By Annabel Brodie-Smith
Well it’s been quite a week. We go back to working from home on Monday and despite the rumour that you don’t have to cancel your party (particularly if you’re at Number 10) ours is postponed. Let’s hope those Secret Santa gifts aren’t perishable!
In the office, then out, don’t cancel your party, do cancel it – it’s clearly a ‘Carry on Christmas’ but let’s hope we remain calm and carry on... It’s our first Christmas at the barn and the boys are very excited. I have 16 for Christmas lunch, an enormous tree is arriving next week and the candlelit carol concert will kick off the celebrations on Sunday.
This week I have been doing what I enjoy most, talking to fund managers, and it’s particularly enlightening at the end of the year as we look ahead. I spoke with Paul Niven of F&C Investment Trust, Gervais Williams of Diverse Income Trust and Lee Qian of Keystone Positive Change about 2021 and next year. I asked them what they are optimistic and worried about, their views on the new Omicron variant and how they are addressing sustainability after COP26. I particularly enjoyed hearing about what pleased managers most about their investment company this year, which included dividend growth, a successful pet-themed investment and the success of vaccines.
Despite the pandemic continuing to affect our lives, it’s positive to see the average investment company delivering a healthy 13% return this year. We have been analysing the top performing trusts and sectors in the 11 months to end November. The best-performing sector is Growth Capital, up 47%, which is relatively new and invests in later-stage venture capital. It has proved popular as higher growth companies stay private for longer. The second best performer, UK Logistics, has benefited from the surge in online shopping and the need for more warehouse space.
Looking to the future, our managers have been gazing into their crystal balls and the results of our fund manager poll make interesting reading. Following the focus on climate change at COP26, managers have tipped renewable energy infrastructure to be the best-performing asset class of 2022. The joint best-performing stock market sectors are expected to be alternative energy and REITs, the latter having benefited from the increase in online shopping and this year’s opening up of the economy. Managers’ greatest fear is interest rates rising, with 20% seeing this as the biggest threat to the stock market in 2022. Nine out of ten managers believe interest rates will go up in 2022 and their second biggest worry is a rise in inflation.
Of course, it’s interesting to look back at the best-performing companies and to look forward to what might perform well next year. But it’s important to remember that past performance is not an indicator of future returns. None of us knows what will happen in the future and the last two years provides the perfect demonstration of that. Investors need to consider their investment objectives and focus on building a diversified long-term portfolio.
Also in Compass this month, Ian Cowie weighs up the argument that the British stock market and fund management industry are overly obsessed with dividends. The case for the prosecution was made by one hedge fund manager in a recent Financial Times column, which claimed “the City of London is in danger of becoming a sort of Jurassic Park where fund managers dedicate themselves to clipping coupons rather than encouraging growth and innovation.” Ian offers a defence of dividends and explains the role income plays in his own portfolio.
On a different theme, Kyle Caldwell asks whether self-managed trusts have a future. These are investment companies whose board or employees directly manage assets, rather than outsourcing that to an asset management group. There are currently 13 self-managed trusts and there will be one fewer next year with shareholders in self-managed Scottish Investment Trust voting to merge with JPMorgan Global Growth & Income yesterday. Other self-managed trusts include three giants with assets over £1 billion: Caledonia, RIT Capital Partners and Witan. It’s worth reading the views of some of the industry’s leading commentators on the future of self-managed investment companies.
Finally, if you are looking for a Christmas present for a keen investor, I’d recommend Jonathan Davis’ latest book on investment companies – The Investment Trusts Handbook 2022. You can get 30% off a hard copy with the special promotional code AIC30 for Compass readers, or download an e-book for free, by clicking here.
I’d like to wish you all a Merry Christmas and a Happy New Year.
Annabel Brodie-Smith Communications Director, AIC
