Our portfolio, which we introduced in an article last month, is up 1.62 per cent during a period in which the FTSE has lost 2 per cent and the AFI Aggressive index 1.43 per cent. We used the AFI Aggressive index for our asset allocation, making it a reasonable benchmark.
Performance of portfolio vs indices over 1 month
Source: FE Analytics
A month is a very short time, and we'll be comig back to this every quarter from now on to see how it's doing, good or bad.
It should go without saying that this portfolio is for educational purposes only and you should not regard it as investment advice.
Although our portfolio was set up very aggressively, it was one of its more defensive funds that performed the best.
Capital Gearing IT returned 9.56 per cent during the month, boosted by weightings to bonds, both straight and index-linked.
However, the largest factor was the trust rebounding on to an 8.6 per cent premium. We highlighted in January that the trust had lost money for the first time in more than a decade as its premium shrank down to 4.7 per cent from a high of 17.
Price and NAV of trust over 1yr
Source: FE Analytics
This process reversed in January, giving our portfolio a welcome kick. Capital Gearing makes up 2.5 per cent of the fund.
Its performance leaves us with a choice: sell it to bank gains and reinvest in something cheaper or stick with it.
Looking back at the trust’s discount history, it has tended to trade on a significant premium apart from when markets are in full-on cyclical rally mode.
Price and NAV of trust over 10yrs
Source: FE Analytics
This justifies us hanging on to it – we are unlikely to see the premium slashed again as it was last year, and even if it does happen, over the long term it is likely to return to a significant number.
On top of this, there are no obviously superior alternatives, and given that we got in when the premium was lower than the historic average, we are going to hang on to this one.
Of our other two defensive funds, Ruffer held up well, returning 1.06 per cent, while Jupiter Strategic Bond, an open-ended fund selected to provide some fixed interest bulk, was a fraction down at -0.12 per cent.
The second best-performing trust in our portfolio was Henderson Opportunities, which is less of a surprise given the fund’s high-growth strategy.
The £72.3m portfolio is FE Alpha Manager James Henderson’s lesser-known trust, representing a selection of his best ideas with a bias towards small and mid cap companies.
Recently renamed GVO Strategic Equity Capital, up 5.35 per cent in the period, also has a small cap bias.
FE Trustnet research showed yesterday morning that UK smaller companies managers are finding the current environment to their liking, managing to make significant gains as the broader market has gone sideways.
Only three funds underperformed the FTSE All Share during the month – unsurprisingly they were the emerging markets-facing ones.
Schroder Asian Total Return outperformed its benchmark, losing 2.02 per cent as the MSCI AC Asia ex Japan index lost 2.43 per cent.
Edinburgh Dragon lost 2.38 per cent as the MSCI AC Asia Pacific ex Japan index lost 2.14 per cent.
We are hoping for discount movement on these trusts, but there has been little sign of this so far. After such a short time, however, we are unconcerned.
There are similar opportunities available on the Aberdeen Asian Smaller Companies and Scottish Oriental Smaller Companies trusts, as we highlighted this week, but we are going to stick with our original choices.
We have no need to take the extra smaller companies risk on these trusts and are happy with the idiosyncratic approach of the Schroders fund in particular, which we have high hopes for if emerging markets continue to suffer.
JP Morgan Emerging Markets lost 4.66 per cent as the MSCI Emerging Markets index lost 2.94 per cent. Our fund selection has let us down here, as Templeton Emerging Markets and Genesis Emerging Market both performed better.
Chunky weightings to Brazil and India haven’t helped, but we note that the excellent managers at Aberdeen and First State think that India is worth overweighting, while Aberdeen also likes Brazil.
We are going to keep an eye on this for the next couple of months and see how the fund bears up against its peers.
We want to be in some of the cheaper emerging markets to be able to benefit from the eventual rebound, even if we have to wait for some time.
On top of this, we like the underweight to China – although the trust is not alone in this positioning – as we find it hard to take a side in the debate over that country’s financial system. It’s not quite right, but what exactly that means for investors isn’t clear.
Here is the full table of top-performing holdings and their one-month returns.
Source: FE Analytics
We will come back to this portfolio in a couple of months’ time to see how it is doing, unless something dramatic happens in the meantime.
We’d be very interested to hear your opinions in the comments section and what you would have done differently. Please let us know if you think there are superior alternatives to the funds we have picked in a particular sector.
