Fantasy faux pas
Ian Cowie shares three key investment lessons
Fantasy fund management is not my forte, as the poor performance of four investment trusts I chose for the Association of Investment Companies’ (AIC) 2025 project demonstrates. Fortunately for this real life DIY investor, that experience also illustrates three important lessons to diminish the risks inherent in stock markets.
“Fantasy fund management is not my forte, as the poor performance of four investment trusts I chose for the Association of Investment Companies’ (AIC) 2025 project demonstrates. Fortunately for this real life DIY investor, that experience also illustrates three important lessons to diminish the risks inherent in stock markets.”
First, though, because I know that some readers enjoy my losers more than my winners, let’s review what went wrong with my fantasy four so far in 2025. Please don’t laugh!
Alliance Witan (stock market ticker: ALW): is a global giant with £5.4 billion assets that has increased the dividends or income it pays shareholders every year, without fail, for 58 years. I learned that interesting historical fact from the AIC’s website, which is always a good place for investors to begin research.
Back in January, this fund’s exposure to technology companies and pharmaceutical businesses, seemed advantageous. Since then, a bit of a backlash against both sectors have depressed ALW’s year-to-date performance to minus 1%. But I draw comfort from its dividend yield of 2.2% that has increased by an impressive annual average of 13.9% over the last five years.
Edinburgh Worldwide (EWI) focuses on medium and smaller companies. These include Space Exploration Technologies or SpaceX, which is not listed on any stock market, but has 7,800 satellites in orbit. Its annual report - another free source of valuable information for investors - lists top 10 holdings that include the drone-maker, AeroVironment and the body camera business, Axon Enterprise.
All three businesses’ products are often in the news and might play important parts in the future. But I did not foresee the extent to which SpaceX founder, Elon Musk, would add political risk to the many other dangers of space travel. Nearly 12% of this investment trust’s assets are invested in SpaceX, so doubts about Musk and the valuation of his companies have not helped EWI, whose share price has fallen by more than 11% this year.
“I did not foresee the extent to which SpaceX founder, Elon Musk, would add political risk to the many other dangers of space travel.”
India Capital Growth (IGC) also focuses on medium-sized and smaller companies but in the world’s biggest democracy. The subcontinent has always been close to this investor’s wallet because it was home to my very first ten-bagger, or share whose price went up by more than 10 times, after I paid 63p per share in June, 1996, for what was then called Fleming Indian and now trades as JPMorgan Indian (JII).
Both funds provide exposure to the world’s fourth largest economy by gross domestic product (GDP), which might otherwise be inaccessible to most British shareholders. This long-term investor, who holds shares in IGC and JII, continues to expect capital growth from India, albeit with volatility along the way.
That raises the important point that investment trusts’ closed-end structure means they do not have to sell underlying assets during temporary downturns, as unit trust managers are sometimes forced to do. This can help investment trusts deliver higher medium and long-term returns than unit trusts focused on the same sectors. Even so, the short-term fact remains that IGC has lost nearly 10% of its value since January.
JPMorgan US Smaller Companies (JUSC) is another short-term disappointment. I expected them to benefit from taxes that the American president, Donald Trump, threatened to impose on foreign imports and thought that might give a competitive advantage to US companies.
Since then, Trump’s tariff tantrums and fiscal retaliation by foreign countries which export to the USA, have hurt investors’ confidence. Alongside the growing popularity of tracker funds, this has tended to diminish demand for smaller companies in general and American firms in particular, causing JUSC shares to plunge by nearly 19%.
So, sad to say, three of my four fantasy fund selections have become what I call Cowie’s Clangers - or shares whose price fell by more than 10%. Ouch!
“Never mind fantasy muck-ups; in reality my life savings are invested across 50 funds and shares to reduce my exposure to setbacks in any one company, country or currency.”
More positively and most importantly, this embarrassing experience demonstrates the value of diversification to diminish risk. Never mind fantasy muck-ups; in reality my life savings are invested across 50 funds and shares to reduce my exposure to setbacks in any one company, country or currency.
The second important lesson is that short-term speculation is much riskier than medium to long-term investment. Anything might happen to share prices on a six-month view. But more than a century of data in the Barclays Equity Gilt Study shows that shares tended to beat deposits in three quarters of five-year terms since 1899. I have owned some shares for 29 years and my ideal holding period is forever.
The third lesson is that share prices can fall without warning. So, before investing, it is a good idea to consider how we will feel when that happens. This should reduce the risk of doing something silly, like selling after prices have fallen, and increase the probability that we will hang on for long-term returns.
All data shown to 30 June 2025.
