Ian Cowie reflects on the performance of his investment company portfolio.
What a wide variety of winners and losers my modest portfolio of shares saw in 2021. I suspect 2022 will see similar variations and volatility, making the professional stock selection and diversification to diminish risk that investment companies automatically provide as important as ever.
Before attempting any further predictions, let’s consider the facts first about how my shares in investment companies performed last year and - because I know that some of you enjoy this kind of thing - let’s do the pain before the pleasure. Baillie Gifford Shin Nippon (stock market ticker: BGS), the Japanese smaller companies specialist, was the standout stinker in my portfolio with a loss of 17% in the year to December 30, according to independent statisticians Morningstar.
That was disappointing, because I have held BGS for more than a decade and it has done well in the past - for example, its total returns over the last five and 10 years were 91% and 589%. So, with ongoing annual charges of just 0.71%, I intend to hang on and hope for a return to form.
Also blighted by political uncertainty and soaring oil prices in a country which has little of its own, JPMorgan Japan Small Cap Growth & Income (JSGI) fell by nearly 17% but - unlike BGS, which yields no income - is paying me to be patient, with just over 4.6% dividend income.
Next worst among my 20 investment companies came BlackRock Latin American (BRLA), another long-term hold in my ‘forever fund’ or savings for retirement, with a 12% loss. No wonder City wags joke that Brazil is the country of tomorrow - and always will be. However, once again I draw some comfort from a 5.2% dividend yield which has grown by an annual average of 5% over the last five years.
International Biotechnology Trust (IBT) and US Solar Fund (USFP) also suffered losses of about 6% last year. Following financial fashion into renewable energy at the wrong time and, at least in the short term, the wrong price seems to have been my mistake with the latter but IBT yields 4.2% and USFP pays over 5.7% income, so I intend to hang onto both for the longer term.
On a brighter note, Tufton Oceanic Assets (SHIP), the marine transport specialist, sailed into the lead over the year with a total return of 58%. Sad to say, I can’t claim much credit for that because I only invested in August but do enjoy double-digit gains and a buoyant dividend income of 5.8%.
Vietnam Enterprise Investments (VEIL), where I have been a shareholder since July, 2018, delivered total returns of 36% last year and remains priced at a 15% discount to its net asset value (NAV). I believe there may be more to come if relations between America and China continue to deteriorate, displacing international trade to other emerging markets.
India Capital Growth (IGC) was another beneficiary of that macro-economic trend, delivering total returns of 44% over the year but the share price remains 11% below its NAV. Bargain-hunters might be even more interested in Canadian General Investments (CGI), which achieved 32% total returns but continues to trade at an eye-stretching discount of 28%. Closer to home, European Assets Trust (EAT) delivered total returns of 24% and a healthy income of just over 5.7%.
Once again, I can’t take much credit for this triumphant trio because I first bought shares in IGC, CGI and EAT in September, November and August respectively. However, longer-term holds Gore Street Energy Storage Fund (GSF) and JPMorgan Indian (JII) - my first ten-bagger after I invested at 63p in June 1996 - both did well last year with total returns of 19% and 16% respectively. Most surprisingly, Northern 2 VCT (NTV), where my main motivation had been initial income tax relief of 30%, also delivered a total return of 21% last year and 5.3% tax-free income.
Across all members of the Association of Investment Companies (AIC) the average return was 16%. There is no guarantee that will be repeated and share prices can fall without warning.
Gazing into an uncertain future, I expect that higher rates of inflation and interest seen in 2021 will continue into 2022 which might make value and yield more important considerations than in the past, when growth and capital gains were many investors’ key criteria. This might be beneficial for UK investment companies, many of which have lagged overseas rivals recently.
I also expect that innovations - especially in biotechnology and healthcare - will continue to be important during this period of extraordinary change. Less happily, I fear rising tensions between the established economic superpower of America and the rising one of China, sometimes compared to Thucydides' Trap or Athens' challenge to Sparta in classical times, could shock global markets in the year ahead. Here and now, diversification remains the simplest way to diminish risk in an uncertain world while maximising shareholders' exposure to economic returns of income and growth, wherever they may arise.
Ian Cowie owns shares in all the investment companies named above and intends to continue holding them in his ‘forever fund’.