The indeterminate outcome of the General Election, and the attendant complexities of the UK's exit from the European election, together with the increasing prospect of a Labour government led by politicians philosophically opposed to the profit motive, prompt a rethinking of my investment strategy.
With a significant lump sum to invest over the coming months, both my existing and planned exposures to UK smaller companies merit a closer examination.
That said, the last two years have shown that not only can politics produce unexpected outcomes, the financial markets can respond counter-intuitively.
In June 2016 in the immediate aftermath of the vote to leave the European Union, the domestically focused FTSE 250 index fell sharply, although it had already been in decline since earlier in the month. One of my UK smaller company holdings, the Acorn Income investment trust, fell by 14% in a month. Yet by June 30th 2017 Acorn Income had risen 35% above its July 2016 trough and has increased its dividend from 4p to 4.5p a quarter, yielding about 4% at the time of this post.
Could the expected adverse stock market reaction to a Corbyn-led Labour government, should that come about, prove similarly short-lived? It's hard to tell, but the risks of increased corporation tax, regulation, and a general anti-business tone are likely to be reflected in UK-focused company share prices, at least for a while, were Labour in its current form to return to office.
So, although I'll retain the UK funds I hold as my investment horizon is (hopefully) long enough to ride out political as well as economic storms, at the margin the UK seems a less attractive place to invest for the next few years. Thus, the new funds at my disposal are likely to be deployed primarily overseas, but where?
Income and Growth beyond the UK
I can't predict UK political outcomes and the financial markets' response to them. Nor do I possess advance knowledge of the best-performing overseas investment destinations of the next decade. That said, the fresh capital I'm about to receive offers an opportunity to overcome something of a 'home country bias' in my portfolio.
Here are some of the probable investments I'll be using.
1. JP Morgan Global Growth and Income (JPGI)
I've long been searching for an investment vehicle with a global remit, wholly invested in equities, that yields 4% and does not duplicate the defensive stance of my existing holding in the Fidelity Global Dividend fund.
JP Morgan's Global Growth and Income investment trust (JPGI) meets these requirements. Its excellent recent performance has been in part stimulated by the summer 2016 decision to change the distribution strategy from 2017 to pay a dividend of 4% of the 30th June net asset value in the subsequent twelve months.
The share price growth of nearly 50% from late June 2016 to late June 2017 outstrips the increase in the trust's net asset value, with the discount of over 10% having been all but eliminated.
This performance is unlikely to be repeated, but the trust's certainty of income together with a distinctive portfolio (spanning names not usually found in a global income fund like Google's parent company, Alphabet; the insurer Chubb; a Finnish steel company called Outokumpu) will add welcome diversification to my UK heavy portfolio.
A recent Edison report on the trust provides some helpful background.
2. Jupiter Emerging and Frontier Income (JEFI)
The JP Morgan trust stretches back to 1887 in its former guise of JP Morgan Overseas. By contrast the Jupiter Emerging and Frontier Income trust was only launched in May 2017. It is far too early to judge performance, but the trust is currently up by 5%, at a premium to its net asset value.
Managed by Ross Teverson, responsible for the open-ended Jupiter Global Emerging Markets fund, the first evidence of the portfolio shows a tilt to East Asia, notably Taiwan, and with the 'frontier' element limited to 25%, the Jupiter trust is less of a pure 'play' on frontier markets than the Blackrock Frontiers trust, which I already hold, and to which I may add alongside the Jupiter trust.
An investor like myself with a time horizon of decades, rather than a handful of years, needs exposure to areas as diverse as Pakistan, Vietnam, Kenya and Morocco.
Blackrock Frontiers has a current yield of 3.5%. The new Jupiter trust aims to pay around 4% dividends.
3. Wisdomtree Emerging Markets ETFs
In a previous post near the end of 2016 I mentioned I was about to experiment in an emerging markets Exchange Traded Fund, specifically from the Wisdomtree stable, the Emerging Markets Small Cap Dividend ETF
Six months later, and the experience has been mixed. The dividends of $0.42 (approx. 32p; a yield of about 2.7% on my purchase price of £11.80 in December 2016) have been slightly disappointing.
Set against that, the capital performance of DGSE over the longer-term has outpaced most near equivalent income-seeking emerging market investment trusts and open-ended funds. So I may consider adding to this fund, and others from this company, e.g. the Wisdomtree Emerging Markets Equity Income ETF.
4. Other possibilities
In search of growth and income around the world, a variety of potential investments are catching my attention:
Blue Planet Investment Trust
A tiny trust, gross assets of £40m, that has announced a dividend of 4.7p (yield of nearly 9% on the current buy price of 52p) payable in August. Ex-dividend date this coming Wednesday 5th July. Perhaps its recent big bets on emerging market debt (12% of the trust is invested in a Brazilian government bond) have had the best of their run; and a dividend paid once a year and subject to such vagaries as this year's over 50% increase may not be the most reliable.
Centamin (CEY)
I already have some funds invested in miners: Caledonia Mining (CMCL), main asset a Zimbabwean gold mine, and Central Asia Metals (CAML), main asset a Kazakhstan copper mine. So why is Centamin - primary asset the Sukari gold mine in Egypt - piquing my interest?
The share price has slipped from 190p to 155p since April, but the company has nearly $300m in cash and last year paid a dividend of $15.5 per share.
Dividend-paying gold miners might be a useful hedge against political and stock market instability in the months and years ahead.
Disclaimer
As ever the above are notes about my own investment thinking. You should not take them as advice for your own, potentially very different, personal financial situation.
