The clinching argument for having strategic bond funds in a portfolio is that skilled active managers should be able to steer their portfolios to the right bond exposures at the right time. However, the latest market rout saw government bonds do well and anything with a whiff of risk – notably high-yield and emerging market bonds – collapse.
Stewart Investors, which manages the Pacific Assets (PAC) trust, has long been a supporter of a little-known, Edinburgh-based charity called The Library of Mistakes. Its mission is that “by studying financial history we hope to improve financial understanding one mistake at a time”. This thinking also informs the trust’s investment style. Managers David Gait and Doug Ledingham believe that only by understanding the history of individual companies and their management teams can they avoid the pitfalls.
Investors are often told that they shouldn’t put all their eggs in one basket. However, there is an alternative option: put all the eggs in the same basket but pick the eggs with care and guard that basket really, really closely.
The investment trust structure allows fund managers to take punchier positions in their portfolios. Open-ended funds do not allow their managers to hold more than 10% of the trust’s assets in any one company. There are also rules on how much of an individual company they can own. Investment trusts aren’t subject to the same restrictions.
As investors survey the wreckage of their portfolios in the wake of the coronavirus slump, they may be asking themselves some pertinent questions. Should I sell? Should I buy? What should I sell/buy? But perhaps one question will be louder than others: couldn’t I get someone else to do this for me?
For many years annuities were the mainstay of any retirement income plan. Investors swapped their carefully nurtured pension pot for a guaranteed income for life and didn’t have to think too hard about their finances again. However, annuities have some notable downsides, not least that all the capital disappears on death, and that annuity rates look decidedly anaemic in the low-interest rate environment.
It has been a gloomy time for investors in smaller UK companies. Investors concerned that they are too vulnerable to the volatile UK economy in the wake of Brexit have shied away.
In this context, the popularity of venture capital trusts (VCTs), which have raised record amounts, is an anomaly. Figures from the Association of Investment Companies show that investors committed £731 million to the sector during the 2018/19 tax year, up from £728 million in the previous year and an impressive 70% higher than the £429 million invested five years ago.
The investment trust sector has seen a sea change in recent years. Once a sideline, alternatives have entered the mainstream with new launches focusing on areas such as debt, infrastructure and unlisted equities.
Even within equity strategies, fund managers have sought to use the full powers of investment trusts to venture increasingly into smaller, less liquid areas. As a result of all this, the Association of Investment Companies (AIC) has re-jigged its sector classifications with the aim of better reflecting the modernised investment trust universe.
Know thyself: the Greek aphorism is not just handy in life, but also when investing.
No one who lies awake at night fretting about their savings should be in an artificial intelligence fund, while someone with 40 years to invest doesn’t need the constraints of a boring defensive fund. With that in mind, we consider a smorgasbord of options for a variety of different investor types and situations.
In the immediate aftermath of the 2016 referendum, investors would have baulked at the idea of a hard Brexit; three long years later, gasping for any resolution to the tortured political process, they welcomed the certainty provided by an emphatic victory for Boris Johnson’s Conservative Party. The gloom finally started to lift for UK shares.
The narrative on the UK tends to follow a familiar pattern: yes, UK shares are cheap, particularly domestic-facing small caps, but few are going to reinvest until Brexit is resolved.