Five investment themes for 2019 and beyond
2019 has been an interesting year so far. Global stock markets started January in the doldrums, only...
I read once that that the secret of the strength and longevity of the Great Wall of China lies in the sticky rice that was used as its mortar.
Built about 600 years ago, the Great Wall has survived the weather, earthquakes and other disasters thanks, say scientists, to the staple of East Asian food that was mixed with slaked lime and bound the bricks together so tightly that in many places weeds still cannot grow.
In a similar vein, it is believed that some of the less glamourous surfaces of the Taj Mahal were plastered using a recipe of 1 part burnt lime, 1 part ground shells, calciferous stone or marble dust, 1/8 part gum from the babul tree, 1/8 part sugar mixed with the juice of the bel fruit (Bengal quince), and a little white of egg.
As fears grow that the UK could be heading for its first recession in a decade, and the equally long bull market looks to be on shaky footings, it got me wondering: what is the glue that binds and strengthens my investment portfolio?
Here are some ideas for different types of investor.
Income investors: City of London investment trust. If you need a regular income, it’s also likely that you need it to be reliable. One of the best options in this case is City of London, as it has raised its dividends for each of the past 52 years and, in bad times, can dip into its revenue reserve meaning investors should not miss out on income.
Job Curtis has used the revenue reserve seven times since 1991 (when he started managing the trust). In addition, it’s share price relative to its net asset value rarely goes above a 2.5% premium, or below a 2.5% discount, so the yield has been very consistent too.
Cautious investors: SVS Church House Tenax Absolute Return Strategies. If you are a cautious investor, preserving the value of your investments is going to be a main priority. This targeted absolute return fund is a multi-asset fund, which invests directly in assets, rather than using the ‘fund of fund’ route. The managers place a heavy emphasis on capital preservation.
It launched just before the global financial crisis took hold in 2008 and fell 9%* when the UK stock market was down 40%*. Since launch it has returned 55.3%** compared with 84.5%** for the FTSE 100 and 32%** for the sector average. Over the past ten calendar years it has only had two negative returns of -1.7%*** and has exhibited low volatility.
Balanced investors: Jupiter Strategic Bond. A balanced investor will probably already have a mix of assets and a diversified portfolio. But even then, there will be ‘core’ elements an investor will want to be able to rely on. Jupiter Strategic Bond is a good option in this case, as it can invest in any type of fixed income asset and the manager moves the portfolio around very actively to help it suit different types of environment.
At the moment, the manager’s top ten is full of US and Australia government bonds^, but he is also happy to take very short term positions if opportunities arise. For example, towards the end of 2018 he invested in a Sri Lankan bond with a yield of 8% that was due to mature in January 2019. With just a few months to maturity, he was happy he could understand the outlook for Sri Lanka and have reasonable certainty that there would be no nasty surprises in such a short period of time.
Adventurous investors: Stewart Investors Asia Pacific Leaders. Even the most adventurous of investors will flinch if they see their portfolio fall significantly in value. So this fund can be a good option for those wanting a little downside protection for when markets inevitably take a tumble.
This fund is run with a very well thought-out and balanced mind set. It invests in larger and medium-sized quality companies and, while it may well lag behind its peers in strongly rising markets, it has a very good track record of falling less in falling markets. For example, in 2011 it was down 7.4%^^ compared with -16.8%^^ for the average Asian equity fund. In 2018 it returned 5.4%^^ while the average Asian equity fund fell 9.8%^^.
*Source: FE Analytics, total returns in sterling, 22 November 2007 (launch of fund) to 9 March 2008 (market low)
**Source: FE Analytics, total returns in sterling, 22 November 2007 (launch of fund) to 12 August 2019
***Source: FE Analytics, total returns in sterling, calendar years 2009 to 2018.
^Source: Fund factsheet, 30 June 2019
^^Source: FE Analytics, total returns in sterling, calendar year for fund and IA Asia ex Japan sector average.