Our cautious and adventurous portfolios (reviewed annually in August) both outperformed the FTSE All-Share index and the FTSE World ex UK index over the last quarter of 2017, adding to the impressive leads they have established over the previous three years (see table below).
As has been customary during the bull market, the adventurous portfolio is proving considerably more rewarding, with two of its longstanding holdings, Baillie Gifford Shin Nippon (BGS) and Allianz Technology (ATT), continuing to lead the way.
TR European Growth (TRG) has also made a major contribution since joining the portfolio at the start of 2017, gaining even more than Baillie Gifford Shin Nippon over the last year, while Schroder Asia Pacific (SDP) has more than justified its inclusion since mid 2017, achieving some of the strongest share price total returns in its sector over the second half of the year.
JPMorgan Global Growth & Income (JPGI), which became our new adventurous global choice in mid 2017, had a good final quarter and has been rewarded with a premium rating for its shares. However, it does not look overvalued compared with other global equity income trusts, given that it has the best five-year net asset value total returns and the highest yield.
Meanwhile, Templeton Emerging Markets (TEM), which joined the adventurous portfolio at the same time, continues to look undervalued on a 12 per cent discount. Technology stocks have been a key driver of TEMIT’s much-improved performance since Carlos Hardenberg became manager in October 2015, and he remains optimistic about prospects.
Emerging tech winners
‘Huge structural changes have occurred in emerging markets, leading to the dominance of world-leading technology companies in the sector,’ he says. ‘For us, this theme offers continued opportunity and diversification, stretching from manufacturers of components for autonomous cars and smart phones in Asia and a digital bank in Africa, to an internet business in Russia.’
Rights & Issues (RIII) got off to a disappointing start, but its performance is bound to be lumpy given its very concentrated portfolio and the manager’s ultra-long-term approach.
The returns on the conservative portfolio have been held back by several selections, which are likely to continue to look dull while the bull market continues, but which we expect to hold up well during setbacks. They are the hyper-bearishly managed Capital Gearing (CGT), the value oriented Temple Bar (TMPL), and Utilico Emerging Markets (UEM) – which as its name implies focuses on suppliers of essential services in emerging economies.
All three were dull performers over the past three months, but it is encouraging to note that the conservative portfolio recorded positive returns over every month bar one in 2017, only slipping slightly more than the FTSE All-Share index in September before more than recovering in October.
BlackRock Throgmorton (THRG), JPMorgan Japanese (JFJ) and Invesco Asia Trust (IAT) were the most positive contributors over the quarter. But it is interesting to note that Ian Hargreaves, who manages Invesco Asia, is more cautious about the outlook for this region than Matthew Dobbs, who manages Schroder Asia Pacific.
Hargreaves contends that Asian export growth and Chinese economic growth, which have been important contributors to the recent strong rise in Asian corporate earnings, have now peaked. And he has become particularly cautious about technology stocks, cutting back from an overweight to an underweight position.
John Bennett, who manages Henderson European Focus (HEFT), is also wary about the outlook in general and technology stocks in particular, describing the latter as ‘running on fumes’. Like Alastair Mundy at Temple Bar, he has struggled to find any good-value stocks and, unusually, cannot identify any interesting themes. Given his impressive long-term record, however, we are staying with the trust in the hope it will recover its form.
From 1 August 2014, when we started tracking our tips in a portfolio, the conservative portfolio has returned 57 per cent and the adventurous is up 85 per cent, trouncing the 34 per cent return from the All-Share index.
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