Model Growth Portfolios: five-year review

Our six growth portfolios are divided into three categories to reflect investors' different time horizons as well as attitudes to risk. One category is designed for short-term investors (5-9 years), one for the medium term (10-14 years) and one for the long term (15 years plus).

In the shorter-term portfolios a greater emphasis is placed on capital preservation, so a more cautious approach is taken, even with the higher-risk version. Generally speaking, the more time you have on your side the more speculative you can be, as you have longer to ride out stock market fluctuations.

While this can sometimes also produce good short-term results, it can also lead to the reverse. In 2016, the two longer-term growth portfolios produced very different results.

Find the best Model Portfolio for your aims, time horizon and risk tolerance


Alpha: Short Term Growth

15.1 per cent return over one year, 53.2 per cent over five years

Alpha is the only Model Portfolio that contains none of its original holdings.

When it was first set up in 2012, it was heavily invested in bond, mixed asset and absolute return funds, reflecting the uncertainties facing the global economy at the time and the fact that with a short investment timescale we felt it appropriate to take a cautious approach.

But in subsequent years, we broadened its scope. In January 2013 its three pure bond fund holdings were sold.

The replacements included Fundsmith Equity, which has since been the biggest contributor to the portfolio's return thanks to the successful approach of its manager Terry Smith, who believes in long-term investment in high-quality global businesses.

At this review we are making a further switch, replacing Kames Ethical Cautious Managed, which has only been in the portfolio a year but has performed less well than we had hoped, with Royal London Sustainable Diversified, another mixed-asset fund but one which can invest globally.

Model Portfolios: doubling your money at the five-year milestone

Bravo: Medium Term Growth

16 per cent return over one year, 75.3 per cent over five years

Model Income Portfolios: five-year review


Somewhat unexpectedly, Bravo has been the second best-performing growth portfolio over the past five years. It retains two of its original holdings - Witan and the HSBC FTSE All Share Index tracker fund.

Witan, a global growth investment trust, has performed particularly well over the period, producing a total return of over 125 per cent.

In October 2013, Fundsmith Equity replaced Troy Spectrum due to the latter's disappointing performance, and has produced excellent returns ever since. It was the portfolio's best-performing holding in 2016.

In October 2014, Ardevora Global Equity replaced Monks investment trust for the same reason. It has also generated good performance for the portfolio.

At this review we have decided to replace Kames Ethical Cautious Managed with Capital Gearing investment trust.

Although it is heavily weighted to bonds (mainly inflation-linked), it is completely flexible in its asset allocation and has an absolute return objective that we believe will be good for this portfolio.

Model Income Portfolios: five-year review

Charlie: Longer Term Growth

12 per cent return over one year, 72.3 per cent over five years

Charlie still contains three of its original holdings. Two of them are shared with Bravo - Witan and the HSBC FTSE All Share Index tracker fund - and the third is Stewart Asia Pacific Leaders.

The star performer of the three over the period has been Witan, the global growth investment trust, which has produced a total return of more than 125 per cent.

The best return in 2016 was produced by Ardevora Global Equity, which was introduced into the portfolio in October 2014.

One holding, Miton UK Value Opportunities, fell in value in 2016 but is recovering. The fund has a new but experienced manager, who we think will come good.

But - again in line with Bravo - we have decided to sell Kames Ethical Cautious Managed and replace it with Capital Gearing investment trust.

As mentioned above, we believe its flexible, absolute return approach will stand the portfolio in good stead in a year of uncertainty.



Delta: Short Term Growth

16.9 per cent return over one year, 71.1 per cent over five years

Delta was the second best-performing model portfolio overall in 2016. It was helped by double-digit returns last year from four of its six holdings, led by Fundsmith Equity, the global equity fund managed by Terry Smith, who likes to invest in a small selection of companies with strong brands and stick with them.

The portfolio still has three of its original holdings - Witan, HSBC FTSE All Share Index tracker fund and Stewart Asia Pacific Leaders.

The star performer of the three over the period has been Witan, the global growth investment trust, which has produced a total return of over 125 per cent.

The most disappointing performer since it was brought into the portfolio at the beginning of 2016 was Kames Ethical Cautious Managed fund.

We have therefore decided to replace this fund with Royal London Sustainable Diversified. We believe the ability of this fund to invest in overseas equities will help its performance.

Echo: Medium Term Growth

16 per cent return over one year, 52.1 per cent over five years

Echo is our backmarker over five years but its progress rebounded in 2016, putting it in joint third position overall for the one-year timeframe.

Its initial growth was impeded by disappointing performance from several of its first holdings such as M&G Global Basics fund.

In an effort to give the portfolio some oomph, we switched into BlackRock World Mining trust in January 2014 when we thought demand for commodities was about to revive. However, we were more than two years too early and the price of this trust collapsed.

In order to achieve steadier returns we sold out of BlackRock World Mining in January 2016, so unfortunately the portfolio lost out on the sharp recovery of mining stocks last year.

However, one of the holdings we bought instead, Old Mutual Global Equity, had a good year, returning over 30 per cent last year.

Another star performer last year was F&C Global Smaller Companies, one of the portfolio's original holdings. This year we are replacing Caledonia with RIT Capital.

Foxtrot: Longer Term Growth

22 per cent return over one year, 79.5 per cent over five years

Foxtrot was the top-performing model portfolio in 2016 and fourth-best over five years.

One of its holdings, Pantheon International, held since inception, was the top-performing growth stock in the portfolios over five years, with a return of 177 per cent, and second-best during 2016.

It invests in private equity funds globally and is the longest established private equity fund of funds quoted on the London Stock Exchange.

One of the detractors from its longer-term performance is BlackRock World Mining, purchased in January 2014.

Although the trust's share price rose over 100 per cent last year, it is still standing at a small loss compared to its purchase price. However, we are expecting it to recover further.

Although the performance of two other holdings in the portfolio - Herald, an original holding, and Caledonia - have been respectable, we have decided to switch to two other trusts that are more diversified and which we believe have better growth prospects: RIT Capital and Scottish Mortgage.


Out: Kames Ethical Cautious Managed (Alpha, Bravo, Charlie, Delta)

This fund was first brought into the portfolios in July 2015, but we have been disappointed by its pedestrian performance since then.

This has not been helped by its exposure to bonds, but we feel its UK-focused equity exposure is also a limiting factor.

In: Royal London Sustainable Diversified (Alpha and Delta)

For the shorter-term growth portfolios, we have stuck with a similarly cautious mixed asset fund but we believe the ability of this fund to invest in overseas equities will help its performance.

In: Capital Gearing (Bravo and Charlie)

The trust we have chosen for the medium and longer-term growth portfolios is even more heavily weighted to bonds, mainly inflation linked, at the moment, but it is completely flexible in its asset allocation and has an absolute return objective.

Out: Caledonia (Echo and Foxtrot)

Caledonia has a relatively conservative approach and remains on a large discount of over 20 per cent.

While it has performed respectably, we feel a more highly rated and flexible trust may produce better gains in the long term for these higher-risk portfolios.

In: RIT Capital (Echo and Foxtrot)

RIT Capital is a popular trust with a good performance record and a focus on capital preservation as well as capital growth. We believe it will be a good core holding for the higher-risk portfolios.

Out: Herald (Foxtrot)

Herald's focus on smaller quoted technology/media companies in the UK seems to have held its performance back compared to other technology trusts.

Although it is increasing its exposure to the US, we feel a more broadly based trust may produce more reliable results.

In: Scottish Mortgage (Foxtrot)

Scottish Mortgage has had an excellent run of performance but we believe that its increasing investment in unquoted companies, its exposure to emerging markets and emphasis on disruptive technologies will stand it in good stead.

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