Ian Cowie takes us on a tour of his globally diversified portfolio.
Investment companies bring the world within reach, including business being done in foreign languages and stock markets that trade while we are asleep. This can maximise returns, by giving investors exposure to professionally-managed income and growth opportunities wherever they may be found. It can also minimise risk, by diversifying our assets over a wide range of companies, countries and currencies to reduce our exposure to unexpected setbacks, wherever they occur.
Never mind the theory, what does it mean in practice? You only have to look at the performance of British shares recently, compared with other stock markets overseas, to consider the cash value of allocating your assets over more than one country. For example, the FTSE 100 index of Britain’s biggest shares has fallen by 18% over the last year and, at the time of writing, stands 6% lower than it did five years ago. By contrast, the Morgan Stanley Capital International (MSCI) All Countries World Index (ACWI) stands 2.8% lower than it did a year ago but has risen by 21% over the last five years, according to independent statisticians at Bloomberg. The explanation is that the coronavirus crisis has presented a global threat to health and wealth over the last year. But Britain’s decision to exit the European Union has cast additional uncertainty over UK shares for several years - and continues to do so.
British shares also lag behind returns from the biggest stock market on earth. The Dow Jones index of America’s longest-established shares has fallen by 4% over the last year and increased by 45% over the last five years. The Nasdaq index of America’s technology companies has done even better, surging upward by 25% over the last year and soaring by 104% over the last five years.
That’s why I hold a globally-diversified portfolio of investment companies’ shares; to give me professionally-managed exposure to economic opportunities wherever they may arise. Some are defined by geography - such as BlackRock Latin American (stock market ticker: BRLA), JPMorgan US Smaller Companies (JUSC) or Henderson Far East Income (HFEL) - while others are focussed on commercial sectors - such as International Biotechnology (IBT), Polar Capital Technology (PCT) or Worldwide Healthcare (WWH).
Investing internationally even enables me to benefit from bad news, on occasion. For example, the coronavirus crisis has increased spending on the search for a vaccine, helping some businesses among IBT’s and WWH’s top 10 holdings, while also boosting demand for digital services, rebooting PCT’s portfolio.
As more people work from home and spend more time and money online, another of my holdings, Aberdeen Standard European Logistics Income (ASLI) is gaining from the growth of internet shopping. Everything we order online has to be stored somewhere before it is delivered to our door, boosting demand for ASLI’s warehouses and distribution hubs across continental Europe.
While the past is not a guide to the future, I expect some trends prompted by the coronavirus crisis to continue for the foreseeable future; including increased awareness of the importance of healthcare and online commerce. An internationally-diversified portfolio of professionally-managed investment companies gives me exposure to these changes in the global economy - even though I know next to nothing about epidemiology or computers.
Home bias - or the tendency for most investors to favour funds and shares focussed on their own economy - can reduce returns and increase risks. By contrast, the internet and online investment platforms mean it has never been easier to analyse markets and allocate money overseas.
Dividends do not stop at Dover nor do growth opportunities end at Gravesend. I monitor returns using the AIC website and occasionally rebalance asset allocation depending on dividend income and/or special situations - such as when my fears of a renewed America/China trade war prompted me to sell trusts heavily invested in the latter.
While it is natural to focus on recent and ongoing events, a longer term view may help us to keep our current concerns in perspective. For example, back in 1868, the oldest and one of the biggest global investment companies, the F&C Investment Trust (FCIT), said in its original prospectus: “The object of this trust is to give the investor of moderate means the same advantages as large capitalists, in diminishing the risks of investing in stocks by spreading investment over a number of different stocks.”
That strategy remains as sound today as it was more than 150 years ago. Technology has changed but individual investors’ needs remain much the same. Investment companies online mean the world is just a click away.