2042 Value Portfolio Update

In a February 2022 blog post I set out what I hoped would become a 20 year 'experiment' in developing a portfolio in the value investing style to provide additional capital for when I hopefully reach my mid 70s and may have healthcare needs.

Having reached the last page of my diary for 2023, now is a good time to review progress.

For the elements of this portfolio within a SIPP (self-invested personal pension), progress has, until the late 2023 stock market rally, been frustrating and slow, but with some emerging successes.

The AVI Global Trust has performed well, its idiosyncratic mix of funds, trusts and individual companies analysed by the managers as trading at a discount have avoided some of the general market fluctuations. The increased dividend was a bonus.

New investments in two small cap value funds: the UK-focused Rockwood Strategic and that rare option of a global small cap value fund Overstone Global Smaller Companies have been successful so far.

Conscious of a perhaps excessive focus on UK smaller companies across my wider portfolio as a whole, I switched out of VT Teviot UK Smaller Companies into the European Smaller Companies Trust to add a little more exposure to technological innovation within the SIPP portfiolo.

The one holding that hasn't done so well, mainly because of a poorly timed entry on my part in summer 2022 is the Cape Wrath Focus fund.

Outside the SIPP, two US small cap value funds VT De Lisle America and FTGF Royce US Small Cap Opportunity have done quite well, albeit lagging well behind the resurgent US technology performance boom of 2023. This US Small Cap Value Weighted ETF has piqued my interest as a possible alternative.

The activist Japanese value trust, Nippon Active Value continues to prosper, to the extent of absorbing two other Japanese investment trusts that have wound up.

On the watchlist for the 2024 SIPP allocation is the Ranmore Global Equity Fund run by Sean Peche, former manager of the Thornbridge Global Opportunities Fund. The Ranmore fund has a strongly articulated value style and a small/mid cap bias. Despite the apparent headwinds facing the value style, this fund is up 23% in the year to 22nd December 2023; 74% in 3 years.

December 22nd 2023 prices for the funds mentioned (with prices from previous 2nd February 2022 blog post in brackets, where appropriate).

AVI Global Trust Dec. 2023: £2.15 [2nd Feb. 2022 price £2.06]

Rockwood Strategic:  £2.05 [£1.46]

Overstone Global Smaller Companies A USD: 195.49 [182.58]

Palm Harbour Global Value: EUR 14.97 [13.55]

European Smaller Companies Trust: £1.60 [£1.775]

Cape Wrath Focus Fund A: £1.3834 [£1.4591]

VT De Lisle America B: £6.7748 [£5.7542]

FTGF Royce US Small Cap Opportunity X GBP: £373.55 [£330.07]

USSC US Small Cap Value ETF: $62.20 [$55.125]

Nippon Active Value: £1.61 [£1.31]

Ranmore Global Equity Fund GBP: £382.27 [291.89]

Other funds listed in 2022 post, placed here purely for reference

Edinburgh Worldwide: £1.50 [£2.305]

Scottish Mortgage: £7.86 [£11.055]

XDEV MSCI World Value Tracker:  £32.605 [£29.13]

Regime Change(s): 6th April 2025

 

The next Chancellor and Prime Minister?

In April 2022 a previous post argued that financial markets were not adequately pricing in the probability of a change of government at the next UK General Election.

Little did I realise that several prime ministers, chancellors and a new monarch would ensue between then and now, or that by August 2023 the Labour Party would be consistently 15-20 percent ahead in the opinion polls.

The question now is not so much whether Labour will form the next UK government, but rather with what majority, for how long, and what will be the long-term implications for UK-based investors.

Such thoughts have been further prompted by a recent interview with the current Shadow Chancellor, Rachel Reeves, in which potential Labour tax rises such as a wealth tax and a mansion tax are, seemingly, ruled out.

As often, what's interesting about an interview with a politician is what's not mentioned. The apparently definite preclusion of higher headline taxes on capital and property probably makes it more likely that less obvious taxes such as those on dividend income will be raised, and allowances such as ISAs will be curtailed.

Changes to taxation might be a more meaningful drag on investor returns than what happens to stock market indices themselves assuming Labour wins the next election. Indeed, it's possible to argue that a bias towards higher public spending, green investment, home-grown industry might be beneficial for domestically-focused UK companies in particular sectors (engineering, suppliers to housebuilders).

Taking a longer view, owners of capital should be alert to the likely favouring of labour over holders of financial assets (the clue is in the party name - Labour...). 

In addition, the probable implosion of the Conservative Party after their probably heavy defeat could usher in an extended multi-decade period of Labour rule in Britain, perhaps akin to the Social Democrats in Sweden, or the Liberal Democrats in Japan.

Portfolio Review

To prepare my portfolio for such a long-lasting political regime change I have added more domestically focused UK smaller company weighting; continued to diversify into markets well away from the UK; will consider reducing exposure to large caps and other sectors such as oil, tobacco, anything likely to encounter the ire of left-leaning think tanks that will have the ear of government for some time to come.

In a post from February 2022 I started what I hoped would be a 20-year experiment in a mainly value-based long-term portfolio with an eye to providing an additional capital sum when I turn 75 in 2042.

Of the funds mentioned there: Palm Harbour Global Value, VT De Lisle America and Nippon Active Value have held up well. VT Teviot UK Smaller Comapnies, VT Cape Wrath Focus have struggled somewhat with the wider struggles of the UK smaller companies sector since late 2021. 

A long-standing holding in Edinburgh Worldwide was sold about half-way through what has been a precipitate decline from its post-pandemic heights.

Outside this long-term value 'bucket', yield-chasing experiments in the energy sector (Capsian Sunrise, I3 Energy) have proved unwise. A number of mining stocks have hit operational and geo-political problems (Anglo-Asian Mining, Caledonia Mining).

My one success in my favoured space of dividend-paying UK smaller companies has been the growing value cosmetic brand company Warpaint, which has doubled in just over a year from £1.40 to around £3.00 as of summer 2023.

As of late August 2023 I'm looking at the brickmaker Michelmersh as another possible dividend-paying recovery option, not least as two of my investment trust holdings: Aberdeen Smaller Companies Income and Atlantis Japan Growth are being wound up, which will require further capital allocation decisions, most likely in the fourth quarter of 2023.