Money Observer's growth portfolios offer opportunities over three timeframes. Here's how each has performed.
Investors looking to grow their money could consider our first six portfolios, which offer options reflecting three different timeframes: shorter-term, for investors looking five to nine years ahead; medium-term, for those investing for 10-14 years; and long-term, for investors planning to put their money to work for 15 years or more. Three are designed for medium-risk investors and three for those comfortable with higher risk.
The portfolios with shorter timescales have a greater focus on capital preservation, as there would be less opportunity for investments to recover in the aftermath of a serious market correction. Conversely, those focusing on returns 15 years down the line have the scope to take more risks in areas offering potentially great rewards but also considerable shorter-term risk.
Thus, for example, the higher risk, longer-term growth portfolio Foxtrot contains exposure to Asian smaller companies through Scottish Oriental Smaller Companies trust, to private equity through Pantheon International trust and to UK fledgling businesses through Miton UK Microcap trust. In contrast Alpha, the short-term medium-risk portfolio, has a greater focus on the UK, ‘quality growth’ in the shape of Lindsell Train and Fundsmith, and capital protection through Capital Gearing trust.
Since the inception date, four of the six portfolios have handsomely beaten the FTSE All-Share and FTSE Private Investor Growth indices. Interestingly, over the past year to 1 January, there has been relatively little disparity in performance, with even the most conservative portfolio returning more than15 per cent.
Alpha has been the weakest of our growth portfolios, but it still returned a respectable 15.6 per cent over the year.
Having a quarter of its assets in US equities has helped it maintain steady performance over the past 12 months, but more than a third of the portfolio is in the UK market, which has lagged by comparison. Some 15 per cent of the portfolio’s assets are in the technology and telecoms sector, which has had a terrific run recently, as tech giants such as Paypal, Tesla and Amazon continued their meteoric rise.
Top performer among Alpha’s holdings is the Lindsell Train Global Equity fund, which returned a meaty 26.1 per cent over the year. That offset poor performance from the Fidelity MoneyBuilder Balanced fund; it has been the weakest constituent across all of our portfolios over the past year, returning just 3.9 per cent. As a result, we are ejecting the Fidelity fund and replacing it with the better-performing Old Mutual Cirilium Conservative, a cautious multi-asset fund that aims for low risk and minimal volatility.
To reduce the potential for short-term losses rom equity market volatility, we are dropping HSBC FTSE All-Share Index fund. In its place is Capital Gearing Investment Trust, which will bring a crucial element of capital preservation for this short-term portfolio in the event of a market correction. Manager Peter Spiller has run the fund since its 1982 launch. We like his focus on value and wealth preservation: just 13 per cent of the trust’s assets were in equities at the end of 2017.
Bravo has almost 40 per cent of its assets in UK equities, and it is time to rebalance the portfolio so that it is not overly exposed to equities in general. Not that its current allocation has harmed performance so far: Bravo is our second-best performing growth portfolio, having returned 19.3 per cent in 2017.
Bravo’s best holding over the year was Mercantile Investment Trust, which delivered 30.2 per cent – the fourth strongest constituent across all of the portfolios. But such strength has seen the weighting of the trust climb to 16.8 per cent of the portfolio, so we are taking some profit, reducing it to 11.8 per cent. We are also reducing the holding in the HSBC FTSE All-Share Index fund by five percentage points and using the proceeds from both to introduce a 10 per cent weighting to Royal London Sustainable Diversified Trust.
With almost half of this mixed-asset fund in fixed-interest investments plus some property, introducing this holding will further diversify the portfolio. Sustainability-minded investors will like the fact that manager Mike Fox analyses environmental, social and governance factors to pick investments that benefit society.
Investments in a basket of equities across the globe have helped Charlie into the 100 per cent club since our previous review: the longer-term medium risk growth portfolio has doubled investors’ cash since inception at the start of 2012. Over the past year Charlie has returned a respectable 16.8 per cent, and its high allocation to the financial sector – 15 per cent of its assets are in stocks such as HSBC and Hargreaves Lansdown – could stand it in good stead this year, given that many experts expect a recovery in the banking industry as interest rate rises help their profit margins.
The HSBC FTSE All-Share Index fund has served us well so far, but we’re swapping it in favour of Mercantile Investment Trust, which focuses on medium-sized firms. The long-term profile of Charlie allows investors to be more risk-friendly, and a good active fund should outperform the index over this sort of period. Over the past 15 years, the minimum timeframe outlined for this portfolio, the FTSE All-Share index has returned 240 per cent, compared with Mercantile’s 630 per cent.
In this review, we are dispensing with Stewart Asia Pacific Leaders. It has been 18 months since Angus Tulloch stepped down as lead manager of the fund, but we’re concerned it hasn’t yet recovered from the loss. Tulloch has now left the business entirely, and its performance numbers against other Asia Pacific ex Japan funds are not particularly good.
In its place we are introducing Baring Eastern. A tech bias has helped the fund perform impressively in recent years. As with the Stewart fund, the team invests with environmental, social and governance principles in mind. Setting aside the fact that its remit does not include the ability to invest in Japan, it’s a sensible swap.
Double-digit returns from all but one of its constituents led Delta to a return of 15.9 per cent in the year. Terry Smith’s flagship Fundsmith Equity fund retained its position in the top quartile of its sector for another year; its investments in global consumer brands and low turnover policy led it to a return of 24 per cent in 2017. It was second only to Witan Investment Trust in this portfolio, where a strategy of blending outsourced regional specialist funds with direct stock investments in the UK delivered a return of 24.2 per cent in the year.
Delta has a reasonable allocation to the Asia Pacific region via the youthful Jupiter Asian Income fund. It’s always a risk to back a fund with a limited track record, but we included this fund because manager Jason Pidcock has a great pedigree. However, this fund, which launched in 2016, has severely lagged its peers. In its place we are introducing Schroder Asian Total Return Investment Company, which has blended exceptional returns with a focus on capital preservation. We feel this approach will be well suited to a shorter-term, higher-risk growth portfolio.
Medium-term growth Ezra Sun’s Veritas Asian fund has been the standout performer in the Echo portfolio. Its two pronged approach to investing has the core of the portfolio in ‘steady Eddies’, while Sun also looks for short-term trading opportunities. The fund was the second-strongest constituent of the year across all our portfolios, having returned 37.4 per cent.
While several of Echo’s other holdings also delivered double-digit returns, the portfolio was among our weakest, returning 15.7 per cent over the year. Existing investors may want to stick with the current constituents, but for newcomers, we suggest some changes.
RIT Capital Partners has not been in the upper echelons over the past year; the trust delivered a return of just 5.8 per cent in 2017. But with its focus on wealth preservation, RIT tends to come into its own in difficult markets, so this year could see it thrive. For new investors, however, it’s hard to justify paying a current premium to net asset value of around 8 per cent.
We are swapping it for Seneca Global Income & Growth Trust, which also targets total return and is similarly cautious in its asset allocation. Its shares trade at a much more manageable premium of around 0.7 per cent.
Similarly, we suggest switching F&C Global Smaller Companies Trustfor SLI Global Smaller Companies. The F&C trust has been a stalwart of the portfolio, but the Standard Life Investments fund has a superior performance profile.
Foxtrot was the only growth portfolio to beat the MSCI World index’s stellar performance in 2017, with a return of 19.9 per cent. Although the Marlborough UK Micro Cap Growth fund was the greatest contributor to that performance, we are offloading it in favour of closed-ended alternative Miton UK MicroCap Trust.
With assets of more than £1 billion, the Marlborough fund has doubled in size in just two years. While the portfolio is well-diversified, with more than 200 holdings, we are concerned its size and open-ended structure could compromise its ability to trade in the micro-cap shares it focuses on.
Miton UK MicroCap is managed by Gervais Williams and Martin Turner, who are experienced and respected investors in UK smaller companies. They target firms with market capitalisations of less than £150 million, and they have the majority of assets invested in companies listed on the Alternative Investment Market. With assets of just £114 million, the Miton trust holds more than 100 companies and should be particularly nimble across this part of the market.
However, we have also reduced exposure to this area of the UK market by five percentage points and opted to increase exposure to Asia via our existing holding in Scottish Oriental Smaller Companies Trust. A Rated Fund since 2013, this investment trust has lagged its peers recently, but we believe it offers a good way to play the rise of domestic consumption as wealth increases in countries such as India, Taiwan and China.
Scottish Mortgage Investment Trust’s stellar run has helped Foxtrot move forward over the past 12 months and, for now, we’re comfortable with a weighting of 19 per cent for this higher-risk portfolio. The final switch in Foxtrot is to replace RIT Capital Partners with Seneca Global Income & Growth Trust, for the same reasons outlined in the Echo portfolio review.
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