Purposeful Portfolios: Capital Conserver – steady going with low volatility

Infrastructure fund International Public Partnerships has fallen back heavily over the past four months, Artemis Global Income and M&G Global Dividend have both pulled back their losses to move into positive territory. Elsewhere, our Gold Bullion Securities exchange traded product has slipped further behind, but on a positive note the Standard Life Equity Income trust has extended its gains and cemented its position as star performer of the portfolio. Charles Stanley investment analyst Rob Morgan, who runs our cautious portfolio, is making no changes at this update, as he’s happy that everything is ‘performing as it should’. 

‘While the returns on the underlying holdings have changed, the overall performance of the portfolio is steady. That shows me different components are working at different times and keeping volatility low, and I’m quite encouraged by that,’ he explains.

With the Standard Life Equity Income trust now up 14.2 per cent since inception, Morgan says he might have been tempted to take some profits from the holding if it had a larger weighting in the portfolio. The trust has gained another 3.5 per cent over the past four months, but as it accounts for just 5 per cent of the portfolio he is happy to let it run for now.

More disappointing is the Perpetual Income and Growth trust, which has lost ground over the past few months; down 3 per cent since our last update, it is now up just 2 per cent since inception. Mark Barnett’s investment trust has been hampered by many of the same issues which have marred the performance of his predecessor, Neil Woodford, over the past year or so, including an investment in sub-prime lender Provident Financial and the tobacco sector. Morgan says: ‘I don’t see that these stock-specific disappointments affect the investment for now, though. It’s just unfortunate that a couple of things have happened at the same time and caused the fund to lag.’ 

-Best and worst performing stock market regions in 2017

While the infrastructure sector has been an investment darling in recent times, a rise in sentiment towards Labour leader Jeremy Corbyn has been causing some jitters. If Labour were to come into power it is feared it could do away with many of the private finance initiatives on which funds such as International Public Partnerships rely – around a third of its portfolio is in such contracts. 

Although this outcome is a long way off, mounting speculation has seen the trust lose 4 per cent over the past four months, making it our greatest faller over this period. ‘It means that this has become a more volatile investment, so I won’t be taking advantage of the narrowing of the discount by buying more,’ says Morgan. 

Two holdings within the portfolio are in negative territory since inception. These are ‘the ones you would expect’: the gold ETP, which has suffered as global growth means investors feel they don’t need a safe haven investment, and Jupiter Absolute Return. But Morgan is not concerned and thinks ‘their time will come’. 

The Jupiter fund has been taking short positions, betting against glamorous tech stocks such as Tesla, which have seen their share price soar. ‘The calls have been the wrong ones for the time being. But because the valuations on such stocks are eye-watering, that could turn. If there is a market sell-off, these are the stocks which will come under scrutiny,’ says Morgan. 

Back in positive territory are Artemis Global Income and M&G Global Dividend, two holdings which bring an overseas income element to the portfolio. At our last update, these funds were down 0.57 and 1 per cent respectively, as a rally in the pound over the summer had eaten into gains in European and US holdings. But global stock markets have continued to rise, eclipsing the impact of currency movements, and the pair are among our best performers over the past four months, up 3.4 and 3.9 per cent respectively. Morgan says they could do especially well if sentiment around Brexit sends sterling lower. 

Commercial property

Another area where Brexit is likely to have an ongoing impact is in commercial property. F&C Commercial Property is another holding that has seen its discount narrow, as the outlook for the sector remains uncertain. Yet while the share price performance of the trust has been ‘lacklustre’, its net asset value has held steady. As a result, the yield has increased to 4.2 per cent – the second highest in the portfolio – so Morgan is happy to stick with it. . 

M&G Recovery has made a small gain over the past few months, up 0.3 per cent. The contrarian fund invests in unloved areas such as banks and oil, with top holdings including Lloyds Bank and BP. But Morgan says he has been slightly disappointed with performance, considering the proportion of the fund held in smaller companies. 

The bond holdings of the portfolio are all up and the best among them is Henderson Strategic Bond, up 3.6 per cent since inception and 0.8 per cent since the last update. 

While the past 12 months have seen strong gains across global stock markets, Morgan is expecting a more volatile environment in the coming year. He will be keeping a watchful eye on sterling, particularly as Brexit talks advance, as movements could produce investment opportunities.

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ALL THE PORTFOLIO’S COMPONENT PARTS ARE WORKING AS PLANNED
Name Sector Purch
price
(p)
Quant
bought
Value at
inception
(£)
Current
value
(£)
Change
since
last
update
31/07/17
(%)
Chnge
since
incep
(%)
Current
yield
(%)
Int Public
Partnerships IT
IT
infra
156 3205 4,999.80 5,089.80 -4.0 1.8 4.4
Artemis
Global Inc
Global
eq inc
131 3821 5,005.51 5,145.66 3.4 2.8 3.4
Aviva Investors
Strat Bond
£
strat
bond
74 13563 10,036.62 10,167.10 -0.1 1.3 3.0
F&C Commerc
Property
IT
prprty
- direct
UK
145 3455 5,009.75 5,034.80 -3.5 0.5 4.2
Gold Bullion
Securities
N/A
ETP
9445 53 5,005.85 4,745.55 -1.8 -5.2 0.0
Henderson
Strat Bond
£
strat
bond
137 7299 9,999.63 10,359.62 0.8 3.6 3.7
Perpetual Inc
& Growth IT
Uk
eq inc
376 2661 10,005.36 10,205.47 -3.0 2.0 3.6
Jupiter Absolute
Return
Trgtd
abslte
retrn
56 17899 10,023.44 9,712.29 -2.3 -3.1 0.0
Jupiter Strat
Bond
£
strat
bond
97 5166 5,011.02 5,116.23 0.9 2.1 2.6
M&G Global
Dividend
Global
eq Inc
179 5583 9,993.57 10,283.38 3.9 2.9 1.7
M&G
Recovery
UK
all comp
130 3853 5,008.90 5,114.09 0.3 2.1 0.8
Newton
Real Return
Trgtd
abslte
retrn
113 8846 9,995.98 10,045.96 0.3 0.5 2.3
Standard Life
Gbl Abs Ret
Strategies
Trgtd
abslte
retrn
58 8635 5008.30 5103.46 0.3 1.9 1.2
Standard Life
Eq Inc Trust
Uk
eq inc
413 1209 4,993.17 5,702.20 3.5 14.2 3.6
100,096. 90 101,825.
61
1.8
Note: Inception date of portfolio 1 April 2017. Source: Charles Stanley, as at December 2017

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