trust shares made money during the fourth quarter (Q4), while only half did so across the whole year, which saw dramatic reversals of fortune - for good and ill.

Excitement about artificial intelligence (AI) helped Polar Capital Technology (LSE:PCT) generate a 9.2% return during Q4 and a fabulous 41% over the year. Both bounce-backs boosted returns for investors who resisted the temptation to sell into the “tech wreck” that had ended 2022 on a sour note.

By contrast, PCT’s portfolio of blue-chips or big names produced sweet returns this year. No less than 10.9% of this investment trust’s £3.48 billion assets are invested in Microsoft (NASDAQ:MSFT), the software giant that sparked the AI frenzy, when it invested $10 billion in the unlisted creator of ChatGPT, the fastest-growing app ever.

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Ben Rogoff, PCT’s lead manager since 2006, continue to benefit from a global portfolio of profitable businesses that includes Apple Inc (NASDAQ:AAPL) and NVIDIA (NASDAQ:NVDA); the fund’s second and third-biggest holdings, with 8.2% and 7.1% of assets respectively.

Yearly ongoing charges of 0.81% seem a reasonable price to pay for professional stock selection and the shares continue to be priced 13% below their net asset value (NAV).

In another dramatic bounce-back, BlackRock Latin American (LSE:BRLA) came second during Q4 with a total return of 7.4%, after advancing 20% over the year to Tuesday this week (12 December 2023). Hard and soft commodities, from copper to coffee and lithium to soybeans, helped international investors rediscover the “forgotten emerging market”. Booming demand helped fund a 5.1% dividend yield, but the shares continue to trade 11% below their NAV.

BRLA benefited from “friend-shoring’”or American companies switching away from China and Russia, where possible, towards alternative sources in Latin America. It’s an ill wind that blows no good. Even political excitement in Brazil and Argentina could not reverse this recovery, which might comfort investors considering the potential consequences of elections nearer to home next year.

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Next, it was a year of two halves for Ecofin Global Utilities & Infrastructure (LSE:EGL), which came third in Q4 with a total return of 6.8% during this three-month period. However, it remains a stonking 17% down over the whole year. The explanation is that EGL’s 4.5% dividend yield was widely regarded as relatively less attractive when interest rates elsewhere were rising and expected to continue doing so.

Now that the consensus expectation is for rates to fall during 2024, EGL’s proven ability to increase shareholders’ income by an annual average of 4% over the last five years looks more valuable. Its portfolio of electricity, gas and nuclear power providers is vulnerable to political risk, in the form of governments who think they need utilities’ money more than they do, but remains essential to modern economies.

Most surprisingly, after a decade of relatively dismal performance, JPMorgan Indian (LSE:JII) surged into fourth-place with a total return of 6.3% during Q4, following 9.7% over the year. Its medium-sized and smaller companies rival on the subcontinent, India Capital Growth (LSE:IGC), was not far behind during the quarter with 5.9% and an eye-stretching 31% gain over the last 12 months. Both benefited from big American businesses, such as AAPL, shifting production from China to India.

Less happily, International Biotechnology (LSE:IBT) Trust caught a cold and was Q4’s worst performer with a loss of 5.5% to end the year nearly 14% below where it began. Bad stock selection seems to be the problem but 5.3% dividend income, rising by 6.4% per annum, pays us to be patient.

Another trust from the same management group, Schroders Capital Global Innovation Trust (LSE:INOV), was second-worst with a loss of 5% during Q4 and shrinkage of 7.6% over the year. INOV was better-known as Woodford Patient Capital, when the former “star fund manager” Neil Woodford launched it eight years ago.

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Disappointingly, Worldwide Healthcare (LSE:WWH) also slipped 2% into the red during Q4 and ended the year 5.3% down, despite excitement about weight-loss drugs made by its biggest underlying holding Novo Nordisk A/S ADR (NYSE:NVO). Less surprisingly, the Japanese smaller companies specialist Baillie Gifford Shin Nippon (LSE:BGS) was another loser, ending the last three months 3.3% down after shrinking by nearly 20% over the year.

But there was a happy ending to 2023 for most investment trust shareholders. Nick Britton, research director of the Association of Investment Companies (AIC), said: “An early Santa rally made up for a miserable October and helped the average investment company return 4.6% over the quarter to date, making it easily the best quarter of the year so far. Investors will be hoping that Santa hasn’t gone home early for Christmas and that this rally has further to run.”

It’s important to report the rough as well as the smooth of stock market investment, the risks as well as the rewards. While nobody knows what 2024 holds in store and there are plenty of reasons to be fearful, the comforting lesson of 2023 seems to be: don’t panic because it doesn’t pay to sell into short-term setbacks.

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

Ian Cowie is a shareholder in Apple (AAPL), Baillie Gifford Shin Nippon (BGS), BlackRock Latin American (BRLA), Ecofin Global Utilities & Infrastructure (EGL), India Capital Growth (IGC), International Biotechnology Trust (IBT), JPMorgan Indian (JII), Microsoft (MSFT), Novo-Nordisk (NOVO), Polar Capital Technology (PCT), Schroders Capital Global Innovation (INOV)  and Worldwide Healthcare (WWH) as part of a globally diversified portfolio of investment trusts and other shares.

Ian Cowie's next column will be published on 4 January.