Changing investments for changing times?

Published: 22 March 2019

The FTSE was among several major indices to lose value in the closing months of 2018, amidst a sense that investment times may be changing.

Brexit uncertainty contributed to the UK slowdown, while oil price volatility, political upheaval and the ongoing US-China trade dispute all weighed down on indices in the US, China and emerging markets including Turkey and Argentina. 1.

Here we look at how these conditions impacted the investments that were purchased on the Alliance Trust Savings’ platform from 1 November 2018 to 27 March 2019. A period that covered both the nervous end to the year for stock markets and intensifying Brexit drama.

Investment Trusts

Scottish Mortgage and Alliance Trust continued to be the biggest selling investment trusts on the platform compared to the period 1 January 2018 to 27 November 2018, and by a considerable margin. Beyond that, however, some of the most popular trusts of 2018 fell out of favour at the end of the year and in the first quarter of 2019.

The Baillie Gifford US Growth and Edinburgh Worldwide trusts both dropped out of the top 20, with the Smithson trust dropping markedly from number 5 to 20. Meanwhile, HgCapital, Baillie Gifford UK Growth Fund and the AEW UK REIT trusts all entered the top 20 compared to the previous period.

The shift seems to point to a greater emphasis on growth and value - the HgCapital Trust invests mainly in unquoted technology firms across Europe, while the other two trusts are UK-oriented, a market currently seen by many as being cheap relative to value and recent history.

Top 20 investment trusts from 1 November 2018 to 28 March 2019 Fund ID
1 Scottish Mortgage Investment Trust SMT
2 Alliance Trust ATST
3 Finsbury Growth & Income Trust FGT
4 City of London Investment Trust CTY
5 Worldwide Healthcare Trust WWH
Top 20 Investment Trusts from 1 November 2018 to 28 March 2019 Fund ID
1 Scottish Mortgage Investment Trust SMT
2 Alliance Trust ATST
3 Finsbury Growth & Income Trust FGT
4 City of London Investment Trust CTY
5 Worldwide Healthcare Trust WWH
6 City of London Investment Trust JFJ
7 Personal Assets Trust PNL
8 Pantheon International PIN
9 Baillie Gifford UK Growth Fund BGUK
10 F&C Investment Trust FCIT
11 HgCapital Trust HGT
12 Witan Investment Trust WTAN
13 Witan Investment Trust FCPT
14 Edinburgh Investment Trust EDIN
15 Merchants Trust MRCH
16 Murray International Trust MYI
17 AEW UK REIT AEWU
18 Monks Investment Trust MNKS
19 Fundsmith Emerging Equities Trust FEET
20 Smithson Investment Trust SSON

Funds

There were more changes here in the short period from November to February than there were in the year leading up to it, with six funds dropping out of the previous top 20.

The drop-outs included more cautiously-minded vehicles such as the IFSL Brooks Macdonald Defensive (a large chunk of which is in fixed interest), the Royal London Extra Yield Bond fund, the Baillie Gifford Managed and the L&G UK Index fund.

In their place came the UK-focused LF Woodford Equity Income and Vanguard Investments FTSE All Share Index funds as well as more geographic diversity in the form of the Baillie Gifford Japan Small Companies and L&G International Index Trust funds.

One of Standard Life Investment’s MyFolio funds entered the top 20 too – the Market III Platform fund. This is a multi-asset funds of funds with significant exposure to passive equity funds.

Overall, this list retains a distinctly global flavour with an emphasis on diversification and some evidence of increased demand for exposure to UK growth and income.

Top 20 funds from 1 November 2018 to 28 March 2019 Fund ID
1 Lindsell Train Global Equity 7GGLOE
2 Fundsmith Equity I Acc FUQUIT
3 Vanguard LifeStrategy 60% Equity A Acc VVLFST
4 Vanguard LifeStrategy 40% Equity A Acc VVLFSU
5 Baillie Gifford Japan Small Companies B In BGJE
Top 20 funds from 1 November 2018 to 28 March 2019 Fund ID
1 Lindsell Train Global Equity 7GGLOE
2 Fundsmith Equity I Acc FUQUIT
3 Vanguard LifeStrategy 60% Equity A Acc VVLFST
4 Vanguard LifeStrategy 40% Equity A Acc VVLFSU
5 Baillie Gifford Japan Small Companies B In BGJE
6 Fundsmith Equity I Inc FUUNDS
7 Royal London Short Term Money Market Y Inc RLCASH
8 Vanguard LifeStrategy 80% Equity A Acc VVLSRE
9 Vanguard FTSE Developed World ex UK Equity Index A Inc VVDWEU
10 SLI MyFolio Market III Plat 1 Acc STARLA
11 McInroy & Wood Smaller Companies Personal Inc WVCOMP
12 LF Woodford Equity Income C Sterling Inc CFAAIB
13 Vanguard Investments FTSE UK All Share Index UT Acc VVFUSI
14 Baillie Gifford American B Acc BGAMAB
15 LL&G International Index I Acc LGITI
16 Vanguard FTSE Developed World ex UK Equity Index Acc VVDVWE
17 HSBC Global Strategy Balanced C Acc MDANCE
18 Liontrust Special Situations I Inc Q5SPEC
19 Royal London Cash Plus Y Acc RLAAAX
20 Vanguard LifeStrategy 100% Equity A Acc VVLSRU

Shares

The top-sellers here suggest that the market sentiment influencing fund and trust sales doesn’t have the same impact on the popularity of individual shares.

The top of the list remains largely the same, with regular dividend payers BP, Royal Dutch Shell, GlaxoSmithkline, Vodafone and Lloyds Banking Group remaining popular. They are among several in the top 20 to derive significant chunks of their earnings from overseas operations,2 meaning they can benefit from the weakness of the pound since the EU referendum in 2016.

A desire to avoid companies that rely more on UK domestic earnings may help explain the absence of some companies previously in the top 20. Housebuilders like Persimmon have been hit hard by Brexit-related uncertainty for example, while further weakening of BT’s share price has raised questions over its ability to maintain dividends at the current level3.

New entrants look to be those favoured by dividend hunters, particularly Prudential, Standard Life Aberdeen and British American Tobacco. Demand for holdings in DS Smith, the packaging group, could be due to a perception of increased value amid a softening of the share price that has enhanced the dividend yield4.

Top 20 shares from 1 November 2018 to 28 March 2019 Fund ID
1 Glencore GLEN
2 Royal Dutch Shell RDSB
3 BP BP.
4 Lloyds Banking Group LLOY
5 GlaxoSmithKline GSK
Top 20 Shares from 1 November 2018 to 28 March 2019 Fund ID
1 Glencore GLEN
2 Royal Dutch Shell RDSB
3 BP BP.
4 Lloyds Banking Group LLOY
5 GlaxoSmithKline GSK
6 Vodafone Group VOD
7 British American Tobacco BATS
8 Premier Oil PMO
9 Barclays BARC
10 Aviva AV.
11 National Grid NG.
12 Legal & General LGEN
13 Imperial Brands IMB
14 Standard Life Aberdeen SLA
15 Unilever ULVR
16 DS Smith SMDS
17 Rangold Resources RRS
18 HSBC Holdings HSBA
19 Rio Tinto RIO
20 Prudential PRU

A change of mood?

In our review of 2018’s best seller lists, we noted that perhaps their most notable feature was that they all remained relatively consistent with 2017, in terms of composition, themes and balance. Suggesting our customers appeared to be keeping an eye on the longer-term.

Looking at more recent months, the impression remains that, on the whole, investors on the Alliance Trust Savings platform take a long-term view, understanding the value of diversification and resisting knee-jerk decisions.

But regular portfolio reviews remain important for those who want to stay on track to meet their long-term goals and, as you might expect in changing times, there are now signs investors are more actively managing their portfolios in response.

Important information

This is provided for general information only and takes no account of personal circumstances. It is not a recommendation to buy or sell. It is provided solely to support you in making your own investment decisions. If you have any doubts as to their suitability you should seek expert advice. Alliance Trust Savings does not give financial or investment advice.

Laws and tax rules may change in the future without notice.

Please be aware that the value of investments can fall as well as rise so you could get back less than you invest.


1 CNBC - Here are the best and worst performing stock markets of 2018 - 3 January 2019
2 Guardian - UK-focused firms have struggled since Brexit vote, analysis finds - 25 June 2018
3 Investomania - What is BT Group plc’s dividend yield forecast to be in 2019? - 9 January 2019
4Motley Fool - 3 top value stocks I’d buy in 2019 - 28 January 2019

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Alliance Trust Savings Limited is registered in Scotland No. SC 98767, registered office, PO Box 164, 8 West Marketgait, Dundee DD1 9YP; is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority, firm reference number 116115. Alliance Trust Savings Limited gives no financial or investment advice. ‘Alliance Trust Savings’, ‘ATS’ and 'AT Savings' are all brand names of Alliance Trust Savings Limited together with the ‘Alliance Trust Savings’ logo are owned by and used with the permission of Alliance Trust PLC, the previous owner of Alliance Trust Savings Limited.