So investing in the new property categories needs care and caution. Bonds and loans are all very well, but the risks are there, even if hidden, because the underlying asset is often property. And property can be as changeable as a companies’ fortunes. The current mayhem on Britain’s high streets is proof of that.
Investment company DNA is buying in bonds and shares. It is also political diversification for the sake of security, and the creation and delivery of an annual income. It is not luck that means some trusts have increased their payouts every year for the past 50 years but canny investing, like Mr Woodford himself but within a disciplined framework.
And shares give a fundamental benefit compared with any other security. They are dynamic, their profits fall or rise depending on the state of the economy and the decisions of their managers. While the average life of a company is eight to 10 years or so, the successful can last a century or more. And each year the tax system allows them to store away profits, as reserves, increasing their wealth and the value of their shares. It is this added yet hidden wealth that enables compound interest, as described in last month’s article, to work its magic.
The era of Asia
The good news is that the increased classification of investment sectors shows that trusts have fully adjusted to the Asian century. There are now three Asia Pacific categories devoted to income, smaller companies, and generalist strategies – as well as plenty of individual country and technology stocks. This is our future, and a recent Baillie Gifford article on China, its attitude to patents and intellectual property, will be an eye opener for most of us.
Currently, investors are frightening themselves with worries about a coming end to this 10-year-old bull market, as well as out-of-control debt, and President Trump’s new toy – tariff threats. As it stands the anti-Brexit portfolio is holding up reasonably well, as Table 1 shows.
Table 1: Anti-Brexit portfolio update
Investment company | Initial investment as at end-December (£) | Share price total return over 2019to date (%) | Cash value of YTD share price total return (£) | UK exposure – May 31 2019(%) |
Witan* | 25,000 | 9.1 | 27,273 | 35.9 |
Alliance | 25,000 | 9.7 | 27,435 | 14.3 |
Personal Assets | 15,000 | 5.3 | 15,792 | 11.7 |
Scottish Mortgage | 15,000 | 8.7 | 16,310 | 3 |
Worldwide Healthcare | 10,000 | 7.9 | 10,792 | 0 |
Polar Capital Technology | 10,000 | 16.7 | 11,667 | 1 |
Total portfolio performance | 100,000 | 9.3 | 109,268 | – |
FTSE All-Share | n/a | 9 | – | n/a |
MSCI World index | n/a | 7.3 | – | n/a |
Note: *Witan underwent a 5:1 share split in May 2019. All values have been adjusted accordingly.
Source: AIC/Morningstar. Copyright: Money Management
For the moment, the president’s actions are hurting his own citizens at least as much as his trading partners, but this may not always be the case. The dynamics of a relationship between an ageing superpower and an emerging one such as China are unstable, even at times when both understand each other. And this they do not do at the moment, as the Baillie Gifford article makes all too clear.
But what both the existence of investment companies and Mr Woodford’s downfall make clear is that successful investment requires two things. One is time and the other is money.
