By James Phillipps 23 Dec, 2020
It’s that time again when pundits present their stocks for the coming year, supported by commentary on what excitement lies ahead for us as we pass through Christmas and nervously anticipate the impending New Year.
But this time it’s uniquely difficult to read with the impact of Covid and Brexit.Vaccines may, hopefully, counter Covid, but there are no solutions yet for a no-deal Brexit or the massive tax take that lies ahead for us all.
In November 2019 I happened to travel on the metros of London, Singapore, Paris and New York, where every passenger under 40 seemed interminably consumed by video games on their smartphones.On learning later that sales of games were predicted to be $150bn (£112bn) in 2019 and grow annually at 12% for 10 years, I bought four global game companies.
I selected Codemasters ( CDM ) as my pick for 2020 and it is up 130% year to date.Of course, I was unaware then that the performance would be enhanced by Covid, and subsequent takeover talk.
But what for 2021? Even though markets look six months ahead, I’m being very cautious, sceptical of the suggested ‘post-pandemic party’ in equities, so going for boring old collective funds.These, typically, each will have a spread of 80 or so underlying holdings.
I own all the funds listed here, many of them mentioned in previous Citywire articles, giving me a broad spectrum of geography and sectors.
I’m indebted to colleagues at Hawksmoor for their suggestions and all these holdings are diligently researched and constantly monitored.The single-country funds I’m backing
I’m starting inevitably with US funds, which have shot the lights out in 2020.
I hold Morgan Stanley US Growth 1 ( YM09 ), an open-ended investment company (Oeic) that is up 122% over the past year.
It managed this without Tesla, up 750%, but it owns all the other usual suspects, such as Zoom, Shopify, Amazon, Spotify etc.
Baillie Gifford American B Acc ( BQ69 ), another Oeic, is the best-performing fund, up 131% in 2020.
It has similar holdings, but is also 9% invested in Tesla.
Both these US dollar-denominated funds have been outstanding investments and are still worth buying as Joe Biden’s America rolls on.
For China, I hold the Baillie Gifford China Growth Trust ( BGCG ), an investment trust now at a 5% premium, where Alibaba and Tencent together form almost 25% of the portfolio.It is up 39% in one year.
Fidelity China Special Situations ( FCSS ), an investment trust on a 1% discount and up 67% over 12 months, has similar holdings.But additionally it can gear and invest up to 10% in China’s vibrant unlisted companies sector, including TikTok owner ByteDance, and an interesting focus on drones, self-driving cars and other exciting trend developments.
I prefer investment trusts over other types of funds.They have the ability to gear, or borrow money to invest more, to enhance performance, and their illiquidity means they don’t have to be sell assets to accommodate any sellers of the fund.
I can also watch the discounts and buy when this is above average – this is often quickly corrected, giving an immediate boost to performance.
The JPMorgan Japan Small Cap Growth & Income Trust ( JFJ ) is up 27% over one year, on a 5% discount and has the ability to gear up to 15%.
I prefer smaller company funds, since the underlying holdings usually grow faster than larger companies, on the Jim Slater philosophy that elephants don’t gallop.
I don’t hold any generalist Asia or emerging markets funds, preferring to be country specific.Hence, I own VinaCapital Vietnam Opportunity ( VOF ) investment trust since Vietnam could be the world’s fastest growing developing market, boosted by mounting concerns over China’s supply chains, costs and political risks.
The trust is up 27% over one year and trading on an 8% discount.
Then there’s Europe, still the largest trading bloc in the world despite the UK’s departure and home to many world class companies, in spite of the current malaise.I hold the JPMorgan European Smaller Companies ( JESC ) investment trust, which is up 25% over one year, on a 20% discount and able to gear up to 20%.
I hold no collective UK funds since my own direct UK equity holdings cover the sector where I live, work and have constant information on where to invest.
In today’s conditions, I have avoided funds in property, high-yield equities, hydrocarbons and leisure, but their time will come again.Sector and thematic funds
Having covered the countries I have exposure to, here are the specialist sectors I’m backing, starting with ESG, which has seen increased awareness and investment through these Covid months.
My largest sector investment is Impax Asset Management ( IPX ), where I have had connections for 16 years.It is now managing £23bn in its stable of funds and associated investments.
Their Impax Environmental Markets ( IEM ) strategy can be bought as an investment trust on a current 3% premium or as a Dublin-based offshore Oeic, with similar holdings.The strategy, up 27% over one year, is 85% invested internationally, mostly in the US and Asia.It holds a range of quoted companies that offer more efficient delivery of basic services such as energy, water and waste, including sustainable food, agriculture and forestry.
I hold no Australian or Canadian funds, only direct equity, but cover those regions fairly well with resources and gold funds, specifically the BlackRock World Mining Trust ( BRWM ).
This investment trust has returned 51% over the last year and is on a 3% discount.It is principally invested in quoted securities, but also owns royalties derived from the production of metals.
I also own the CQS Natural Resources Growth & Income ( CYN ) investment trust, up 49% over 12 months and on a wider 14% discount.CYN is also invested globally, but mostly in mineral resources, with some oil and gas.
I cover gold and precious metals with Golden Prospect Precious Metals ( GPM ), which has an underlying investment split of 66% gold, and 25% silver, where producers are 64% and developers 24%.It is up 91% in one year and on a current discount of 16%.
Ninety One Global Gold 1 Acc ( YFGGIA ), a globally invested Oeic owning shares of companies involved in gold mining and in related derivatives, is another holding, and is up 37% over 12 months.
For technology exposure I hold these investment trusts:
Allianz Technology Trust ( ATT ) invested in global quoted technology companies, although it currently has 91% in the US.
The trust’s shares are up 82% over one year and it is trading on a premium of 1%.
Polar Capital Technology Trust ( PCT ) has a more geographically diversified portfolio of technology companies worldwide, with 68% in the US and 21% in Asia, including Japan.PCT is up 52% in one year and on a 5% discount.
Herald Investment Trust ( HRI ) is focused more on smaller quoted companies in communications, multi-media and technology.Its shares are up 40% over one year and it trades on a discount of 8%.
BGF Next Generation Technology ( M11E17E ) is a BlackRock Luxembourg-domiciled Ucits fund, which is predominantly invested globally in companies focused on developing themes, including robotics, artificial intelligence, analytics and e-commerce.It is up 115% over 12 months.
In biotechnology and healthcare, I hold:
The Biotech GrowthTrust ( BIOG ) which invests worldwide in biotechnology stocks, with 77% in the US and 9% in China.
It is up 78% in one year.
Worldwide Healthcare ( WWH ), up 21% in one year, uses gearing and derivatives to enhance the performance of its portfolio of global pharmaceutical and biotechnology companies.It currently has 65% exposure to the US and 20% to emerging markets.
Going off piste
I have also gone off piste and bought KR1 (KR1:AQSE, Aquis Exchange), Europe’s leading digital asset investment company in early-stage blockchain projects and crypto currencies.It is maybe not for the faint-hearted but a toehold in a new world.Founded in 2016, and now with a market cap of £25m, its shares have risen 98% over 12 months.
Staying with my favoured games theme, I bought the VanEck Vectors Video Gaming and eSports ETF (ESPO:NTDPF), which is invested in video game development, esports, and related hardware and software companies, primarily in the US, Japan and China.It is up 73% year to date, reflecting well the growth in the sector and is still worth buying.
While Covid threatens our way of life and travel, it is impossible to predict the next six months, but the second half of 2021 should see a strong upswing as companies have become leaner, more efficient and now with better use of available technologies and communications.
Corporate debt is massive, but UK households have apparently built up £100bn of unspent cash in the last nine months and one day, when we’re finally allowed out again, this will rebalance.
David Kempton is an experienced investor, proprietor of Kempton Holdings and a non-executive director of a number of quoted and private companies including Hawksmoor Investment Management.He may have an interest in any of the investments that he writes about.
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