Interactive Investor

Investment trust tips: adventurous and conservative portfolios beat the index

In an update for the first quarter of 2020, both portfolios stood up well against our main benchmark ind…

27th April 2020 09:34

by Fiona Hamilton from interactive investor

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In an update for the first quarter of 2020, both portfolios stood up well against our main benchmark index, despite some hefty fund fallers.

Given the stock market crash in the first quarter of the year, it is a relief that a number of our tips held up comparatively well and that both our conservative and adventurous portfolios proved more resilient than the FTSE All-Share index, despite two of the conservative picks and three of the adventurous picks suffering share price falls of more than 30%.

Allianz Technology Trust and Capital Gearingwere the stars, the former thanks to it outperforming its buoyant benchmark, the latter due to its cautious positioning – it has around half its assets in top-quality government bonds.

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Trusts in the conservative portfolio that performed exceptionally well in their sectors were Troy Income and Growth Trust, Fidelity European Values, JPMorgan Japanese and JPMorgan American. Bankers and Asia Dragon also turned in above-average share price total returns (SPTRs). Trusts in the adventurous portfolio that achieved well above-average SPTRs in their sectors include JPMorgan Asia Growth & Income, Montanaro European Smaller Cosand Princess Private Equity. The JP Morgan trust was exceptionally resilient at the net asset value level but suffered from a widening discount. Monksexperienced a similar fate. We are happy to keep all the aforementioned trusts on the roster.

Most value-oriented trusts had a traumatic quarter, but Temple Bar (TMPL) proved exceptionally weak, with its shares slumping by 47%. Manager Alastair Mundy started the year positioned for an upswing in the UK economy and stock market, and with the trust 8% geared and heavily weighted to financial, consumer services and industrial stocks. This proved disastrous, and in late March the board forced Mundy to sell some holdings to neutralise TMPL’s 20% gearing. Defiantly, he sold his more defensive holdings, rather than those more cyclically exposed.

With TMPL’s shares trading at or above NAV, a lot of investors appear to be keeping faith with Mundy, despite the threat to the trust’s yield from its exceptionally high exposure to recent dividend cuts. However, we are jumping ship to Dunedin Income Growth (DIG), which trades on a wider discount.

DIG’s portfolio has performed impressively since Ben Ritchie became lead manager in 2016 and David Barron was appointed chairman in 2017. Under their leadership, the portfolio’s focus has shifted away from high yielders to better-quality companies with promising dividend growth prospects. DIG’s exposure to companies that have been forced to cut their dividends is exceptionally low.

We are also switching out of Utilico Emerging Markets, which has proved vulnerable in the bear market after producing lacklustre returns in the bull market, and has substantial weightings in Brazil and India. Our new conservative global emerging markets choice is JPMorgan Emerging Markets, which moves in from the adventurous portfolio. It has a steady hand at the tiller in the shape of Austin Forey, lead manager of the trust since 1994. Templeton Emerging Markets takes its place in the adventurous roster. It achieved among the best returns in its sector over the three years to the end of January and held up well through the subsequent sell-off, yet it trades on a double-digit discount.

The managers favour well-capitalised firms with little or no debt and a continued bias toward growth equities. The portfolio is ungeared and its costs are competitive.

How the portfolios compare against their benchmarks

% share price
total return after:
3 mths6 mths1 yr3 yrsSince inception
Adventurous portfolio-23.0-14.2-10.67.566.6
Conservative portfolio-19.4-15.9-8.96.446.6
FTSE All Share index-25.1-22.0-18.5-12.28.4
FTSE World ex UK index-15.7-14.6-5.38.470.6

Notes: Inception date for portfolios is 1 August 2014. Source: FE Analytics, as at 1 April 2020.

How our investment trust tips have performed

Conservative choices

% share price
total return after:
3 mths6 mths1 yr3 yrs
Capital Gearing-4.2-
Fidelity European Values-15.3-10.60.322.3
Asia Dragon-16.2-13.3-8.87.0
Troy Income and Growth-16.6-14.5-7.1-1.4
JPMorgan Japanese-17.4-13.4-4.014.7
JPMorgan American-19.6-18.5-9.27.7
Standard Life Private Equity-25.9-25.9-24.7-6.0
Utilico Emerging Markets*-31.2-31.2-23.4-16.9
BlackRock Throgmorton-32.1-18.1-7.329.5

Adventurous choices

% share price
total return after:
3 mths6 mths1 yr3 yrs
Allianz Technology3.16.911.082.2
Princess Private Equity-14.2-1.64.8
JPMorgan Asia Growth & Income-15.4-6.6-3.322.6
Montanaro European Smaller Cos-21.4-13.8-0.330.3
Baillie Gifford Shin Nippon-21.6-22.5-21.27.7
JPMorgan Emerging Markets*-22.6-15.9-9.313.4
Standard Life UK Smaller Cos-31.4-8.3-1.117.1
JPMorgan US Smaller Cos-37.5-32.3-25.8-17.9
Temple Bar *-47.3-37.8-39.0-30.4

Notes: *Holding is being replaced or moved in this review. Constituents ranked by three-month performance. Not all constituents were members of the portfolios over the periods stated. Source:FE Analytics, as at 1 April 2020.

This article was originally published in our sister magazine Money Observer, which ceased publication in August 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.

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