The Start of a Twenty Year Investment 'Experiment'

Having turned 55 (and ‘retired’ from paid employment for some time) I will be taking my workplace pension later this month. As part of this package, a tax-free lump-sum is due, part of which will be spent on house refurbishment, the remainder invested.

A recent visit to an elderly relative in a retirement home brought home the need for me to have a large capital sum to draw down after I turn 75 to fund potential long-term care and health needs.

Recent investment experience, together with my eclectic outlook, has encouraged me to inflect this very long-term capital in the direction of the value style of investment.

My diverse (some would say incoherent) existing portfolio spans Chelverton UK Dividend and Edinburgh Worldwide, but arguably lacks both breadth and depth in its exposure to non-income paying investments in the value style.

The core of my portfolio will continue to be in dividend-paying shares and trusts/funds, but as I hope to live for another 30 years, I’m not abandoning long-term growth as an aspiration, but want to find growth in a value style.

The previous blog post highlighted the Palm Harbour Global Value Fund and the Kopernik Global All-Cap Fund as possible global value choices, and Asian value is to some extent covered by a long-standing holding in the Fidelity Asian Values trust. 

In completing this allocation to value investments in pursuit of growth (including a newly opened SIPP) the following funds have attracted my interest, and it’s notable that there’s a dearth of value-style investment trusts outside of equity income.

For UK Smaller Companies: The VT Teviot UK Smaller Companies fund has performed extremely well since launch despite the headwinds facing UK small cap value strategies: up 24% over 1 year to 1^st Feb 2022, in the sector top 5, along with other UK smaller value strategies, but unlike those Teviot was up 70% in the 3 years to 2022, in the sector top 5 with the leading growth-based UK smaller companies strategies over that longer time frame. 

One point to note: the fund charges a dilution levy of around 1% for purchases and sales - irritating, but I'm willing to pay it given my long time horizon.

For deep value: Arguably the deepest value, most contrarian UK All Companies fund or trust available is the Cape Wrath Focus Fund. 

After a rough 2019/early 2020 it performed strongly in 2021 and was the top performer in the IA UK All Companies sector in the 12 months to 1^st February 2022 (+35%).

For US small cap value: The VT De Lisle America Fund is one of very few actively managed small cap value funds, with its heavy weighting to US community banks perhaps well-placed given likely interest rate moves.

For Japanese value: The Nippon Active Value Fund is a London-listed investment trust and one of a genre of activist vehicles targeting many cash-rich Japanese companies as the corporate governance culture in Japan becomes more shareholder-friendly. In early 2022 it has so far avoided the heavy sell-off in Japanese smaller company growth trusts such as Shin Nippon and JP Morgan.

The start of the 20 year experiment

To start this two-decade long investment journey, and with a global value tracker, as well as two growth trusts I already hold, as comparisons, here below are the prices as of 02/02/2022 and latest available price-earnings ratios, from Morningstar [date of PE in brackets]

Health and technology permitting, I aim to track the progress of this ‘growth in the value style’ part of my portfolio regularly in these posts until I turn 75 in 2042.

Will 'value' outperform growth over the next two decades?

Palm Harbour Global Value Fund EUR 13.55 PE 7.01 [31^st Oct]

Kopernik Global All Cap AG £1.6855 PE 6.68 [31^st Dec]

De Lisle America B £5.7542 PE 9.07 [31^st Dec]

Cape Wrath Focus A £1.4591 PE 6.22 [31^st Jan]

Teviot UK Smaller Companies £1.8223 PE 10.48 [31^st Dec]

Nippon Active Value £1.31 PE 14.6 [31^st Dec from trust Factsheet]

Edinburgh Worldwide £2.305 PE 71.34 [31^st Oct]

Scottish Mortgage £11.055 PE 34.36 [31^st Oct]

XTrackers MSCI World Value Factor XDEV £29.13 PE 9.61 [31^st Dec]