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Investment trust portfolio: Sticking with my growth mandate

John Baron reflects on another good year for the portfolios, suggests some pointers for 2021 and explains fourth-quarter changes
Investment trust portfolio: Sticking with my growth mandate

After a particularly challenging year for many, it is pleasing to report a good set of portfolio figures. While the FTSE All-Share index produced a return of minus 9.82 per cent, and the MSCI PIMFA Growth and Income benchmarks returned 2.22 per cent and 1.94 per cent respectively, the Growth and Income portfolios produced returns of 14.22 per cent and 6.07 per cent. As usual, all performance figures are calculated on a total return basis and portfolio figures include all costs. While never complacent, these figures reinforce the portfolios’ long-term record of outperformance as we enter the New Year.

In general, both portfolios’ performance was assisted by their ‘growth’ focus. The most recent substantive explanation for this investment approach being provided by the column ‘Remaining focused on the long term’ (7 August 2020). A bias towards smaller companies and the technology sector both home and abroad helped. The columns ‘Retaining faith in technology’ (9 August 2019) and ‘Retaining trust in smaller companies’ (8 November 2019) help to explain why the portfolios remain committed to these sectors and themes.

Indeed, to the extent portfolio remits and balance permit, all nine real investment trust portfolios managed on the website – including the two covered in this column – will continue to pursue a growth mandate and seek the extraordinary companies which history suggests account for most market returns over time. Such an approach has helped some of these portfolios produce returns of over 24 per cent last year.

This focus will not, however, preclude us from investing wherever sentiment trails fundamentals. A good example in 2020 was that of commodities when the portfolios increased exposure at a time the outlook for the mining sector was looking favourable. The column ‘The case for commodities’ (10 July 2020) highlights the attractions. The recent increase in exposure to larger companies in the UK has been another example.

As regular readers know, this column pays little attention to forecasts or predictions when it comes to markets. Humility in accepting such matters are usually beyond accurate assessment encourages one to focus instead on what we can better understand – the difference between good and bad companies, together with the outlook for sectors and themes.

Once again, I welcome the New Year with optimism in believing that, while economic uncertainty may continue, there is no shortage of entrepreneurial managements and good companies that are embracing both existing and emerging trends and technologies. These will continue to provide plentiful opportunities for patient investors. Accordingly, I wish readers a healthy and prosperous New Year.


Fourth-quarter changes

In October, the Growth portfolio added to its holding in Standard Life Property Income (SLI), reduced its exposure to Allianz Technology Trust (ATT) and added to its position in Templeton Emerging Markets (TEM) at prices of £0.47, £26.43 and £8.60, respectively.

The commercial property sector has had a torrid time. Rent collections have fallen, dividends have been cut and many companies have seen their discounts widen considerably as the sector contemplates the ‘new normal’. SLI has an enviable track record, a focus on quality assets and one of the more attractive sub-sector allocations. The company stood on a 40 per cent discount when bought.

ATT was reduced in part to help maintain portfolio balance after a strong performance and to raise monies given opportunities elsewhere. One such is emerging markets, where various valuation metrics suggest sentiment trails fundamentals by some measure. TEM possesses a well resourced and respected team that is well placed to harvest the sunnier uplands ahead.

In November, the Growth portfolio reduced its exposure to Edinburgh Worldwide (EWI) and BlackRock Throgmorton Trust (THRG) and introduced Murray Income Trust (MUT) at prices of £3.08, £6.45 and £7.41, respectively.

EWI and THRG remain core holdings courtesy of their excellent track record and remit to invest in smaller entrepreneurial companies overseas and in the UK. However, after a strong run, again portfolio balance needed to be maintained and monies were required elsewhere. Last month’s column highlighted the extent to which the UK market looks attractive – again, sentiment is poor relative to prospects. MUT has performed well under its respected management team and is looking to maintain its impressive dividend record courtesy of capital as necessary.

In November, the Income portfolio reduced its exposure to Bluefield Solar Income Fund (BSIF) and introduced Dunedin Income Growth (DIG) at prices of £1.32 and £2.51, respectively.

The renewable energy sector has performed well and remains attractive to those seeking yield and diversification. However, exposure to BSIF was modestly reduced given its healthy premium. DIG seeks an attractive income level from mainly larger UK companies, and retains one of the healthiest revenue reserves in the equity income sector. This should help sustain its good track record of dividend growth through the current crisis – a point recently confirmed by the company.

December was a busy month for the Income portfolio. It reduced its exposure to Scottish Mortgage Trust (SMT), BlackRock World Mining Trust (BRWM), Allianz Technology Trust (ATT) and Edinburgh Worldwide (EWI) at prices of £11.16, £5.01, £28.66 and £3.51, respectively. With the proceeds, Smithson Investment Trust (SSON) was introduced at a price of £16.53.

While the portfolio remains focused on growth companies, the modest reductions in SMT, ATT and EWI helped to maintain portfolio balance given their outsized weightings after strong performances. Likewise, BRWM had seen a near-50 per cent increase in price since increasing exposure in June. The outlook for commodities, especially precious metals, remains positive but again portfolio balance was a consideration.

SSON’s focus is very much on good-quality companies with strong franchises, cash flow and balance sheets – in short, companies that have ‘superior operating numbers’. In an uncertain economic environment, such characteristics should provide a margin of comfort as economies emerge from the crisis. Its inclusion allows the portfolio to improve both the diversification and balance of its international exposure given the nuanced differences in remit when compared with EWI.

At the end of the quarter, the portfolio modestly reduced its exposure to The Mercantile Trust (MRC) and introduced iShares Index Linked Gilts ETF (INXG) at prices of £2.18 and £20.64, respectively.

MRC looks set to continue benefiting from the attractively rated mid-sized companies in the UK. However, a previous column has touched upon the risk of inflation rising. Likely shifts in the balance between capital and labour, the scale of the fiscal stimuli, the new money this time reaching the real economy, and the political realisation that inflation is now necessary to help deal with the mounting debt, are some of the reasons weighing in inflation’s favour. An ETF providing exposure to index-linked gilts has been chosen as there is no investment trust equivalent.


Growth portfolio
New City High Yield (NCYF)4.5%
Henderson Diversified Income (HDIV) 3.0%
UK Shares 
Finsbury Growth & Income Trust (FGT)4.5%
BlackRock Throgmorton Trust (THRG)4.5%
Montanaro UK Smaller Cos (MTU)4.5%
Oryx International Growth (OIG)4.0%
The Mercantile Trust (MRC)3.5%
Henderson Smaller Companies (HSL)3.5%
Standard Life UK Smaller Cos (SLS)3.0%
Murray Income Trust (MUT)2.5%
International Shares 
Edinburgh Worldwide (EWI)5.0%
JPMorgan Japan Smaller Cos (JPS)4.5%
Baillie Gifford US Growth Trust (USA)4.5%
Templeton Emerging Markets (TEM)4.0%
Montanaro European Smaller Cos (MTE)2.5%
Henderson Far East Income (HFEL)2.0%
Allianz Technology Trust (ATT)5.0%
Herald (HRI)4.5%
BB Healthcare (BBH)3.5%
International Biotechnology Trust (IBT)3.0%
Augmentum Fintech (AUGM)3.0%
Standard Life Private Equity Trust (SLPE)2.5%
Other assets 
HICL Infrastructure Company (HICL)4.5%
BlackRock World Mining Trust (BRWM)4.5%
Standard Life Property Inc (SLI)3.5%
Bluefield Solar Income Fund (BSIF)3.0%
TR Property (TRY)2.0%
Holdings are rounded to the nearest 0.5% 


Income portfolio 
New City High Yield (NCYF)5.5%
Henderson Diversified Income (HDIV)3.5%
iShares Index Linked Gilts ETF (INXG)2.0%
UK Shares 
Finsbury Growth & Income (FGT)5.0%
The Mercantile Trust (MRC)4.5%
Montanaro UK Smaller Cos (MTU)4.5%
Dunedin Income Growth (DIG)3.5%
Invesco Perpetual UK Smaller Cos (IPU)3.5%
Acorn Income Fund (AIF)3.0%
International Shares 
Scottish Mortgage Trust (SMT)5.5%
Edinburgh Worldwide (EWI)4.5%
Smithson Investment Trust (SSON)3.0%
Utilico Emerging Markets (UEM)2.5%
Herald (HRI)5.5%
Allianz Technology Trust (ATT)4.5%
Personal Assets Trust (PNL)3.5%
International Biotechnology (IBT)2.5%
BB Healthcare Trust (BBH)2.5%
Other Assets 
HICL Infrastructure Company (HICL)5.0%
BlackRock World Mining Trust (BRWM)4.5%
WisdomTree Physical Gold £ ETF (PHGP)3.5%
Bluefield Solar Income Fund (BSIF)3.5%
CQS Natural Resources Gro & Inc (CYN)3.0%
Standard Life Property Inc (SLI)3.0%
Regional REIT (RGL)2.5%
International Public Partnerships (INPP)2.5%
JLEN Environmental Assets Group (JLEN)2.0%

Portfolio breakdowns as at 31 December 2020