Ian Cowie reviews his top-performing investment companies last year.
Investors could be forgiven for wanting to forget 2022 but wishing won’t make the losses go away. More positively, we may learn more from setbacks than success, sometimes, and bad markets can contain good lessons to help us grow capital and income in the future.Here and now, investment companies’ closed-end structure, dividend-delivering advantages and global reach helped this small shareholder cope with the worst year for equities since the financial crisis of 2008. Rising inflation and interest rates, in addition to Russia’s invasion of Ukraine and the ongoing coronavirus crisis, depressed valuations around the globe during 2022.For example, former high-flying technology shares fell to earth, causing the Nasdaq index to plunge by 33% while a broader measure of the American market, the Standard & Poor’s 500, lost 20% of its value. By contrast, the FTSE 100 benchmark of Britain’s biggest shares increased by 0.9%, a relatively good performance in a bad year, helped by an average dividend yield of 3.7%.
So perhaps it is no coincidence that income – and, better still, the ability to sustain rising dividends – were key features of several of my investment companies that achieved positive returns during 2022. Emerging markets and energy – from both fossil fuels and renewable sources – were also winning themes that could continue into 2023.Step forward BlackRock Latin American (stock market ticker: BRLA), my top-performing investment company last year with a total return of 18%. This includes a dividend yield of 5.3% that increased by an impressive annual average of 11% over the last five years, according to independent statisticians Morningstar.It’s only fair to add that BRLA’s success in 2022 followed a prolonged period of poor returns, as this shareholder since January 2010, knows from personal experience. However, investment companies’ closed-end structure meant the fund managers were never forced to sell assets just because they had fallen from favour, before some of these assets became very desirable indeed during 2022.Rising demand for hard and soft commodities, ranging from copper to corn, helped Latin America become one of the world’s top-performing sectors last year. BRLA’s professionally-managed portfolio, enabled this small investor to participate in that recovery. Let’s hope it has further to run.Ecofin Global Utilities and Infrastructure (EGL) was my second-best performer among investment companies last year and my biggest winner, because it is one of my most valuable holdings. War in Ukraine squeezed global gas and oil supplies, promoting renewable energy from something regarded as ‘nice to have’ into an urgent necessity for many countries. EGL’s diversified exposure to solar and wind power helped it achieve a total return of 13% and deliver 3.4% dividend income, which has increased by an annual average of 3% over five years.
Gulf Investment Fund (GIF) ranked third with a total return of 11%. Its main geographical allocation is Qatar, a small country in the Gulf of Arabia that is the world’s joint biggest exporter of liquefied natural gas (LNG), alongside the United States of America. GIF yields 3.7% dividend income, which has risen by an annual average of 4.3% over the last five years.India Capital Growth (IGC) and JPMorgan Indian (JII) came fourth and fifth among investment companies in my modest portfolio with total returns of 7.7% and 1.3% last year. Neither yields any income, which may go some way to explain why they trade at discounts to their net asset values (NAVs) of 8% and 17% respectively.Both IGC and JII provide professionally-managed exposure to an emerging market that is also the world’s biggest democracy, plus access to Asia’s entrepreneurial dynamism, without the moral and political hazards associated with China, the world’s biggest dictatorship. On a purely personal level, JII remains my longest continuously-held investment and became my first ten-bagger or share price that soared tenfold after I originally invested in 1996. It is no exaggeration to say that it would have been impractical, if not impossible, for this small shareholder to gain direct exposure to any of the economic opportunities listed above without investment companies. They can diminish risk by diversification, enable us to share the cost of professional fund management and sustain rising dividend income despite stock market shocks.Investment companies bring the world within reach. This is likely to remain a valuable advantage, whatever an uncertain future holds, that’s well worth remembering.
Ian Cowie is a shareholder in BlackRock Latin American (BRLA), Ecofin Global Utilities and Infrastructure (EGL), Gulf Investment Fund (GIF), India Capital Growth (IGC) and JPMorgan Indian (JII) as part of a globally-diversified portfolio of investment companies and other shares. Data as at end of December 2022.
