It was a difficult year for global stock markets and your humble correspondent’s personal portfolio but, throughout 2018, diversification saved the day. A global range of investment companies, spread across various commercial activities and countries, helped to smooth out the shocks of trade wars, Brexit talks and other surprises.
Professional asset allocation within closed-end funds also paid off, providing managed access to specialist sectors of which I know little and overseas markets that trade while we sleep.
For example, the top-performer in my ‘forever fund’ of 14 investment companies is focussed on the other side of the world. Meanwhile, the 2018 laggard is much closer to home in Europe, perhaps unsurprisingly during a period dominated by political uncertainty here.
European Assets (EAT) suffered share price losses of nearly 18% in the year to the end of November, as small and medium-sized companies struggled to cope with macro-economic and geo-political headwinds. But a high distribution policy sustained an above-average dividend yield of 7.9%, giving income-seeking shareholders good reason to be patient.
Trade wars between both the biggest economies in the world hit the second-from-last investment company in my forever fund quite hard. Fidelity China Special Situations (FCSS) saw its share price fall by more than 14% in the year to date.
Similarly, tariff hikes and fears they will depress trade sent tremors across developing economies, formerly focussed on exports. JPMorgan Emerging Markets Income (JEMI) suffered losses of nearly 11% with JPMorgan Indian (JII) not much better and almost 10% down.
The other fallers in my ‘forever fund’ in 2018 were Schroder Oriental Income (SOI), down just over 5%, Henderson Far East Income (HFEL) and BlackRock Latin American (BRLA); both about 4% lower. Once again, above-average yields of 4.1%, 6.5% and 5.1% respectively gave reason to be grateful for income to offset capital setbacks.
Fortunately, there were winners as well as losers in terms of share price total returns during 2018. Rising demand for warehouse space and other commercial real estate on the Continent helped Aberdeen Standard European Logistics Income (ASLI), which was launched last December and is still allocating assets, to remain marginally positive at 1% with JPMorgan US Smaller Companies (JUSC) delivering nearly 4% total returns.
Perhaps appropriately on the 50th anniversary of the Tet Offensive, Vietnam Enterprise Investments (VEIL) bucked the emerging markets trend by winning share price gains of 5%. A welcome albeit partial recovery at Woodford Patient Capital Trust (WPCT), the disruptive start-ups specialist, also returned 5% over the year to date.
Investments in innovation helped Polar Capital Technology (PCT) gain podium place with the third-best performance in my investment company portfolio during 2018 and a total share price return of just over 5%. Well, I did say it was a difficult year.
To put that in perspective, independent statisticians at Bloomberg reckon the FTSE 100 index of Britain’s biggest shares fell by nearly 12% in the year to date, while the Dow Jones index of American blue chips remained marginally positive at 1%. Meanwhile, statisticians at Morningstar calculate that the average return from all conventional investment companies during 2018 was 1.5%.
Handsomely ahead of that, specialist professional fund management in a sector where I know next to nothing helped Worldwide Healthcare Trust (WWH) deliver returns of above 7%.
Best of all, Baillie Gifford Shin Nippon (BGS) succeeded in identifying smaller Japanese companies that generated share price returns of 8%. Needless to say, the corporate names in its top 10 holdings are foreign to me but this individual investor is glad to gain professionally-managed exposure to these far-off opportunities for capital growth.
Taking winners and losers into account, my ‘forever fund’ or personal portfolio of investment companies' performance was marginally negative in capital terms during 2018 with share price shrinkage of less than 1%.
More by luck than judgement, I took profits from my three top-performers, BGS, WWH and PCT, just before global stock market setbacks that soon become known as ‘Red October’. Prescience played no part but Sue, my wife, had found a coastguard’s cottage on which she set her heart. So I decided to raise cash on the basis that paper profits are all very well but you haven’t really made a penny until you sell.
Dividend income, where investment companies have a unique ability to smooth out shocks and sustain payouts, helped to improve the rear view of a difficult year. Political uncertainty may continue to cloud the outlook in 2019 but a globally-diversified portfolio should continue to deliver winners as well as losers, income and growth, whatever the future holds.