US Edition
More than two years after our Wealth Preserver portfolio began life, it’s a good moment to take stock of its performance.
We must admit straight away that it has been disappointing, as we are currently nursing losses, on paper at least, that are just into double figures.
We’ll provide a brief overview of how the various parts of the portfolio have performed before looking for reasons and assessing the prospects for recovery.
Four of our eight “baskets” of assets have gone up in value, while four have fallen.
The risers are the “scarcity” assets of gold and Bitcoin, which between them have gained 4.8pc; our bond/debt funds, which have risen by 1.7pc in aggregate; commodities, 11.4pc to the good; and cash. All figures are on a “total return” basis, which means we include any income received.
The four categories to have fallen are index-linked gilts, down by 23pc since purchase; individual stocks, our second-worst performers with a loss of 21.5pc; our property/infrastructure funds, 20.8pc in the red; and our “uncorrelated” assets, 13pc lower. Overall the portfolio has fallen by 10.4pc.
Why has it performed so badly? We cannot pin all the losses on one single mistake, but perhaps the greatest contributor was our decision to use so many investment trusts.
This may surprise readers used to Questor’s long-standing belief in these quoted funds as excellent long-term savings vehicles. In fact we remain enthusiasts for trusts but cannot deny their role in the portfolio’s poor performance.
The reason is simple: since purchase, the discounts on many of our trusts have widened significantly. In fact, on a simple average basis (with no account for their different weightings in the portfolio), our 11 trusts – we exclude Pollen Street, which, under the name of Honeycomb, was a trust when we bought it but is no longer – traded at roughly par value when we bought them. Now they trade at an average discount of 25.2pc.
To give a couple of examples, Hipgnosis Songs Fund was bought at a premium of 2pc but now trades at a discount of 47.7pc, while Urban Logistics Reit has gone from a premium of 15.9pc to a discount of 28.9pc.
Of the 11 trusts, only one has seen its discount move in the right direction: Invesco Bond Income Plus, bought at a 1.8pc discount, trades now at a 1.6pc premium. Figures are courtesy of Stifel and Hargreaves Lansdown, the stockbrokers.
While at the share price level the performance of our trusts has been very poor, when looked at in terms of their net asset value the picture is different. Hipgnosis, for example, whose dramatically widened discount has led to a 35.7pc loss in share price terms so far, has seen its NAV increase by 18.3pc since purchase.
Urban Logistics Reit has lost a third in share price terms but its NAV has risen by 8pc.
In fact, were all these 11 trusts trading now at the discount or premium at which we bought them, the Wealth Preserver portfolio as a whole would be in the black to the tune of 2.7pc (still way below our target of more than keeping pace with inflation, of course).
Now we mustn’t delude ourselves that these encouraging NAV figures make all our problems go away: no reader can sell these trusts at their NAV, only at the share price that prevails in the market.
But we can take some solace from the fact that the assets in these trusts seem in good shape overall. While there can be no guarantees of recovery in these trusts’ share prices, we can at least say that the potential exists for the severe widening in their discounts to go into reverse.
What caused that widening? Many of our trusts are income vehicles and have as a result become less attractive relative to bonds as interest rates have risen dramatically. Some of the more specialist trusts may also have suffered from increased risk aversion among investors.
Away from the trusts we mustn’t forget the poor performance of our basket of eight individual shares. Ultimately though neither the trusts nor shares seem to us to have suffered a permanent loss of capital, as opposed to volatility in market prices, so we will grit our teeth and hold on.
Calculations based on Wednesday’s closing prices
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