For those who see successful investment on the stock market as little more than luck of the draw, 2015 looks to have made their point.
Little may have changed on the surface – the FTSE 100 at 6,052.42 is down eight per cent on its level a year ago. The FTSE All Share has drifted 4.9 per cent lower. Few investors would seem to have made much of a profit – if profit at all. But that lacklustre overall performance hides great variation, even across broad-based funds and investment trusts.
The most notable feature of this year’s performance has been the demise of yesteryear’s star performers – the commodity, precious metals and emerging market trusts that were the “must haves” of any ambitious portfolio a few years back.
A lacklustre drift down of eight per cent would have been a successful result compared to the heavy falls experienced by previous high fliers. The popular Templeton Emerging Markets Trust is down more than 23 per cent on 12 months ago. BlackRock Commodities Income Trust is down 36 per cent, its World Mining Trust has tumbled 38 per cent while New City Energy, blasted by the dramatic fall in the oil price, is down a whopping 46.8 per cent.
But successes there have also been. This has been a good year for funds and trusts specialising in smaller companies. Standard Life’s UK Smaller Companies Investment Trust is up 39 per cent on a year ago. Colin McLean’s SVM UK Emerging Trust has shot up 47 per cent. And the uninspiringly-named JP Morgan Mid Cap Trust staged an inspiring 42 per cent uplift.
Luck of the draw? Investors would have done well to steer clear of the energy and natural resources sectors – those directly affected by the slowdown in China demand and the oil price collapse.
It’s tempting for many investors to adopt a “buy-and-hold” policy rather than incurring costs and charges through frequent chopping and changing. But while this may prove sensible for broad, generalist trusts, it pays to be watchful when you have diversified into specialist areas and sectors that can fall spectacularly from grace. The Rip Van Winkle approach is no recipe for sleepful nights if you have selected the fashionable funds – they are vulnerable to shifts in economic outlook and changes in investor preference.
New monks, old habits
One trust that appears to have fallen particular victim to a “buy-and-hold” approach is Monks Investment Trust, a member of the Baillie Gifford stable. The curious name derives from its formative days when it was one of three trusts (the others being Friars Investment Trust and The Abbots Investment Trust) managed out of the alleyway of Austin Friars in the City of London.
Monks has long been outshone by the group’s star performer Scottish Mortgage Trust. Monks invested heavily in emerging markets and had a notable exposure to oil and gas stocks. Over the past five years this £897 million trust, which holds little store by way of dividends, has notably underperformed the global growth sector. While this is up 43 per cent on average over this period, Monks has managed a gain of just 24 per cent. Its annualised return of 2.1 per cent over the past three years looks paltry in comparison to stablemate Scottish Mortgage with an annualised return of 21.1 per cent over this period.
Earlier this year there was a management change, with Charles Plowden taking over from the cautious Gerald Smith. Monks was given a make-over and around half the portfolio was turned over. But, as the Monks name might suggest, old habits die hard. The focus is still on growth, but there is no change on dividend policy.
The watchword is patience – waiting for investment ideas to bear fruit rather than chopping and changing with market moves. The portfolio comprises “growth stalwarts” (with established businesses and profits) and “latent growth” stocks where the potential has yet to be reflected in the valuation.
Short-term indications are encouraging – over the latest three months shares in Monks have risen by 7.2 per cent compared with a global trust average of 4 per cent.
It is difficult to see whether the trust has sufficiently differentiated its investment approach from Scottish Mortgage. But as it draws on the same pool of analyst expertise, Monks could provide in time a cheap way in to what SMT has been able to deliver so successfully. The shares at 422p stand on a discount of 9.2 per cent to net assets, with a small dividend yield of 0.9 per cent. One to watch.