Ian Cowie: winners and losers in my ‘forever fund’ in second quarter of 2023

Our columnist highlights the top three and bottom three performers over the past three months among the 19 investment trusts he has his own money in.

Investment trusts bring the world within reach, which is just as well when markets are under a cloud close to home. The second quarter (Q2) of 2023 was a tale of two halves, but at least my forever fund seems to be winning the hard yards.

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No fewer than 11 of my 19 closed-end funds produced positive returns during Q2, despite Europe’s worst war since 1945, rising interest rates and fears of global recession. But I know that some of you enjoy my setbacks more than my success, so let’s get straight into the losers. The data, run by the Association of Investment Companies (AIC), is to 23 June.

Three worst performers

Step forward, Tufton Oceanic Assets (LSE:SHIP), the maritime leasing specialist. This $423 million (£332 million) investment trust has the dubious distinction of turning £1,000 into £859 in just three months.

But I can’t claim to be angry or surprised about my worst performer in Q2, because shipping is a notoriously cyclical business, where yesterday’s feast precedes tomorrow’s famine. Strong capital growth in 2021, when the world was emerging from the worst of the Covid crisis, was followed by supply exceeding demand and collapsing cargo tariffs, with the inevitable reversal in the share price since then.

While I have no idea how long this downtrend will last, an upswing seems equally inevitable; eventually. In the meantime, this long-term investor is receiving 8.6% dividend income, which pays me to be patient.

Next worst, more surprisingly, is Ecofin Global Utilities & Infrastructure (LSE:EGL). This £269 million investment trust in the ‘Infrastructure Securities’ sector turned £1,000 into £893 during Q2. It remains the 10th-most valuable holding among 50 shares in my forever fund and yields 4.2% dividend income, with modest average annual increases of nearly 3% (by contrast, SHIP has no five-year record of increased payouts, according to independent statisticians Morningstar).

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EGL’s underlying portfolio of predominantly renewable energy businesses has fallen from fashion and the dividends it pays look relatively less attractive, now that gilt yields are rising. However, I cannot see any diminution in demand for the services it provides and suspect we could see recovery as soon as next winter.

Gore Street Energy Storage Fund (LSE:GSF) is my third-worst trust in Q2, having turned £1,000 into £905. This specialist in industrial-scale batteries, aims to profit from price volatility caused by fluctuations in the supply of renewable energy - when the wind won’t blow and the sun don’t shine. To be fair, the whole renewable infrastructure sector has fallen from favour since interest rates began to rise.

I had hoped GSF would be a relatively stable bond proxy, yielding 8.4% dividend income (again, with no five-year record of increases) but the share price has fallen further than its rival batteries bug Gresham House Energy Storage (LSE:GRID). GSF’s total ‘return’ of minus 21% over the last year compares to a loss of 10% for GRID. I have asked GSF’s management to supply some reasons to be cheerful and will delay a decision until I hear back from them.

The top three performers

On a brighter note, India Capital Growth (LSE:IGC), the specialist in smaller and medium-sized companies on the subcontinent, is my third-best performer in Q2, turning £1,000 into £1,149. As predicted here before, India is beginning to benefit from not being China, as tensions between the latter and America continue to rise.

President Narendra Modi certainly got the red carpet treatment when he visited his counterpart Joe Biden in Washington DC last week and I expect trade ties to be strengthened. India’s digital businesses of all sizes - including Infosys Ltd ADR (NYSE:INFY), founded by the father-in-law of our prime minister Rishi Sunak - are obvious beneficiaries of working from home and more data being kept on the cloud. I believe this trend has much further to run.

BlackRock Latin American (LSE:BRLA) came second with a quarter-end value of £1,188 on the same starting investment. Strong demand for hard and soft commodities, sourced from anywhere other than Russia, is the explanation.

Cynics continue to argue that you have to be nuts to invest in Brazil. But this long-term investor - I have been a shareholder in BRLA for more than a decade - thinks its hour in the sun may have arrived; albeit after years in the shade.

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BRLA is now the sole member of its Association of Investment Companies (AIC) sector, which might encourage contrarians. Its 5.4% dividend yield has risen by an eye-stretching annual average of nearly 17% over five years but it continues to trade at a 15% discount to net asset value (NAV).

Leading the pack, again, is the Gulf Investment Fund (LSE:GIF), which ended Q2 with £1,209 on the usual initial outlay. This fund, focused on the Gulf of Arabia, was my top performer last year and continues to enjoy rising valuations on strong demand for oil and liquefied natural gas (LNG), which can no longer be supplied from Russia.

GIF’s dividend yield of 2.95% has risen by a spectacular annual average of 18.5% over the last five years. But this fund remains tiny, with total assets of $97 million, and I continue to be baffled why so few British investors have any direct exposure to an increasingly important economy.

Taking a global view, Nick Britton, head of intermediary communications at the AIC, told me: “More sectors saw losses than gains in Q2, as inflation and interest rate rises continued to dampen investors’ spirits.

“UK and European equities performed dully. Infrastructure and logistics property – whose net asset values tend to fall mechanically as rates go up – had a difficult quarter, with some analysts flagging current discounts to NAV as an opportunity.

“Meanwhile, Chinese equities had a very challenging quarter, suffering a 16% loss.”

This was a three-month period that lacked a global theme, unless you accept - as I do - that investing internationally not only reduces our exposure to risks at home but also increases our chance of gaining from returns overseas. No matter how cloudy the outlook is here, the sun must be shining somewhere.

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

Ian Cowie is a shareholder in BlackRock Latin American (BRLA), Ecofin Global Utilities & Infrastructure (EGL), Gore Street Energy Storage (GSF), Gulf Investment Fund (GIF), India Capital Growth (IGC) and Tufton Oceanic Assets (SHIP) as part of a globally diversified portfolio of investment trusts and other shares.