Free hit?

Assiduous readers will know that I am cautious about Investment Trusts as a form of collective for anyone who does not dig deep into their structure. They have features that might ensnare a less well informed investor.

But that does not mean they are bad investments. One I have vaguely kept an eye on over the years is the JPM Morgan Claverhouse Trust (originally Fleming in my younger days). One of my first ever portfolio investors owned this share when they came to me and as a way of getting a broad exposure to a wide spread of UK shares, it seemed to me to be as good as any and I never recommended selling in it in over 20 years. It has handsomely out-performed the UK All Share index over 10 years.

The trust’s performance during the crisis has been dire – reflecting one of the current hazards of investing in classic UK equity shares that have higher yields. If dividends are cut when investors were expecting increases, share prices take a very heavy fall. Having said that, this trust paid an increased dividend this year. It does have some gearing (ie it has borrowed money), so can pay dividends out of reserves of cash if needs be.

The current manager just made some comments suggesting that now was a great time to buy good British companies at bargain prices – what he called a ‘free hit’ for retail investors. Perhaps a cynic might say he is bound to say that after such a shocking sell off in his portfolio. I would give him credit for a sensible assessment.

I report this because it fits with my recent comments about selecting investment funds (or if you prefer, ITs) where the objective allows a talented manger to buy any stocks irrespective of market capitalisation, sector or geography. Now this is a trust that owns UK listed shares, but the majority of the main holdings are global businesses. And it is ‘go anywhere’ sort of trust except that there will be a focus on dividend prospects.

The manager refers back to the ‘nifty fifty‘ idea of many years back which implied there were just a few really good stocks that you needed to own and you could be sure of reliable returns. He mentions that perhaps 5 would do for now! Of course, he is joking about the FAANGs.

This was the point that I thought chimed with my own thoughts about the right shares being the important call at the moment, not the more asset classic allocation decisions.

I do think managers buying equities can currently pick some great value investments that have been marked down with the crowd, although the growth in ‘factor’ investing means they and we may have to wait a while for the value to be appreciated and prices to climb sharply.

I have been paying careful attention to the top 10 holdings in the funds I have been interested in recently. Furthermore, data about the fund holdings combined price/earnings ratios, growth rates relative to the market and cash flow generation are at this time highly relevant.

If you are a subscriber and want help in finding and understanding that extra information, feel free to get in touch.