In 2012, we decided to put our money where our mouths are: we introduced a recommended portfolio of six investment trusts that we figured would suit pretty much all of our readers as a “lock up and leave” long-term portfolio.
The idea was that I would review it every six months to consider whether we should make any changes to it. My hope was that I would make almost no changes (trading being both boring and expensive), but that the group would be well balanced enough that we’d make regular, mildly market-beating returns anyway.
It’s working out pretty well so far. I’ve made a few changes with help and advice from our panel – Sandy Cross (who I confess to spending more time talking to about investment trusts than many would think healthy), Alan Brierley and Simon Elliot. BH Macro and 3I Infrastructure were sold. Caledonian and Law Debenture replaced them. But in six years, that’s it.
The good news is that it is going just fine. Since June 2012, the cumulative total return from the portfolio comes to 88%. That nicely beats inflation (around 10% since 2012), the FTSE 100 and the FTSE All Share (53% and 59% respectively). It hasn’t beaten the MSCI Global index in sterling terms (up 109%), which is a shame, but also something we can partly blame on post-Brexit sterling weakness.
| Company | Price at 31/1/17 | Premium/discount | Dividend | Buy/sell |
| Caledonia (CLDN) | 2,720p | -14.8% | 1.9% | HOLD |
| Personal Assets (PNL) | 39,250p | 1.1% | 1.4% | HOLD |
| Scottish Mortgage (SMT) | 342.5p | 1.0% | 0.9% | HOLD |
| RIT Capital (RCP) | 1,860p | 8.7% | 1.7% | HOLD |
| Law Debenture (LWDB) | 531p | -14.0% | 3.0% | HOLD |
| Temple Bar (TMPL) | 1,220p | -6.1% | 3.3% | BUY |
| Finsbury Growth (FGT) | 654.5p | 0.7% | 2.0% | SELL |
So what next? The obvious answer is “nothing”. The portfolio is doing well – so why mess with it? I have mild concerns about Finsbury Growth & Income (LSE: FGT), which (very unusually) underperformed in the second half of 2016. Is the manager’s style (buying quality for the long term) going out of fashion in favour of value (see page 22)? We might worry about Scottish Mortgage (LSE: SMT) in the same way. It is gorgeously high conviction, but with high conviction comes risk – particularly given the trust’s exposure to expensive tech. It has also underperformed in the last few months. That said, both trusts are low cost (Finsbury is down to about 0.7% a year); they have done us very well for years; and other parts of our portfolio should balance out their risk.
Take Law Debenture (LSE: LWDB). It’s an unusual structure – half global investment trust, half independent fiduciary business. But both bits are good and the investment side runs a good value/contrarian strategy that offsets the concerns above to a degree. It also trades on a 12% discount – so there is a margin of safety.
We then get excellent asset class diversification and a focus on capital preservation from Personal Assets (LSE: PNL) – if the market is about to turn the fact that the trust is 10% in gold bullion should help – and from RIT Capital Partners (LSE: RCP). Finally there is Caledonia Investments (LSE: CLDN), a trust with an eye firmly on the long term (it is still nearly 50% owned by its founding family, the Cayzers). Performance is fine, costs are OK (around 1% – I’d like them a bit lower) and there is a margin of safety in the 15% discount.
My inclination – if I were to fiddle – would be to swap in a clearly value-orientated fund for Finsbury and add one more focused on small caps. But this portfolio isn’t about fiddling too much. So for now we will just make one change: Finsbury goes, to be replaced by Temple Bar (LSE: TMPL), a trust suggested by both Elliot and Brierley for its UK-centric approach to value investing. It has solid long-term performance, low ongoing charges of 0.49%, and a dividend yield of over 3%. And that’s it. Another thoroughly boring review of a pretty boring portfolio.