Our regular contributor mulls over the ups and downs of his personal portfolio in 2017.
Investors should always be more interested in the future than the past - and that remains true, even when reviewing how our shares fared over the last year. So, while bearing in mind that the past is not necessarily a guide to the future, it is appropriate to report that one of my most successful investment trusts during 2017 focuses on new technology and the wealth-creating businesses of tomorrow.
Polar Capital Technology (PCT) – in which I first bought shares more than a decade ago - also provides an example of how investment trusts can enable individual investors to gain exposure to sectors where we have no specialist knowledge but may benefit from sharing the cost of professional stock selection. Strong performance by technology giants such as Facebook, Apple, Netflix and Google helped PCT deliver total returns of 44% during the 12 months to the time of writing (November 26).
Perhaps more surprisingly, this performance was precisely matched in 2017 by another specialist investment trust; Baillie Gifford Shin Nippon (BGS) where skilful management of Japanese smaller companies’ shares generated returns of 44% over the year and, according to independent statisticians Morningstar, 366% over five years. Once again, BGS demonstrates how investment trusts can give individual investors cost-effective and convenient access to markets about which we know little and, in this instance, trade while we are asleep.
By coincidence, joint third place in my investment trust portfolio during 2017 was also shared by two trusts, Fidelity China Special Situations (FCSS) and European Assets Trust (EAT); which both returned 36% over 12 months. However, I can take little credit for picking FCSS because I did not invest until the second half of the year. Meanwhile, my long-standing holding in EAT, a specialist in Continental European smaller companies, continues to provide good gains and a mouth-watering yield of 5.5%.
This trust’s performance also reminds me that medium to long-term investors should beware of being excessively influenced by short-term news events, such as Brexit negotiations. Despite serious doubts about how these talks will end, EAT’s wholesome income and gains show there are some good companies and profitable opportunities on the Continent.
International diversification also helped reduce risk and maximise returns further afield in volatile economies that have suffered difficult periods in the recent past. For example, BlackRock Emerging Europe (BEEP), which came fifth in my portfolio this year with 28%, and JPMorgan Indian (JII), which came sixth with 27%, both benefited from a recent return to favour for emerging markets.
Neither of these trusts yields much and so, for this income drawdown investor planning to fund retirement from stock market returns, it is important that JPMorgan Global Emerging Markets Income (JEMI) pays dividends equal to 3.6% of the share price. JEMI delivered total returns of 24% over the last 12 months to rank seventh in my investment trust portfolio.
Worldwide Healthcare Trust (WWH) and JPMorgan US Smaller Companies (JUSC) came eighth and ninth with returns of 23% and 20% respectively but negligible income. Fortunately, Henderson Far East Income (HFEL), in equal ninth position, helped fill the income shortfall with a 5.5% yield and total returns of 20%.
As if to demonstrate the risks of volatile markets, the 2017 laggards in my portfolio included BlackRock Latin American (BRLA), which ranked 11th with returns of 19%, and Schroder Oriental Income, which came 12th with 18%, and – as its name suggests – a yield of 3.6%. Worst of all, Woodford Patient Capital (WPCT) came 13th and fell by 7% - my only investment trust to lose money during 2017. However, this specialist in small, start-up businesses always emphasised the long view and so I intend to remain patient, despite initial disappointment.
The net effect across this global portfolio of 13 pooled funds was to deliver an unweighted average return of 25% with a yield of 1.9%.
There is, of course, no guarantee that 2018 will prove as profitable for investors as 2017. But professionally-managed and diversified exposure to the wealth-creating companies of tomorrow, wherever in the world they might happen to trade, offer reasons to hope for income and gains in future.
Ian Cowie is a columnist at The Sunday Times