Funds of investment trusts occupy an unusual place in the investment universe: it is usually relatively sophisticated investors (such as readers of Money Observer) who appreciate the charms of investment trusts, but those same investors are often active investors, in a position to select investment trusts themselves. Therefore, the fund of investment trusts must offer a little more.
Cash matters. Anyone with a small business, or simply an unreliable friend, recognises that cash in the bank is worth more than cash owed or cash promised. Cash in the bank can be spent, invested or kept for a rainy day. For this reason, many fund managers place great emphasis on cash flow in guiding them to strong and enduring companies.
In recent years, there has been an increasing focus on whether it is worth paying active fund fees. The alternative is simply to invest via index funds, which are cheaper, but come without the lure of potentially higher returns.
Technology has driven a stake through the heart of many traditional businesses that have endured for decades but have suddenly found themselves in decline – following the launch of a new app, for example. Sectors as diverse as retailing, car production and the music business have suffered, and more sectors are in the firing line.
The old proverbial saying ‘shirtsleeves to shirtsleeves’ cautions the wealth gained by one generation will be lost by the third. But when a family has managed to preserve significant wealth over multiple generations, it is worth looking at how they do it. This is the case with two of the oldest and grandest investment trusts – RIT Capital Partners (RCP) and Caledonia (CLDN).
Those who invest in stockmarkets are well-versed in the highs and lows they entail. However, there is always a dilemma over how long to wait for an apparently weak fund manager to come good. Have they lost their edge permanently? Or are they simply going through a bad patch? The travails of a certain high-profile fund manager in recent months illustrate the quandary for investors.
The Aberdeen Standard Asia Focus (AAS) trust has had a facelift in recent months. Previously, the Aberdeen Asian Smaller Companies investment trust, it has tightened up its portfolio, reducing the number of holdings and increasing concentration in higher conviction names. The change, so far, appears to be bearing fruit.
Just in case investors had forgotten what volatility felt like, markets issued a sharp reminder over the past 12 months. It was the type of environment in which good active managers should thrive, as share price performance grew more differentiated – but there were plenty of traps for the unwary.
The US was both the easiest place to make money and the toughest to beat the index, and that was reflected in the annual performance of our 2018 fund award selections.
On first assessment, peer-to-peer Isas – known officially as innovative finance Isas – appear to fill a hole in the Isa market. They are hybrids that operate between the relatively high-risk/high-return sphere of the stockmarket and the lacklustre but safe zone of cash. They offer a handy route to a reliable and diversified income stream. At the same time, investors can enjoy the feeling of disintermediating those nasty banks.
Medium-sized companies used to be the favoured stomping ground for active managers. Small and nimble enough to grow, but large enough to withstand the ebb and flow of the economic tide, they were seen as the sweet spot for investors. Respectable academic studies backed up this view and for many years, mid-cap-focused UK equity funds headed the pack in performance terms.