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The winning investment trusts of 2012 and ideas for 2013
It’s January and many investors will be looking at how their portfolios performed in 2012, writes James Carthew.
It’s January and many investors will be looking at how their portfolios performed in 2012. Given how miserable many of us felt this time last year, it is perhaps surprising how well 2012 turned out.
The MSCI World Index ended the year up 11.4% on a total return basis. We have survived, for now, the Chinese slowdown, the US fiscal cliff (though some may be lamenting that the relief rally arrived in 2013 rather than at the tail end of 2012) and the economic muddle in Europe.
Of course, we are not yet out of the woods – 2012 appeared to be another year of procrastination when it came to resolving the West’s vast debt burden and doubtless we will see plenty more macroeconomic scares this year (and possibly for many years to come).
Fixation with macro outlook
I think many investors were fixated on the macroeconomic picture last year, particularly those flirting with calamity by trying to squeeze the last drops of performance out of the government bond markets before their inevitable collapse.
However, equity investors that focused on companies in reasonable shape – and, in most markets, those paying healthy and sustainable dividends – were rewarded and I think there is a good chance this pattern will persist in 2013.
As often happens, some of the best performing investment companies of 2012 were the penny stocks bouncing from lows – companies such as Loudwater, Ingenious Media Active Capital and Economic Lifestyle Property.
Loudwater raised £75 million in January 2007. The idea was to invest in pre-initial public offering (IPO) stocks but it was not long before the credit crisis hit and IPOs dried up. Loudwater found it had unwittingly become a long-term investor in these companies.
It decided to return cash to shareholders and gave back £13.8 million in 2008 but over the course of the next couple of years, disposals were hard to achieve, the net asset value (NAV) started to fall away and, unsurprisingly, the discount widened.
A sale early in 2011 freed up enough cash to let Loudwater return a further £4.5 million but in 2012 it made real progress. A string of sales was crowned by the sale of its stake in AgraQuest Inc in July for £27.3 million – four times its value in Loudwater’s books at the time and a substantial premium to the Loudwater’s market cap.
In November, Loudwater reckoned the combined value of the cash it had given back and the NAV of what was left in the fund was just over £70 million. Its discount was 21% at the end of the year, having been as wide as 79%.
The Citywire guide to investment trusts
In association with Aberdeen Asset Management
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- Loudwater Trust Ltd
- Ingenious Media Active Capital Ltd
- Economic Lifestyle Property Investment Company Ltd
- Acorn Income Fund Ltd
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