By Annabel Brodie-Smith
I’m in my usual pre-Christmas frenzy. I don’t know why I’m worried as after the cast of thousands (actually 16 but it felt like thousands) who came to lunch last year (and 15 stayed!) this year we are having a quiet family Christmas. And I can’t wait – I’m so looking forward to a long relaxing break, dog walking and doing as little as possible.
On Friday the festivities commence with Alex, my eldest’s school Christmas concert where he’s playing the cello in the orchestra. On Sunday it’s the legendary village candlelit carol service where all the children do a reading. Then on Monday, my youngest son, Fabian is singing at his school carol service in Magdalen College Chapel. Whenever I walk into that chapel I feel like crying and that’s before the children start singing. Then a huge Christmas tree arrives next week and I could continue…
This week I have been talking to fund managers about how this year has gone and what they are expecting in 2023 and beyond. The end of year conversation is always particularly enlightening and I have had the pleasure of talking to Bruce Stout at Murray International, Simon Gergel at The Merchants Trust and Gary Robinson at Baillie Gifford US Growth. We discussed on video what’s gone well and what hasn’t, their concerns for next year and what they are optimistic about. Don’t miss the bit where the wonderfully dry Bruce Stout accuses me of asking an impossible question!
This year has been a tough one for investment companies with high inflation and rising interest rates, fuelled by the war in Ukraine, and political uncertainty dominating markets. The average investment company is down 15% in the 11 months to the end of November. But there are some investment companies and sectors that have thrived, and we have been analysing their performance to the end of November. The top-performing sector is Commodities & Natural Resources, a clear beneficiary of inflation, up 26%. The second-best performer is the Leasing sector up 14%, where companies leasing aircraft have recovered from a low base during the pandemic. Global Equity Income completes the top three, performing well for income seekers with a 7% return.
Considering 2023 and beyond, we have asked managers to gaze into their crystal balls and our fund manager poll is revealing. It’s understandable that investment company managers have tipped energy to be the best performing sector of 2023 but naming information technology as the second-best performer is more unexpected. They expect the UK to be the most attractive region in 2023 and over the next five years. Of course, there are a number of significant concerns including slowing corporate earnings, the impact of a recession on the economy and rising interest rates, but most managers think inflation has peaked and global stock markets will rise next year.
Our investment expert Ian Cowie also looks forward to what 2023 might hold for investors. But he explains this “should be preceded by the cautionary admission that few – if any – foresaw 2022’s biggest event, the worst war in Europe since 1945.” Ian predicts energy independence will create exciting opportunities for investors and Western countries will continue to transfer the production of exports from China to neighbouring counties like India and Vietnam. Closer to home, Ian thinks another conflict will continue, “the ‘war' against the coronavirus and other threats to human health.” And for his final prediction for 2023, Ian predicts a recovery in technology, agreeing with our fund manager poll. Read the article to see which investment companies Ian is backing in 2023.
Of course, it’s thought-provoking to look back at last year’s top performers and to look forward to what might do well next year. Though 2022’s top-performing sectors tell an interesting story, it’s very specific to the market and economic conditions of the year. It’s important to remember that investment is about the long term. Building a balanced portfolio of investments which suits your needs, rather than just focusing on today’s winners, is what’s most important. During the hairy moments this year it was a relief to have a diverse portfolio of investment companies, with a spread of assets to cushion at least some of the falls.
Finally, Faith Glasgow delves into a very important area for investors – what does an independent board of an investment company do and what does a good board look like? She talks to three directors to find out more about their role. It’s not a coincidence that they are all women as investment companies have made excellent progress on gender diversity in recent years. All three agree that retail investors are now more important and they are looking at how they can effectively communicate with them.
Gay Collins’ experience of being a director really brings it to life for me: “It’s about having valuable, relevant experience, being committed to shareholder interests and the shareholder experience, being open to ideas, diligent and innovative. You’ve got to want to make a contribution and add value.”
And, if you are looking for a Christmas present for a keen investor, I’d recommend Jonathan Davis’s latest book on investment companies – The Investment Trusts Handbook 2023. I have written a chapter for it, ‘Is the future female?’, which contains my view on how the industry has changed for women over the last 25 years. The e-book is free and there is a hardback copy too.
I’d like to wish you all a Merry Christmas and a Happy New Year.
Annabel Brodie-SmithCommunications Director, AIC
