Much has been written in recent weeks about the virtues of investment trusts, particularly the outstanding performance of Scottish Mortgage.
Writing here in August, the economist John Kay — who recently retired from the board of Scottish Mortgage Investment Trust after 12 years — drew attention to the tenfold share price increase during that period (though he claimed no personal credit for that achievement).
He set out compelling reasons for investing in the investment trust sector. His conviction and enthusiasm is shared by my Parliamentary friend, John Baron, who has just published a second edition of The Financial Times Guide to Investment Trusts — the most comprehensive publication on the subject, “Unlocking the City’s best kept secret”.
My late father, to whom I am eternally grateful for introducing me to the world of stock market investment, in 1982 bought each of my daughters £1,000 of Save & Prosper Investment Trust units — a fund theoretically investing in the cream of that sector, with a fine growth record.
Today, 38 years later, having morphed into JPMorgan Asset Management UK Limited Multi-Manager Growth C Inc. Units, and with dividends reinvested, each holding is now worth £36,500. My own performance over that period has been perhaps somewhat better, though it is difficult to be sure. Bear in mind, however, that I have bought and sold hundreds of shares and put in an enormous amount of time and research effort when investing (with all the pleasurable highs and depressing lows that personal selection has provided). But for those who want others to do it for them, the case for quality investment trusts is overwhelming.
Turning to my own portfolio, the past couple of months have been quite active. I needed to raise significant funds to help fund a family house purchase, thus raising the question of whether I should dip into my Isa or non-Isa portfolio, when doing the latter would trigger a large capital gains tax bill. I took the second course of action, reluctantly selling all my shares in Gooch & Housego, an optical systems maker, and a slice of both Nichols, the soft drinks business, and FW Thorpe, a lighting equipment maker — thus preserving my valuable tax-free Isa pot.
Interestingly, when I had performed a similar exercise in 2017, I sold some of my stake in Gooch at £13.50 per share, whereas this time it is at about £10. Similarly with Nichols, I sold then at £18 and now £12.
More normal trading activity saw me adding to insurance company Aviva, encouraged by the first actions of chief executive Amanda Blanc in resuming dividend payments, selling the Singaporean subsidiary and buying £1m worth of stock herself.
I also added to my large holding in Christie — a much undervalued “brand” service business — on continuing signs of recovery. Capitalised at only £20m, a forecast return to profitability in its stocktaking division should significantly benefit the bottom line.
I also bought back into Tate & Lyle at 677p. I just do not believe that this £3bn capitalised conservative food ingredients business, on a yield of 4 per cent and a price/earnings ratio just into double figures, is correctly priced. It could well catch the eye of a private equity predator given its modest borrowing and cash generation.
Two new purchases are media company STV Group — oversold at 221p when I bought but now recovering nicely — and a very modest buy of Kooth, a provider of online mental health services for the NHS and a new entrant into my portfolio. To finance these, I reluctantly reduced my holding of Town Centre Securities, since property is likely to be out of favour for some time, and also marginally top-sliced Treatt, taking advantage of a spurt to £6 at the flavour and fragrance maker.
Elsewhere, most holdings continue to produce good results or encouraging trading statements. Excellent figures from natural animal growth feeds Anpario delivered an appreciated dividend increase — similarly with Concurrent Technologies, a computer integrated systems designer — and cash-rich Air Partner has pleasingly resumed its dividend.
Results from old friend PZ Cussons were less happy, with a reduced dividend. It is so sad to see this historically well-regarded PLC struggling with very mixed fortunes. Its task is not easy, with family-controlled equity that is effectively locked, Nigerian problems, and a sector dominated by very large global players. Shareholders might have appreciated a pack of Carex as some compensation! Let us hope new chief executive Jonathan Myers can reverse the group’s decline. Considerably reduced debt and a buoyant first quarter’s trading offer some hope.
Inevitability, a resurgence of Covid-19 has created considerable uncertainty and unsettled markets, sending most prices lower. However, with private equity brimming with cash, it remains to be seen whether the sector takes advantage of conditions. These are worrying times, but investors should stay aboard and keep their nerve.
Lord Lee of Trafford is an active private investor and author of “Yummi Yoghurt — A First Taste of Stock Market Investment”. He is a shareholder in all the companies indicated
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