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Top Trusts: my battle with the New Year crash

Gavin Lumsden reveals the investment trusts he bought and sold for Citywire's Top Trusts portfolio following the dismal start to the year.

Top Trusts: my battle with the New Year crash

This is the latest video in which I update on my progress running the Citywire Top Trusts portfolio which I started with £10,000 in September 2014.

Having rejigged the portfolio in response to recent stock market falls I reveal the three investment trusts I sold and the two I bought this week in my attempt to strike the right balance between safety and adventure.

The investment trusts discussed in this video are:

  • Finsbury Growth & Income (FGT )
  • Capital Gearing (CGT )
  • JPMorgan Japan Smaller Companies (JPS )
  • Jupiter European Opportunities (JEO )
  • Scottish Mortgage (SMT )
  • Henderson Smaller Companies (HSL )
  • Ruffer Investment Company (RICA )
  • Schroder UK Growth (SDU )
  • Schroder Asia Pacific (SDP )
  • Foreign & Colonial (FRCL )

Any opinions expressed in this video do not constitute a personal recommendation to you to buy, sell or subscribe to any particular investment and should not be relied upon when making (or refraining from making) an investment decision.

Can't watch now? Read my script

Hello, I’ve got my fingers, arms and legs crossed after making changes to the Citywire Top Trusts portfolio following the appalling start for markets this year!

In early December I had over 10,600 pounds in seven investment trusts. That’s tumbled to under £10,100 as the stock market crash and transaction costs took their toll.

So what's gone wrong?!

China: its slowdown is not news but the penny, or should I say yuan, has finally dropped that if China devalues its currency to boost its economy it could export a wave of deflation, or lower prices, that could pitch the world into recession.

Markets over reacted, rattled by the dramatic oil price slump, which is bad for oil companies and oil-exporting countries but a massive boost to consumers and oil-importing countries.

So should investors be fearful and batten down the hatches or be brave and go bargain hunting?

Paul Niven, manager of Foreign & Colonial, the UK’s oldest investment trust, advised a bit of both for long-term investors:

'Heightened risk aversion, a deflationary impulse from emerging economies and a potential negative feedback loop to the global economy (and corporate earnings) do not present a compelling environment for investors in equity markets.'

‘Nonetheless, it is important to step back from short-term volatility and consider the fundamental backdrop.’

What Paul means is that the US stock market looks expensive and vulnerable to disappointments, while Europe and Japan look okay because their recoveries are less advanced and emerging markets are cheap but to be avoided for the time being.

So what have I done?

Normally I might have taken some profits on Jupiter European Opportunities (JEO) and Henderson Smaller Companies (HSL), which did really well last year. But after the recent falls in their share prices I'm holding on and hoping they'll bounce back.

I've also retained Finsbury Growth & Income (FGT). It has a very strong record and although it wasn't my strongest performer last year its portfolio of big, resilient consumer brand names is well placed.

Scottish Mortgage (SMT) stays too. 2015 wasn't a vintage year for the global trust but I admire its managers' approach to backing high growth, technology-driven businesses like Amazon.

My big call was selling Ruffer Investment Company (RICA) which I held for two reasons: its defensive abilities – it famously avoided losing investors' money in the financial crisis – and its big investment in Japan.

I'm a bit disappointed in Ruffer's performance: I'm down 5% over 16 months. Also I want my investment in Japan to be more visible.

So I switched £2,500 into Capital Gearing Trust (CGT) which like Ruffer focuses on preserving investors' capital. It holds a lot of bonds and gold and invests in undervalued investment trusts.

It’s a very steady investment and even made a small gain in the first few weeks of this year! It’s introduced a zero discount policy which means it will do everything it can to prevent its own shares becoming undervalued.

I also cut my losses in two Schroder trusts: Schroder UK Growth (SDU) hasn't got going under manager Philip Matthews. Schroder AsiaPacific (SDP) has done well in difficult circumstances under Matthew Dobbs but I could do better elsewhere.

I decided to roll my money into a Japan fund. But which? I regret selling Baillie Gifford Shin Nippon (BGS) a year ago as it delivered a 50% return in 2015! I could have viewed the fall in its share price as a good entry point.

Instead I plumped for its rival, JPMorgan Japan Smaller Companies (JPS), which also had a very good year. Its shares stood at a 12% discount below net asset value, which may give them more scope for growth than Shin Nippon.

So my portfolio continues with a twin-track approach:

A quarter of the money is in a very defensive fund, Capital Gearing, surrounded by funds like Scottish Mortgage, Henderson Smaller and JPMorgan Japan Smaller Companies which are a lot higher risk.    

Fingers crossed it works!

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Look up the investment trusts

  • Finsbury Growth & Income (Ordinary Share)
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  • Capital Gearing (Ordinary Share)
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  • JPMorgan Japan Smaller Cos (Ordinary Share)
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  • Jupiter European Opportunities (Ordinary Share)
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  • Scottish Mortgage (Ordinary Share)
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  • Henderson Smaller Companies (Ordinary Share)
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  • Ruffer Investment Company (Ordinary Share)
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  • Schroder UK Growth (Ordinary Share)
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  • Schroder Asia Pacific (Ordinary Share)
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  • Foreign & Colonial Investment Trust (Ordinary Share)
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