Like most reasonably diversified investors 2017 was a positive year for my portfolio.
General market conditions all over the world were surprisingly benign with gains largely across the board, ranging from about 12% for the FT All-Share and S&P 500 indices, to double that for emerging markets.
I have had an extremely good run with a number of high-yielding smaller company shares purchased in late 2016 and early 2017, moving from the 'cut your losses' to the 'run your winners' part of that well-known investment saying.
In a September 2017 post I mentioned a number of those individual stockpicks, notably XL Media (XLM) which at the time of writing this in early January 2018, along with Caledonia Mining (CMCL), and Polar Capital (POLR), are up over 50% on purchase price, more than making up for the errors in KCOM (KCOM) and Coral Products mentioned previously.
Given that (investment) pride can come before a fall, the 'good' problem confronting me with some of these smaller-caps is whether to continue to hold or take profits. At the moment although it's unlikely that the next 12 months will see further spectacular gains in share price for those companies, the main reason for investing in them remains - high dividend income. Indeed, slightly to my surprise Polar Capital increased its latest interim dividend from 5.5p to 6p. I'll keep these companies under review as 2018 unfolds.
2017: Year of personal transition
More broadly, 2017 marked my exit from full-time employment, the sale of a second property, and a now almost complete reorientation of my portfolio to provide the income and capital growth to (hopefully) sustain me for the rest of my life.
As I suggested in a July 2017 post , political uncertainty in the UK underpinned my allocation of a higher proportion of the property proceeds than I'd originally envisaged in overseas-focused investments, notably investment trusts such as JP Morgan Global Growth and Income (JPGI).
A holiday in East Asia strengthened my conviction in that region, and emerging markets more generally, as a key component in any long-term investment strategy, so as well as topping up Jupiter Emerging and Frontier Income (JEFI), I invested in JP Morgan Asian (JAI), and despite its relatively low dividend of just over 2%, the Vietnam Opportunity Fund (VOF).
2018: more of the same?
Looking ahead, although investment returns in terms of 2017's capital growth without much volatility are unlikely to continue indefinitely, my investment strategy is now firmly set on the path of weighting in favour of dividend-paying vehicles, with about 5-10% of the portfolio at the margin available to explore potential capital growth opportunities, both tactically, and strategically.
As well as having a personal bias in favour of dividends and smaller companies, the stubborn contrarianism of value investing appeals to me on both intellectual and emotional grounds. The strong overall investment returns of 2017 concealed a considerable dispersion between the returns to so-called 'Growth' and 'Value' styles. In US dollar terms the MSCI World Growth Index grew by 30% in the year to 5th January 2018, MSCI Value by 'only' 16%. Consequently there may be even more value in 'value' than usual; but how to capture this possibility?
In an attempt to invest in 'global value' I've invested in the River and Mercantile World Recovery fund for several years, and being both pragmatic over the active/passive debate and quite impressed by the returns to the one ETF I currently hold, Wisdomtree Emerging Markets Small Cap Dividend (DGSE), I have opened the year by taking a small holding in a global value ETF: the Lyxor SG Global Value Beta ETF (SGVB).
It took an E-mail interchange with the ETF provider to clarify that due to its synthetic replication of the value index it aims to track, the SGVB fund holdings (a pool of liquid assets in familiar names like Banco Santander) do not match those of its underlying index. It is the underlying index performance which drives the daily value of the SGVB ETF.
At the moment SGVB's index has a 54% weighting to Japan, and only 12% in the USA, a marked contrast to another possibility I considered, the Vanguard Global Value Factor ETF (VVAL) which has over 60% invested in the USA.
SGVB's index aims to offer exposure to the 200 most undervalued global equities, above a $US 1billion market cap. threshold, rebalanced very quarter, according to this methodology.
Over the last 3 years SGVB has risen by 71%, compared to River and Mercantile World Recovery's 61%. It will be interesting to see if the more Japan-focused SGVB outperforms the actively managed and more geographically dispersed World Recovery fund.
Either way one of the few predictions I'll venture for 2018 is the importance of having a 'value' element to one's investments.
