Disclosure – Non-substantive Research
This is not substantive investment research or a research recommendation, as it does not constitute substantive research or analysis. With this commentary, Kepler Partners LLP does not intend to influence your investment firm's behaviour.
It’s been a long year, hasn’t it?
Like a drone at an airport, Brexit just won’t go away. Nobody seems to have a clue where it came from, or how to stop it, and the result is chaos. The FTSE 100 has drifted down 9% since the start of 2018. UK shares – I am reliably informed – are cheaper now than they have been at any time since the start of the 20th century, if you don’t count the first and second world wars.
Schadenfreude being the only thing we have at this point, the good news is that our friends across the channel aren’t having much fun either. The French are enthusiastically resisting President Macron’s attempts to create a functioning free-market economy (and who can blame them, what a punchable face that boy has), while Angela Merkel’s well-meaning but politically suicidal stance on immigration has driven the mighty Christian Democratic Union, and German political cohesion with it, onto the rocks. The less said about Italy the better.
Meanwhile in America, the Trump Bump has lost its lustre, and the S&P is barely in positive territory – up 0.1% in dollar terms since the start of 2018 – while China has stopped breathing fire and looks more like a knackered old panda by the minute, with the Hang Seng and Shanghai composite both in bear market territory this year.
The team at Kepler have written more than a quarter of a million words in 2018, most of them aiming to identify themes and ideas which might work well for investors in spite of this somewhat troubled backdrop. In this article, we look back at some of our favourites.
Personally, I thought Thomas McMahon’s article in August this year – discussing the increasingly ‘toppy’ market – was apposite. The core argument was that the most attractive areas of the market were becoming too expensive and could see sharp corrections, and a solution was to identify trusts offering real diversification.
He highlighted a number of trusts which, in his view, offered diversification benefits including Mid-Wynd – a global portfolio which, despite its significant exposure to technology, is balanced by some deep value opportunities in a ‘safety box’ of undervalued stocks. British Empire, another value player, was also on his shortlist alongside Schroder Asian Total Return – a unique Asian equities trust which uses derivatives to cancel out ‘country risk’, allowing the managers to derive performance from stock selection even if the countries within which those stocks are located suffer from volatility (as they are wont to do).
His final selection was Finsbury Growth & Income and the theory behind this choice a simple one; ignore value versus growth entirely and instead trust the talents of the manager himself to choose a focused portfolio of winning stocks, and to avoid the blow-ups.
Looking at Nick Train’s performance in the last twelve months – down just 0.1% in price terms when the FTSE is down by more than 7% and even trusts designed to protect capital, like Ruffer and Personal Assets, are struggling to stay positive - it seems that the simplest theory has proved to be the best.
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