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Ian Cowie: perilous politics linger over my portfolio

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Ian Cowie: perilous politics linger over my portfolio

Investors are living through ‘interesting times’ when a stream of news events, each one more lurid than the last, is causing sentiment to alternate between greed and fear. This, in turn, is driving markets up and down.

So, even with a diversified portfolio of professionally-managed investment trusts, it makes sense to review progress - or lack of it - and take action where necessary. The start of a new tax year is as good a time as any to get down to this task and I am surprised to find how much my modest portfolio of a dozen trusts has been affected, for good or ill, by politics as much as economics.

Fortunately, investment trusts’ automatic diversification to diminish risk continues to provide valuable protection from political surprises and stock market shocks.

Last month, the poisoning of a former Russian spy and his daughter in Salisbury prompted me to sell shares in BlackRock Emerging Europe Trust (BEEP), which I had held for more than a decade. I was sad to do so because, as reported here at the time, I admire the manager and continue to believe this region offers great value.

However, for the time being, I am glad I sold at 367p on March 7 because BEEP now trades at 326p and may fall further if relations with Russia, where half its assets are invested, continue to deteriorate.

This week, talk of a trade war between the world's biggest economies forced global share prices lower at first before a partial bounce-back after American president Donald Trump's threat of higher tariffs received an apparently conciliatory response from Chinese president Xi Jinping.

Fidelity China Special Situations (FCSS) perked up 2% as a result of the news on Tuesday. Unfortunately, as I only bought in October, its 19% total return over the last year remains somewhat academic for this shareholder. However, its 13% discount to net asset value (NAV) will invite top-ups when cashflow allows.

Elsewhere, my other Asian investment trusts seem to be weathering the storm well enough - one of them spectacularly so. Baillie Gifford Shin Nippon (BGS) has delivered outstanding total returns of 52% over the last year, according to the Association of Investment Companies and is also top of its sector - Japanese Smaller Companies - over the last five and 10-year periods.

So I regret having to sell some to make use of last year’s capital gains tax (CGT) allowance, although BGS remains in my top 10 holdings by value. It is never too soon to take a profit - particularly when there is so much political uncertainty close to home and neither the 20% top rate of CGT nor the allowance are set in stone. While the shares trade at an 11% premium to NAV there is also the worry that they are now priced for perfection.

At the other end of the performance spectrum, another long-term holding, JPMorgan Indian (JII) has had a bad year, falling 2.6%. However, the shares continue to trade at more than 10 times the 63p I originally paid in 1996 and have delivered a series of handy lump sum gains over the decades. I am thinking of framing my original Robert Fleming contract note and will continue to hold JII for growth in future. While the shares trade at a 12% discount to NAV, they also look tempting for top-ups.

Elsewhere in Asia, Henderson Far East Income (HFEL) and Schroder Oriental Income (SOI) continue to deliver healthy dividend yields of 6% and 4% respectively. As is so often the case, the price of a high income seems to be pedestrian total returns with these trusts delivering just 4% and 5% respectively over the last year.

As I have no immediate need for yield, I am considering alternative ways to gain exposure to Asia ex-Japan but fear a more growth-orientated approach could prove mis-timed, nine years into this bull market. I would be interested to hear readers’ views on this. Next week I will report how my global and occidental trusts have coped with recent events and fared over the last tax year.

Here is a complete list of Ian Cowie’s stock market investments. It is not financial advice nor is any recommendation implied.

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