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Ian Cowie: my stock howler shows power of trusts

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Ian Cowie: my stock howler shows power of trusts

Premature speculation is an embarrassing problem that many investors prefer not to talk about but I may as well own up to my latest howler because it offers a positive lesson about the power of investment trusts. Selling my Tesla (TSLA.O) stake a month ago at $308 per share looks like an expensive mistake while the electric carmaker’s current price has soared to $368.

But I can take some comfort from the words of shrewd investor Nathan Rothschild who, when asked the secret of his success, replied: “I never bought at the bottom and I always sold too soon.”

This recognizes a couple of perennial problems for investors – we never know what will happen next and none of us has really made a penny profit until we sell. So, while I feel a bit of a twit for pulling the plug on Tesla at $308, I can congratulate myself on having picked up stock at $220 in May 2016.

A 40% profit in little more than a year is not to be sniffed at. But it still seems daft to have been panicked into dumping this stock by a Goldman Sachs ‘sell’ note and a temporary dip in the share price last month. You win some and you lose some.

Against all that, a positive lesson from this experience is that pooled funds provide a relatively reassuring way to gain exposure to specialist sectors – such as new technology – where individual investors may struggle to independently assess value. Even when Tesla was surging ahead, I never really knew why.

So I used some of the cash from this sale to top up a stake in the Polar Capital Technology (PCT) investment trust, which happens to be one of my top 10 most valuable shareholdings. Fatima Lu and Ben Rogoff have been running PCT for more than a decade and have better than doubled my money since I bought shares at 467p in October 2013.

No wonder this trust has earned its place among the Association of Investment Companies’ analysis of the best-performing investment trusts since the global credit crisis began a decade ago this month. August 2007, was when the American arm of the investment bank BNP Paribas admitted it could not put a value on some of its hedge funds nor meet investors’ redemptions.

The US Federal Reserve and the European Central Bank pumped liquidity into the system in a bid to prevent international money markets from panicking but, unfortunately, its unprecedented scale of intervention achieved the opposite to the desired effect. Banks around the world abruptly ceased lending money to each other and, by the following month, September 2007, savers were stampeding out of Northern Rock; the first run on a British bank in more than a century.

Despite these dramatic events, the average investment trust managed to turn £1,000 invested a decade ago into £2,251 by the end of last month. That’s a remarkable achievement when you consider that the average unit trust lagged far behind with a return of just £1,849 on the same basis.

Better still, both returns – which include reinvested net dividends, as calculated by Morningstar – beat average house prices which, according to Nationwide Building Society, increased by just 15% over the same period. So much for popular notions that property is always a better bet than shares.

I am also pleased to report that the AIC’s top 10 investment trusts over the last decade also includes another of my biggest holdings, Worldwide Healthcare (WWH). So, compared to the thrills and spills of direct equity stakes, I continue to believe it is well worth paying for professional fund management and automatic diversification – especially in specialist sectors where prices may be volatile.

Top trusts since the financial crisis

Company AIC sector 10-year return (%) 10-year return (£) on £1,000
Biotech Growth (BIOG) Sector Specialist: Biotechnology & Healthcare 677.13 7771.3
Worldwide Healthcare (WWH) Sector Specialist: Biotechnology & Healthcare 499.91 5999.1
Lindsell Train (LTI) Global 466.66 5666.6
Real Estate Credit Investments (RECIV) Sector Specialist: Debt 408.06 5080.6
Volta Finance (VTAV) Sector Specialist: Debt 385.32 4853.2
Tetragon Financial Group (TFG) Flexible Investment 384.21 4842.1
Northern Investors Company (NRI) Private Equity 358.06 4580.6
Polar Capital Technology (PCT) Sector Specialist: Tech Media & Telecomm 354.24 4542.4
International Biotechnology (IBT) Sector Specialist: Biotechnology & Healthcare 344.38 4443.8
Allianz Technology (ATT) Sector Specialist: Tech Media & Telecomm 336.75 4367.5
Standard Life UK Smaller Companies (SLS) UK Smaller Companies 304.75 4047.5
Scottish Mortgage (SMT) Global 301.64 4016.4
Baillie Gifford Shin Nippon (BGS) Japanese Smaller Companies 297.19 3971.9
Aberdeen Asian Smaller Companies (AAS) Asia Pacific - Excluding Japan 291.8 3918
Scottish Oriental Smaller Companies (SST) Asia Pacific - Excluding Japan 271.35 3713.5
BlackRock Smaller Companies (BRSC) UK Smaller Companies 263 3630
Electra Private Equity (ELTA) Private Equity 248.1 3481
Jupiter European Opportunities (JEO) Europe 247.49 3474.9
JPMorgan American (JAM) North America 236.8 3368
Aberdeen New India (ANII) Country Specialists: Asia Pacific 230.05 3300.5
Overall weighted average 124.38 2243.8
Overall weighted average ex VCTs 125.13 2251.3
VCT weighted average 78.2 1782
Property weighted average 58.72 1587.2

Performance data from 31/07/07 to 31/07/17. Source: AIC using Morningstar

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