With just 3.5 per cent return since inception, our manager is disappointed but thinks the portfolio is set fair for all-weather resilience.
Our capital conserver portfolio has been a real mixed bag since the last update four months ago, with some holdings posting incredible double-digit returns over the period while others are in the red. Three funds in the portfolio are up by 13 per cent or more over the past four months, but six are in negative territory.
Among the top performers are our two equity income holdings, Artemis Global Income and M&G Global Dividend, which have returned 13 per cent and 13.4 per cent respectively since the last update, and slightly less since inception. These funds have global remits, so a recent weakening in the pound has provided a boost to performance.
Rob Morgan, investment analyst at Charles Stanley, who manages the portfolio, says M&G’s performance in particular has been driven by its exposure to the energy sector. Its strongest holding has been Canadian firm Methanex, a producer and supplier of methanol, whose shares are up 60 per cent over the past year alone.
The two funds also have assets in technology stocks such as Microsoft and Taiwan Semiconductor, which have had a strong run in recent months. It’s not a typical area for equity income funds to venture into, as they usually focus more on defensive areas such as pharmaceuticals and consumer staples, but this exposure to cyclical growth industries has helped these two stand out among their peers.
Perpetual Income & Growth, for example, has a more conservative portfolio with investments in tobacco and healthcare, and has not been as strong. However, the trust is still up a respectable 8.6 per cent over the past four months, and 2.4 per cent since inception.
International Public Partnerships has made great progress in recent months, after sentiment towards infrastructure turned quite negative. Worries about what a Corbyn-led government could mean for the sector, as well as concerns about the high-profile collapse of outsourcing giant Carillion, had hurt investment companies such as IPP.
Then this summer, investment trust John Laing Infrastructure thrust the sector back into the spotlight after it received a potential takeover bid. Its share price rocketed as a result, and it has taken its peers forward with it. The takeover could spark further interest in infrastructure trusts as investors look to capitalise on other potential acquisition activity.
Morgan says: ‘I think the market was too pessimistic before, so this huge upturn has been great – and IPP is still a long way from the level that John Laing reached, so, particularly with its attractive yield, I think there is still further upside to come.’
While it’s good news for investors, it’s not quite the steady ride that we hoped for from an infrastructure investment, however, and the volatility of recent months will likely have made some investors nervous. It’s one of the downsides of choosing an investment trust rather than a fund – even if the value of the assets remains fairly constant, there can be huge swings in the share price because of shifts in sentiment.
But Morgan believes it’s a good holding for diversification. ‘The risks attached to infrastructure are not linked to equities or anything else. I also think investors are being paid handsomely for the risk they are taking,’ he adds.
Absolute return funds have been among the most disappointing in recent months, and Standard Life Global Absolute Return Strategies ‘has not delivered’. As stock markets become more volatile and there is less correlation between asset classes, now should be a great environment for these funds to thrive. But our three absolute return holdings are in negative territory over the past four months and just one has produced a positive outcome since the portfolio’s inception.
Morgan explains: ‘I think the Standard Life GARS team expected more aggressive interest rate hikes. They haven’t correctly interpreted the macro environment and that means some of their investment ideas haven’t worked. I still think they have an edge in terms of their resources, but now is the time these funds should be making money, so I’ll be watching to check it starts delivering.’
The Jupiter Absolute Return fund, meanwhile, has struggled in a bullish environment as it has a number of contrarian bets against glamour stocks such as Tesla. With that considered, Morgan points out that the manager has actually done well to be down only 3.9 per cent since inception. He is sticking with the fund, as it could really revive if there is a rotation in the market and technology and growth stocks start to underperform.
The top performer since the portfolio launched in April 2017 is Standard Life Equity Income Trust, which is up 21.3 per cent since then, as well as producing a decent yield of 3.9 per cent. Its exposure to small and mid-cap companies has helped drive performance, but has also meant something of a bumpy ride for investors.
Emerging market dip
Invesco Perpetual Asian was brought in at the last review to replace the M&G Recovery fund – which, ironically, has since performed well as merger and acquisition activity has picked up. But Morgan was conscious of the lack of exposure to emerging markets in the fund and, with president Trump starting to talk about imposing tariff s at the time, thought it was a good opportunity to take advantage of a short-term sell-off in Asia.
He is also happy with his choice to include strategic bonds in the portfolio, rather than gilts, which would usually feature in a cautious selection. Strategic bond funds are less vulnerable to interest rate rises and typically have a higher yield. So, while the returns of Jupiter Strategic Bond and Janus Henderson Strategic Bond have been less than impressive at 0.5 per cent and 2.1 per cent since inception respectively, both yield around 3 per cent.
With an overall return of 3.4 per cent since inception, Morgan is slightly disappointed with the performance of the portfolio. He says: ‘I’m happy with where we are positioned now. There could be some more difficulties to come, but we are aiming for an all-weather portfolio and I’m confident it can handle most things that might be thrown at it.’
Track the portfolio at https://www.moneyobserver.com/purposeful-portfolios-capital-conserver
|Name||Sector||Purchase price (p)||Quantity bought||Purchase date||Value at inception (£)||Current value (£)||Change since last update (%)||Change since inception (%)||Yield (%)|
|International Public Partnerships IT||IT Infrastructure||156||3205||31/03/2017||4,999.80||5,269.79||13.3||5.4||4.5|
|Artemis Global Income||Global Equity Income||131||3821||31/03/2017||5,005.51||5,551.11||13.0||10.9||3.2|
|Aviva Investors Strategic Bond||£ Strategic Bond||74||13563||31/03/2017||10,036.62||10,006.51||-0.5||-0.3||3.3|
|F&C Commercial Property||IT Property - Direct UK||145||3455||31/03/2017||5,009.75||5,370.45||5.7||7.2||4.1|
|Gold Bullion Securities||N/A ETP||9445||53||31/03/2017||5,005.85||4,660.45||-0.5||-6.9||3.8|
|Janus Henderson Strategic Bond||£ Strategic Bond||137||7299||31/03/2017||9,999.63||10,209.62||-0.3||2.1||3.1|
|Perpetual Income & Growth IT||Uk Equity Income||376||2661||31/03/2017||10,005.36||10,245.49||8.6||2.4||3.8|
|Jupiter Absolute Return||Targeted Absolute Return||56||17899||31/03/2017||10,023.44||9,632.53||-0.1||-3.9||0.0|
|Jupiter Strategic Bond||£ Strategic Bond||97||5166||31/03/2017||5,011.02||5,036.08||-0.8||0.5||2.9|
|M&G Global Dividend||Global Equity Income||179||5583||31/03/2017||9,993.57||11,172.81||13.4||11.8||1.6|
|Invesco Perpetual Asian*||Asia ex-Japan||315||1549||28/03/2018||4,879.35||5,098.92||4.5||4.5||1.0|
|Newton Real Return||Targeted Absolute Return||113||8846||31/03/2017||9,995.98||10,165.91||4.3||1.7||2.2|
|Standard Life Gbl Abs Ret Strategies||Targeted Absolute Return||58||8635||31/03/2017||5,008.30||4,933.18||-1.5||-1.2||1.3|
|Standard Life Equity Income Trust||Uk Equity Income||413||1209||31/03/2017||4,993.17||6,056.70||9.7||21.3||3.9|