No humbug

 

_{This is not substantive investment research or a research recommendation, as it does not constitute substantive research or analysis. This material should be considered as general market commentary.}

 

Our analysts look back at a year of predictions, theories and ideas, and highlight those they think could matter most…

 

“Let us learn from the past to profit by the present, and from the present to live better in the future.”

 

Like everyone else in the country we like to kick back and relax in the office with some cheese and wine. It was with these words from the great English poet, William Wordsworth, ringing in our ears that we did so in the week before Christmas, to take a look back at the research we have produced in 2021, aiming to identifying what are, in the opinion of our analysts, the ‘best articles’ of the year.

 

William Heathcoat Amory | 60/40 and other dinosaurs

 

Within the listed investment trust sector, private markets investments continue to attract significant capital and deliver returns to investors (whether capital growth or income). We see this dynamic as reflective of a wider appreciation that listed equities are not the only game in town, and that even if they were, valuations in many places seem full.

Our review of the Yale endowment model suggests that many private investors’ portfolios reflect the thinking of the 1990s rather than the 2020s. We highlight a few simple steps that investors could take to shift their portfolio using listed funds to get exposure to the sorts of assets that are normally only available to multi-billion dollar institutions.

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Thomas McMahon | How to protect your portfolio from inflation

 

One of the key worries through next year is likely to be high and persistent inflation. UK CPI hit its highest in the decade in December, and US inflation hit its highest for four decades. Decisions that month by the US Federal Reserve to hasten tapering of its QE programme, and by the Bank of England to raise the base rate are widely seen as indicating authorities are worried they might be behind the curve in throttling this worrying trend. We ran a number of articles during the year looking at the attractions of alternative assets and why money was pouring into them, particularly in the investment trust space. Perfectly timed (written before the record numbers came out and published on 1 December!) was our concluding piece on inflation protection. We ran through which real asset sectors and which specific trusts looked in a strong position to provide protection against a sustained period of inflation.

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John Dowie | Board games

 

Shareholders in investment trusts are usually well informed on the subtle differences between them and conventional open ended mutual funds, such as the widespread use of revenue reserves and gearing. However, one area that can be overlooked is the important role played by independent boards, and in the article Board games we explored whether boards where becoming more active, especially in response to the increasing competition from passive vehicles. As fate would have it, on the day the article was released it was announced that the board of the struggling Scottish Investment Trust (SCIN) had proposed a merger with JPMorgan Global Growth & Income (JGGI). The fact this would result in the in-house management team of SCIN losing their jobs starkly demonstrated that boards were more than willing to put the interests of shareholders ahead of fund managers, an almost unthinkable event in the world of open-ended funds. We look forward to seeing how boards will continue to respond to the challenges and opportunities the new year brings.

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David Johnson | Winter is coming

 

Earlier this year we outlined four scenarios which we thought might trouble the winter months; a resurgent pandemic, inflation, asset bubbles, and China’s equity market. Some of these scenarios are already starting to play out, such as the risk from China’s burgeoning debt load and the Evergrande fiasco, and we continue to see trusts like BlackRock Frontiers (BRFI) and Barings Emerging EMEA Opportunities (BEMO) as attractive opportunities for investors looking to diversify their emerging market exposure out of China. And while we never claimed to predict Omicron, we did also highlight the possibility of another global resurgence of COVID-19, pointing to the quality factor and technology stocks as potentially becoming winners, repeating their 2020 success. It will be interesting to see whether the current wave of infections will manage to curtail the impact of rising inflation.

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Neema Nabavian | Even better than the real thing

 

2021 was a year filled with Initial Public Offerings and Special Purpose Acquisition Company listings. Yet, there can be no doubt that private equity investing has been gaining prominence on investors’ radars for a considerable period. Categorised within an area of specialist investing that is often poorly understood, the article was a simple teach-in for those interested in private equity investing and how it’s share of market activity has risen hugely. It broke down the typical process of private equity investing versus more conventional equity investing, and explained the advantages of listed private equity (LPE) trusts, highlighting the potential opportunities that LPE trusts offer, via their provision of access to an area of the market which is often viewed as exclusive and complicated.

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