It was hard going for our two investment trust portfolios in the second half of 2015. The FTSE World ex UK index made a very small gain, while the 3 per cent fall in the UK, as measured by the FTSE All-Share index, looked resilient compared to the far larger falls in Asia and emerging markets.
European stock markets also lost ground, but European smaller companies made good ground in sterling-converted terms, as did US and Japanese larger companies.
Under the circumstances, it was a relief that five of the nine trusts in our adventurous portfolio achieved positive returns - including Allianz Technology Trust, which provides our purest US exposure. Disappointingly, only four of the nine trusts in the conservative portfolio achieved the same feat.
SHIN NIPPON SHINES
Baillie Gifford Shin Nippon was the star performer, with a gain of 26.1 per cent. Its eight-year record under manager John MacDougall fully justifies its premium rating, but it needs close monitoring now that Praveen Kumar has taken over as manager.
Kumar has been with Baillie Gifford since 2008, working closely with MacDougall since autumn 2014, and is supported by the rest of Baillie Gifford's Edinburgh-based Japanese team of five fund managers and three analysts.
Nonetheless, MacDougall fished a lot deeper down the size pool than most of his colleagues, and excelled by spotting disruptive emerging companies. Kumar must prove he can do the same.
RIT Capital Partners was one of the top performers in the global sector, with its widely diversified portfolio proving resilient and share price returns benefiting from a rising premium. Its managers' strong commitment to minimise any downside risks makes it appealing in current markets.
F&C Private Equity was one of the most rewarding trusts in the private equity sector during its first six months in our adventurous portfolio.
Its 17.6 per cent discount is below average for its sector, but its long-term net asset value (NAV) returns have been well above average, and the shares offer an attractive yield - albeit funded partly from capital.
Aberforth Smaller Companies lagged its peer group in 2015, especially in the second half. This was disappointing given that it is overweight in constituents of the FTSE Small Cap index, which has been comparatively resilient.
We are replacing it in our defensive portfolio with BlackRock Throgmorton, which trades on a usefully wider discount to NAV.
Mike Prentis, who has managed Throgmorton's main portfolio since 2008, has a great long-term record, and his colleague Dan Whitestone's ability to invest up to 30 per cent of assets in contracts for difference allows the trust to go long or short of specific shares.
This could prove a valuable attribute if markets remain volatile or on a downward trend.
Aberdeen Japan Investment Trust is the other trust to lose its place in our defensive portfolio after a poor run.
We are replacing it with JPMorgan Japanese, which trades on a high single-digit discount to NAV, has less gearing than most other Japanese trusts, relatively low costs, and has performed impressively over the last year or so.
Note: the table includes some trusts that were not members of the portfolios at inception.
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