David Kempton.
My core trusts and ETFs for income and growth
Experienced private investor David Kempton shares the investment companies, exchange-traded funds and government bonds giving him a mixture of growth and stability this year.
Any of the current geopolitical threats could escalate at any moment, yet markets remain calm and services continue as normal in the developed world. The S&P 500 is even on an official bull run to a high of 4,850, up almost 26% from the low last March.
I continue to seek refuge in a significant holding of short-dated UK government bonds with a low coupon. I want the yields to be almost entirely capital gain, which has zero tax liability in gilts, and not interest income, on which I would pay my marginal tax rate.
Gilts
JJI use the excellent abbreviated gilts list in Saturday’s Financial Times from which I chose my current holdings:
Treasury 0.125% 2026, redemption yield 4.01%.
Treasury 0.5% 2029, redemption yield 3.74%.
ETFs
For income I have selected from the Just ETF website, which shows the top 50 exchange-traded funds (ETFs) with the highest dividend yields. Pick your own risk-reward from those on the list.
I have bought small amounts in:
Brazil HSBC MSCI Brazil UCITS ETF USD yielding 9.4%;
Asia Pacific iShares Asia Pacific Dividend UCITS ETF on 5.9%;
Equity Europe Dividend iShares Euro Dividend UCITS ETF 5.9%;
Equity United Kingdom Dividend iShares UK Dividend UCITS ETF 5.5%,
Equity World Dividend Global X SuperDividend UCITS ETF USD distributing 11.9%;
and Equity United States Technology Global X Nasdaq 100 Covered Call UCITS ETF USD distributing 10.9%.
Infrastructure and property
Currently some of the listed infrastructure funds offer useful risk-adjusted returns with high quality cash flow from a portfolio of critical assets. Now that interest rates are perceived to have peaked, discounts have narrowed and it seems a good moment to gain exposure to the sector.
I have bought International Public Partnerships (INPP), which holds a diversified portfolio of infrastructure assets in UK, Europe, US and Australia. The shares, on current discount to asset value of 17%, yield 6%.
For yield I have also bought AEW UK Reit (AEWU), which has a portfolio of 36 smaller office properties, retail warehouses, high street retail, and industrial warehouses. On a discount of 20%, it yields 8.5%, although the dividend has been uncovered in recent years.
In the Renewable Energy sector I hold Bluefield Solar Income Fund (BSIF), invested in UK solar energy infrastructure on a discount of 17% and yielding 7.4%.
Rockwood for UK
I am not alone in believing that there is terrific value in UK markets, where, according to Citywire analysis, the number of British stocks being backed by the best-performing global fund managers has doubled in the last year.
After the US and China, Britain remains the third-largest tech economy in the world, with Google announcing a $1bn data centre for north London and Microsoft planning to spend $2.5bn on AI data centres nationwide.
I don’t currently hold a FTSE 100 focused fund, bearing in mind that 75% of blue-chip earnings are generated abroad, making such funds really a sterling bet on the world’s economy.
I have, though, increased my holding in Rockwood Strategic (RKW), the smallest of the renowned Christopher Mills Harwood stable with only £58m of assets in a tightly focused portfolio of 19 UK small-cap stocks.
With the shares now on premium of 1%, the performance is exceptional with one-year and three-year growth of 19% and 72%.
JAM today
A US holding is essential since you must have some interest in the magnificent seven. Apple, Amazon, Alphabet, Meta, Microsoft, Nvidia and Tesla are now worth more than the combined markets of Japan, UK and China!
US politics baffle the world, but a Trump victory in November would clearly be good for their economy as fortress America draws inwards, focusing on its own indigenous resources, whilst minimising global investment, financial support and dependency – all essentially bad for their allies.
My US exposure remains in JP Morgan American (JAM) predominantly invested in the shares of larger quoted companies with maximum 10% in smaller companies. It still looks best-of-breed to me, with one-, three- and five-year performances of 31%, 53% and 126%.
Japan
I have held CC Japan Income and Capital Growth (CCJI) for some years but it remains one of the best options in the sector with growth over one, three and five years of 20%, 41% and 54% while the shares still stand on a 7% discount and yield 3%.
Although the Japanese recovery is struggling to gain momentum and GDP contracted in the third quarter as inflation eroded purchasing power, recovery is forecast in the second quarter of 2024, when wage growth is expected to pick up.
By the second half of the year, moderating inflation and accelerating wages should bring a stronger recovery.
Emerging markets
In common with many investors, I currently avoid China; global investors have switched to the benefit of other Asian regions and emerging markets.
I have bought Vietnam Holding (VNH), which is invested in high-growth companies in Vietnam and actively managed with a high-conviction portfolio. On a 7% discount with one-, three- and five-year performances of 18%, 65% and 94%, it looks attractive to me.
India, now with the world’s largest population and democracy, has overtaken Britain to rank fifth in global economies. Apple set the trend by transferring iPhone manufacture from China to India, where labour costs are one-third, and is already exporting $1bn of units every month.
I hold India Capital Growth (IGC), predominantly invested in mid- and small-cap Indian stocks. The shares offer a narrow 2% discount with one-, three- and five-year total returns of 40%, 104% and 104%.
I also hold Blackrock Frontiers (BRFI), invested in companies operating in less-developed countries outside the MSCI World index including, Brazil, China, India, Korea, Mexico, Russia, South Africa, and Taiwan. On an 8% discount, the performance over one, three and five years is 9%, 34% and 33%.
Healthcare and technology
Healthcare and technology must be part of any medium-term portfolio and I hold Polar Capital Global Healthcare Trust (PCGT) with its long-term diversified healthcare industry portfolio, invested 58% in the US, on a discount of 6%. The performance over one year, three years and five years is 4%, 37% and 73%
I have added to my holding in Allianz Technology Trust (ATT), which is invested in global technology companies, currently 95% US, on a 6% discount with one-, three- and five-year performances of 48%, 4%% and 149%.
Gold and bitcoin
Clearly in today’s insecure world, there must be a holding in gold and I have added to my two funds:
Ninety One Global Gold 1 Acc GBP (AEE1) – primarily invested in the shares of global companies involved in gold mining and related derivatives.
Meanwhile, Wisdom Tree Physical Gold (PHAU) is designed to offer cost-efficient access to the gold market by providing a return equivalent to the movements in the gold spot price backed by physical allocated gold held by HSBC Bank.
I have had exposure to Bitcoin since 2020, but never directly into the myriad of direct investments. Instead, I hold KR1 (KR1:AQSE), a fund on the Aquis Stock Exchange which invests in blockchain ecosystem projects and digital-based assets.
There are several collective funds in the space, but over the last three years this fund has done me well. The US Securities and Exchange Commission (SEC) this month approved the first ever ETFs tied to crypto. That should give the sector some credibility, though there’s still no understandable dynamic.
Blackrock and Fidelity also plan to launch funds, which will be interesting.
Uranium
In the resources sector, my largest exposure is now uranium, where the price should remain strong as demand increases to feed the current 450 worldwide nuclear power plants in 32 countries with 60 more under construction – all the while global supplies remain constrained by the current geopolitical issues.
Geiger Counter (GCL) invests primarily in the securities of companies involved in the exploration, development and production of uranium. On a discount of 13%, over one, three and five years the shares have provided total returns of 38%, 125% and 212%
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