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The Growth Ten in the Pandemic

General discussions about growth strategies which focus primarily on investing for capital growth
Luniversal
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The Growth Ten in the Pandemic

#423161

Postby Luniversal » June 28th, 2021, 2:46 pm

On Jan. 8 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. The history of the G10 since Nov. 2000's launch is covered there and at (1):

viewtopic.php?f=96&t=27226&p=374593#p374593

Now I have updated the reporting period finish from calendar years to end-Apr., for two reasons. First, the composite performance based on the trusts' financial years best fits Apr.; all accounts for 2020-21 are in, so we can compare them directly with share price performance. Secondly, the year to Apr. 2021 almost precisely matches the virus panic and markets' response, providing a test of how the G10 coped.

The starting date of Nov. 13, 2000 is the same as for pyad's HYP1, a project for income which transpired to be better at cultivating capital growth. The G10 was jobbed backward (in a Motley Fool post of August 21, 2012) on the assumption that its ten members, mostly big and old then, are among those likeliest to have been picked by those seeking slow but steady wealth accumulation. All have survived intact (2).

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, where a minus means underperformance.


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

The All-Share rather than any world index is used as a practical benchmark, because the G10 is for British investors whose default solutions are UK equities.

The period encompasses three bad breaks: the dotcom crash at the outset, the Global Financial Crisis (GFC) of 2007-09 and the WuFlu shemozzle. There was a lesser hiccup c. 2016. The portfolio lost value nine times out of 21, but averaged a 6.9% annual increase against inflation of 2.8% pa. Only in 2002-03 and 2009-10 did the G10 lag the All-Share; both were when markets were rising from the canvas and domestic and/or value shares were more wanted than growth dynamos.

The portfolio has since beaten its benchmark eleven years in a row. However, progress has accelerated only after the GFC. In the early 2000s the Ten shed one-third of their launch value and did not surpass it until 2005-06. (At least this sequence-risk effect happened early, well before a long-term lump-sum saver might be seeking to cash in.) Attaining six figures the next year, the G10 relapsed and did not revisit that landmark until 2007.

The portfolio did not double in value until 2014-15. Since then it has forged ahead, interrupted only by the initial coronavirus nosedive in the last month or two of the year to Apr. 2020. Those fears soon abated. A record valuation of £355,855, spurred by the fastest real growth in its lifetime, was reached on Apr. 30. The compound annual growth rate over 20+ years is 7.9%, or 5.1% after inflation.

The FE Trustnet Risk Score measures price volatility in 2019-21, weighted towards the present. The FTSE 100 is the benchmark on 100 where cash is 0. For the Ten the blended score is 122; it has recently been one-fifth higher than for the Footsie, but for the good reason that two constituents zoomed (see 'Constituents' below).

Average discount of 2.7% at financial year ends in 2020-21 compares with 5.2% over the G10's whole life and is the tightest since 2015-16, after languishing in double figures for most of the prior 15 years.


INCOME
The G10 habitually yields less than half the All-Share or FTSE 100 indices. Dividends 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 sufficed to supply nice 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. Scottish (SCIN) rose to a yield of more than 3%, but that is mainly about poor price performance. Monks and Scottish Mortgage, Baillie Gifford's fairly and very growth-minded entries, pay almost nothing by design.

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

2001: £289 (full-year equivalent £1,301)
2002: £1,301/+3.2% (underlying, excluding '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%

Total £50,042, about two-thirds of the original capital. This represented an annual average yield, on brought-forward capital at May 1, of 2.1%. Income compounded at ~3.8% pa after inflation, slower than capital growth. Receipts fell in five of 19 years; 2010-11, in the wake of the GFC, saw the only serious drop. International business's response to the KungFlu squeeze was to resist divi cuts and passes more blithely than British boards.

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 £80,000 since late 2000. The Basket of Seven, aiming for faster real income growth albeit from a lower starting yield, paid much the same, most arriving later in its history to date.

By end-Apr. the Growth Ten sat on a paper profit since inception of £280,000. Hence only one pound in seven of its combined return came 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 1.08 times over a decade, albeit shrinking from 1.16 to 0.70 times in 2020-21. Trusts mitigated the coronavirus effect of dividend-slashing in their portfolios by depleting revenue reserves. Well, what else are they for?

The aggregate reserve has averaged two years of current payout since 2011, but dipped from 24 to 19 months in 2020-21. That remains well above what the Baskets lean on, and the G10's revenues seem to have bounced back at least as quickly when companies cheered up about prospects after vaccination began.

Ongoing Charges Ratios looked better after the mammoth rally in prices, which spreads expenses per share more thinly. Averaging 0.78% of year-end net asset values since 2011, OCRs were down from 0.61% to 0.48% last year, the cheapest since the G10 began. Baillie Gifford's Monks at 0.36% and Scottish Mortgage in particular at 0.29% are notably inexpensive; Aberforth with its elaborate and academic research technique is dearest, but down from 1.2% to 0.93% in 2020-21.


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

ASL: +438.6, 4, 3.4, 9.4/186
ATST: +201.5, 0, 3.5, 8.5/105
BGSC: +537.1, 1, 3.7, 1.7/130
FCIT: +218.9, 1, 6.4, 7.1/114
LWDB: +215.0, 3, (12.2)*, (5.0)*/130
MNKS: +549.8, 3, (3.0), 4.4/114
SAIN: +88.6, 4, (4.0), (3.9)/91
SCIN: +67.9, 2, 14.2, 12.7/101
SMT: +1,284.9, 2, 4.9, 1.5/172
WTAN: +142.5, 1, 4.0, 5.3/114
-----------------------------------------
G10: +374.5, 1, 2.7, 5.2/122

* Magnified by overheads of fiduciary businesses.


There is nothing of 'reversion to the mean'-- that decorous rotation of better and worse beloved of market efficiency theorists-- 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. BMO Global Smaller Companies notched up one win-- and has lately been perking up-- and for the past four years Scottish Mortgage has swept all others aside with its Tesla-powered vision of a disruptive future. Ranking No. 2 overall, Monks never came first in any year, but its record renders it perhaps the closest to an ideal 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 won two others by itself. Last year, for the only time since 2003-04, the booby prize went to Scottish IT, which is now vowing to re-examine its self-management after aeons of sluggishness and wide discounts.

Despite these recurrent polarities, the combined result of 5% pa real growth over two fairly fraught decades seems an adequate fulfillment of the brief (3). That was then, and maybe another showing like Scottish Mortgage's since Mar. 2020 will not recur for a while. But there is no good 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.

This, after all, is how the investment trust industry began. After 150 years it ought to know a bit about how to tackle tomorrow in partibus infidelium.

----------------------------------------------------------------------------------------------------------

(1) Earlier years after TMF's boards were scrapped were reviewed at:

viewtopic.php?f=96&t=21397

(2) Constituents:

Aberforth Smaller Companies (ASL)
Alliance (ATST)
BMO Global Smaller Companies (BGSC)*
F&C (FCIT)+
Law Debenture (LWDB)
Monks (MNKS)
Scottish (SCIN)
Scottish American (SAIN, whilom SCAM)
Scottish Mortgage (SMT)
Witan (WTAN)

* formerly F&C Global Smaller Companies (FCS)
+ formerly Foreign & Colonial (FRCL)


(3) 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 GFC was resolved, or tranquillised.

MDW1954
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Re: The Growth Ten in the Pandemic

#423696

Postby MDW1954 » June 30th, 2021, 12:01 pm

Luni,

Are you sure about SAIN being whilom SCAM? My platforms still use SCAM.

MDW1954

GrahamPlatt
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Re: The Growth Ten in the Pandemic

#423712

Postby GrahamPlatt » June 30th, 2021, 12:43 pm

MDW1954 wrote:Luni,

Are you sure about SAIN being whilom SCAM? My platforms still use SCAM.

MDW1954


Yes, SAIN is the EPIC for Scottish American Investment (plc) now. I think they got fed up of the old jokey EPIC

monabri
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Re: The Growth Ten in the Pandemic

#423723

Postby monabri » June 30th, 2021, 1:14 pm

MDW1954 wrote:Luni,

Are you sure about SAIN being whilom SCAM? My platforms still use SCAM.

MDW1954


SAIN = Scottish American Investment.

https://www.investegate.co.uk/scot-amer ... 47065069L/

"The Directors of The Scottish American Investment Company P.L.C. (the "Company") today announce that, as at 8.00 a.m. on 9 September 2019, the Company's ticker will change to 'SAIN'.

This change should help investors more easily identify the shares on the stock exchange and investment platforms, when they use either the initials of the company, or the shorthand name by which many refer to it (SAINTS)."

From "SCAM" to "SAIN"ts.....wonder why they did that. ;)

MDW1954
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Re: The Growth Ten in the Pandemic

#423729

Postby MDW1954 » June 30th, 2021, 1:56 pm

Odd. The FT's still listing it as SCAM:

https://markets.ft.com/data/investment-trust/tearsheet/summary?s=SCAM:LSE

Thanks for the clarifications.

MDW1954


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