Pot of gold

Ian Cowie reflects on the positives in his portfolio this year.

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The coronavirus crisis dominated the global economy and investment returns during 2020, affecting health and wealth. But, while most media coverage focussed on bad news, the pandemic panic created winners as well as losers on stock markets.

For example, while the FTSE 100 index of Britain’s biggest shares fell 18% during 2020 to date (30/11/20) and is down 12% over the last 12 months, the average conventional investment company - that is, excluding Venture Capital Trusts - is up 12% over the last year, according to independent statisticians Morningstar. One explanation for investment companies’ performance providing a mirror image of the Footsie - the former were as positive as the latter was negative - is international diversification.

While uncertainty about Brexit depressed British share prices, others overseas were unaffected. The Standard & Poor’s 500 index, a broad measure of the American market, rose by 14% over the last year, while New York’s technology benchmark, Nasdaq, soared by 42%.

Coming down from the clouds, while this DIY investor knows next to nothing about artificial intelligence or computer code, I have benefited from digital developments for more than a decade as a shareholder in Polar Capital Technology (stock market ticker: PCT). Shares in this £3.3bn investment company soared by 43% over the last year, having delivered total returns of 544% over the last decade, and PCT is one of my top 10 holdings by value.

Some pharmaceutical companies also delivered healthy returns from the quest to find a cure for the coronavirus and other afflictions. This is another area where I can claim little knowledge but have enjoyed big gains from more than a decade as a shareholder in Worldwide Healthcare (WWH); also a top 10 holding in my ‘forever fund’. WWH delivered total returns of 21% over the last year, after growing its £2.2bn assets by 499% over the last 10 years, according to Morningstar.

But it would be wrong to suggest I got everything right in 2020. My decision to sell shares with high exposure to China, after allegations of human rights abuses and worries about a trade war with America, has cost me dear in returns foregone so far. For example, my former holdings in Fidelity China Special Situations (FCSS) and JPMorgan Asia Growth & Income (JAGI) went on to soar by 77% and 31% respectively over the last year. Fortunately, returns elsewhere in Asia remained strong. Baillie Gifford Shin Nippon (BGS), a Japanese smaller companies trust that I have held for more than a decade and is also a top 10 stake in my forever fund, delivered total returns of 39% last year.

None of my ‘Big Three’ yields much, which was one reason why I added JPMorgan Japan Smaller Companies (JPS) to the portfolio last year, when it delivered total returns of 29%, and continues to yield 3.6%. Closer to home, Aberdeen Standard European Logistics Income (ASLI) is another yielder that benefits from the boost online retail has received from the virus hampering high street rivals. ASLI owns warehouses and distribution hubs needed to store and process many of the goods we buy online and its shares delivered total returns of 20% last year with 4.5% dividend income.

Partly because the coronavirus is airborne and causes bronchial disease, many governments around the globe have given extra emphasis to reducing pollution and improving air quality. America’s president elect, Joe Biden, has promised a $2 trillion stimulus for renewable energy and Britain’s prime minister, Boris Johnson, recently enthused about what he called “a green industrial revolution”. Both boosted my shares in Ecofin Global Utilities & Infrastructure (EGL), where underlying assets include solar and wind farms. EGL delivered a total return over the last year of 20% and yields 3.7%.

Income is important to this DIY investor because the prime aim of my ‘forever fund’ is to enable me to enjoy retirement, relying on dividends as a substantial element of total returns. On that point, it is notable that 2020 saw 51% of Footsie companies cut, cancel or defer dividend payments to shareholders but only 8% of equity-based investment companies were forced to disappoint investors’ hopes of income. That is a remarkable illustration of investment companies’ ability to smooth out some of the shocks of the stock market and sustain income payments to investors. While dividends are not guaranteed and can be cut without notice, no fewer than 19 investment companies have actually increased shareholders’ income every year for two decades or more.

Looking to the future, investors who lack a crystal ball must learn to live with a high degree of uncertainty. Will vaccines banish the coronavirus to history and enable us to get back to business as usual? Or will the ‘new normal’ make our future lives very different from the past, with more of us working from home and spending more of our time and money online?

Like the ancient Greek philosopher, Socrates, all that I can be sure I know is that I don’t know. So one practical answer for investors is to diminish risk by diversification, investing across a wide range companies, countries and currencies.