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The Growth Ten: 2000-22

General discussions about growth strategies which focus primarily on investing for capital growth
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The Growth Ten: 2000-22


Postby Luniversal » July 28th, 2022, 2:38 pm

On Jan. 5 I posted an annual review of the Growth Ten (G10): a collection of globally oriented investment trusts designed to increase capital's purchasing power at moderate speed and risk(1). The G10 has been calculated since Nov. 2000 to match the evolution of pyad's 'HYP1' High Yield Portfolio. Not that their aims are the same, but HYP1 has often proved better at growth than at making income flow smoothly(2).

I have again updated the G10's reporting period finish, from calendar years to end-Apr., for two reasons. First, a composite outturn based on the trusts' financial years best fits Apr.; all accounts for 2021-22 are in, so we can compare them timely and directly with share prices. Secondly, the year to Apr. 2022 demands attention because it was the portfolio's gravest setback, for both income and capital. The world has revived since its bout of flu, so how come the G10 caught a cold?

The G10 was jobbed backward in a Motley Fool post of August 21, 2012. It was assumed that its ten members, mostly big and old by then, are among the trusts likeliest to have been picked by seekers of slow but steady wealth accretion (2). All survived intact until Scottish, never a braw performer, fell into the arms of JPMorgan Global Growth and income. JGGI should have completed the formalities of swallowing the old-timer by the end of next month.

Outcomes are calculated on HYP1's £75,000 gross outlay-- £7,500 per trust- after deducting 1% for purchase costs. Tabled below are anniversary values; percentage changes year by year, deflated by the Retail Prices Index/and performance against the FT All Share Index in percentage points. A minus means an undershoot.

CAPITAL (at Apr. 30)
2001: £72,970, -4.5/1.7 (from Nov. 13, 2000)
2002: £68,436, -7.7/6.2
2003: £50,231, -29.7/-1.9
2004: £61,111, +19.2/3.4
2005: £67,123, +6.6/2.7
2006: £96,908, +41.6/16.0
2007: £106,808, +5.8/1.2
2008: £99,717, -10.8/1.0
2009: £73,062, -25.5/3.2
2010: £95,084, +24.8/-1.6
2011: £112,255, +12.9/7.9
2012: £107,299, -7.9/1.0
2013: £130,593, +18.8/8.1
2014: £148,047, +10.9/5.9
2015: £164,288, +10.1/7.5
2016: £160,879, -3.4/7.2
2017: £211,201, +27.8/15.5
2018: £236,917, +8.8/8.1
2019: £242,205, -0.8/4.1
2020: £220,397, -10.5/12.2
2021: £355,855, +58.6/36.6
2022: £305,697, -25.2/-18.7

The All-Share rather than a world index is used as a practical benchmark. The G10 is for British investors whose customary resorts are UK equities.

The period encompasses three bad breaks for listed equities: the dotcom crash at the outset, the Global Financial Crisis (GFC) of 2007-09 and the WuFlu outbreak. There was a lesser hiccup c. 2016. The portfolio lost purchasing power ten times in 22 years, but averaged a 7.6% annual increase before inflation of 2.9% pa-- though that was taking off towards 10% by Apr. 2022. Only in 2002-03, 2009-10 and 2021-22 did the G10 lag the All-Share; in each period markets were picking themselves off the canvas, when domestic and/or value shares were wanted more than growth dynamos.

The predominantly global G10's latest showing is by far its feeblest against the Union Jack. The portfolio had beaten its benchmark eleven years in a row until last year, often handsomely. That happened mainly after the GFC, when British (at least, British-based) firms were seen as specially vulnerable, unable to regain vitality as fast as America's or the Far East's. In 2021-22 qualified optimism about the old country crept back, albeit against gloom about the world economy's outlook as it de-globalised and faith in go-go tech businesses wavered. The G10 is not wholly invested in foreign companies; Aberforth Smaller Companies, for instance, has a British focus. But there was enough exotica and hi-tech glamour among its constituents to rattle punters when their tastes changed.

Such a setback, it must be repeated, is far from unprecedented. The switchback ride is part of the deal. In their youth the Ten shed one-third of their launch value, and did not surpass it until 2005-06. (At least this sequence-risk effect struck well before a long-term lump-sum saver might want to cash in.) Attaining £100,000 the following year, the G10 then relapsed. It did not revisit six figures until Apr. 2011.

The portfolio contrived a 100% capital gain since inception in 2014-15. Then it forged ahead, halted only by the initial coronavirus nosedive in the last month or two of the year to Apr. 2020. Those fears soon abated. A record £355,855, spurred by the fastest real growth in its lifetime, was reached on Apr. 30, 2021.

The scale of the latest relapse, though somewhat reversed since Apr., has been a nasty surprise. It reduced the compound annual growth rate over 21+ years to 6.7%, or 3.6% after inflation.

FE Trustnet's Risk Scores measure price volatility in 2020-22, weighted towards the present. The FTSE 100 is the benchmark on 100 where cash is 0. For the Growth Ten the blended score has risen in a year from 122 to 140; it has recently been well above the Footsie, chiefly because two Baillie Gifford ITs with low yields (dividends cushion returns) and exposure to vogue stocks crashed: Scottish Mortgage and Monks. Their Risk Scores rose from 172 to 231 and from 114 to 156 respectively.

Average discount of 5.5% at financial year ends in 2021-22 compares with 8.2% over the G10's life. Until the second internet boom a few years ago, the G10 sold on a 10% or larger discount. Itt remains higher-priced than UK income shares.

The Ten typically yield less than half the All-Share or FTSE 100 indices: now 1.9% against c. 3.6%. Payouts are incidental sweeteners. These trusts do not make a fetish of being 'dividend heroes', upping the payout every year come what may. But they are obliged to disburse 85% of what comes in, which has provided agreeable bonuses, swelling rapidly if from a low base.

Law Debenture was the sole member with a markedly above-average yield-- 4.0% at its latest year end. SAIN yields only 2.8% as a consequence of recent popularity-- one Baillie Gifford fund not being deprecated-- but it is more mindful of income-seekers than most, announcing a 10% hike in the interim today.

Actual totals collected in years to Apr., including specials, plus real percentage changes each year:

2001: £289 (five months' worth)
2002: £1,301/+3.2% (underlying rise, adjusted for 'dividend drag')
2003: £1,322/-1.6%
2004: £1,378/-1.7%
2005: £1,404/-1.3%
2006: £1,664/+15.9%
2007: £1,594/-8.7%
2008: £1,857/+12.3%
2009: £2,188/+18.0%
2010: £2,312/+0.4%
2011: £1,985/-19.4%
2012: £2,280/+11.4%
2013: £2,545/+8.7%
2014: £2,774/+6.5%
2015: £2,819/+0.7%
2016: £3.188/+11.8%
2017: £3,187/-3.5%
2018: £3,503/+6.5%
2019: £3,820/+6.1%
2020: £4,056/+4.7%
2021: £4,580/+10.0%
2022: £4,546/-11.8%

Total to date £54,600, almost three-quarters of the original capital. Last year saw the first bad drop, nominal and real, since 2010-11, when income was kayoed by the Global Financial Crisis. The total represents an annual average yield, on brought-forward capital at May 1, of 1.7%. Income compounded at ~3% pa after inflation, slower than capital growth. Receipts' purchasing power fell in six of 20 years, but last year's could buy 85% more than in the first full year.

The G10 remains far less juicy than my income investment trust 'baskets'. The Basket of Eight, which shoots for high immediate payouts, would have dispensed around £87,800 since late 2000. The Basket of Seven, aiming for faster real income growth albeit from a lower starting yield, paid £97,400.

By end-Apr. the Growth Ten sat on a paper profit since inception of £230,000. Hence one-fifth of its combined return derived from income.

By keeping higher cover the Ten hold back more earnings for recycling, which in time should burnish net asset value. G10 income remains cautiously dispensed. Cover for payouts averaged 1.06 times over a decade; it was thinner after the pandemic began, but expanded from 0.70 times to 0.91 times in 2021-22. Payouts were less than fully covered in only three of 21 years.

The aggregate reserve has averaged two years of current payout since the GFC, but dipped from 19 to 18 months in 2021-22. That remains way above what income baskets lean on, but the G10's revenues have bounced back as quickly. Directors in the USA, Japan and Europe seem not to be regretting past liberality as ostentatiously as Britain's 'resetters'; they face countervailing pressures to shell out more, such as the rise of the retirement investor and the Japanese government's disapproval of corporate profit-squirrelling.

Ongoing Charges Ratios were bound to increase as net asset values sagged: they went from 0.48% to 0.59%. However, they are magnified by Law Debenture's fiduciary services business, which is trading well but caused a 3.4% OCR: far higher than if LawDeb merely ran a portfolio.

Averaging 0.73% of year-end net asset values since 2012, G10 expenses remain well curbed for these straitened times. Contracts with fund managers have been renegotiated down and performance-related top-up fees eliminated. For all their woes, Baillie Gifford held Monks's OCR at 0.50% and Scottish Mortgage's at 0.40%; Aberforth with its elaborate and academic research technique is dearest at 0.92%.

Share price change since launch; number of financial years in the past decade when share price lagged the All-Share index; current and average year-end discount, or (premium), during that decade/latest FE Trustnet Risk Score:

Aberforth Smaller Companies: +389, 3, 12.6, 8.6/172
Alliance: +198, 0, 6.3, 7.5/116
F&C: +211, 0, 7.6, 6.7/119
Global Smaller Companies*: +486, 2, 9.6, 2.6/129
Law Debenture: +233, 3, (11.3)**, (5.9)**/122
Monks: +382, 3, 3.5, 3.5/156
Scottish: +88, 3, 7.5, 12.1/112
Scottish American Investment: +92, 1, (2.4), (3.9)/108
Scottish Mortgage: +878 2, (0.4), 0.3/231
Witan: +122, 1, 6.6, 4.7/121
G10: +308, 1, 5.5, 4.6/140

* Formerly BMO Global Smaller Companies, renamed Jul. 1, 2022
** Magnified by overheads of fiduciary businesses.

There is nothing of 'reversion to the mean' among this lot. Performance varied more among the best than the worst, but seven trusts never won gold. For the first 16 years the most valuable at each year's end was Aberforth. Global Smaller Companies notched up one win and for the past four years Scottish Mortgage has swept all others aside; disenchantment-- from £15.70 last Nov., SMT went under £7 in seven months-- has not toppled it. Ranking No. 2 overall, Monks never came first in any year, but its record renders it perhaps the closest to an optimal G10 member.

The bottom marker most often was another Baillie Gifford affair, the venerable Scottish American (SAIN). It propped up the table seventeen times, partly because of its leanings towards running yield. In 2006-07 SAIN shared the wooden spoon with Witan, which collected two others by itself. Last year, for the only time since 2003-04, the booby prize went to the self-managed Scottish IT, presaging its disappearance into the House of Morgan.

It can be inferred that managers remain optimistic. Cash at financial year ends averaged 1.7% of shareholders' funds, the lowest in the G10's history; at the end of the GFC it was a fearful 11%. Maybe a tearaway run like Scottish Mortgage's in the four years to 2021 will not be seen for ages. But there is no reason to fear that a sterling investor in a mainly foreign spread of shares, which increasingly homes in on new tech and territories ripe for industrialisation and consumerism, will come to wish she had stayed at home playing Footsie with stodgy Sturdies.
(1) Review of year to Dec. 2021:


The G10 in the pandemic (year to Apr. 2021):


Review of year to Dec. 2020:


Review of year to Dec. 2019:


(2) My original post selecting the G10, nine years ago, was about building a yardstick for comparisons with the baskets: the B7 (like HYP1) having shown unsuspected prowess as a capital-builder. For 1992-2012 I estimated that the G10's value had compounded at 3.6% pa real, and was cool about its potential. I did not foresee how the rest of the world's equities, and its major currencies, would beat the pants off London's after the banking crunch was resolved, or tranquillised.

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