King, co-manager of the Investec Managed Growth and Investec Multi Asset Protector funds, says they also have a number of other advantages that perfectly suit his long-term buy-and-hold strategy. “They have lower fees, they have the opportunity of leverage through gearing and having a fixed pool of capital is easier to manage than fluid pools of money.”
“Also, having a board of directors is better for due diligence, as is having publicly available accounts.”
In total he has 88 per cent of his portfolio in trusts and 11 per cent in funds.
His view regarding charges directly opposes the findings of a recent article on FE Trustnet, which found the imposition of clean share classes has brought down the cost of open-ended funds in recent months.
A core difference between funds and investment trusts is the discount or premium that a trust trades at. However, King says over the longer term this doesn’t have much effect on total return.
“The discount to asset value at which the funds were initially purchased has been a useful bonus to performance as discounts have narrowed. In my view, they will narrow further.”
“I’ve always thought that discounts were a long-term anomaly; some of them have vanished already and I expect more will do so and I don’t expect them to widen much. Even if they did, so what? The extra performance you get for buying in early, year-in and year-out, pays for itself when you come to sell it.”
King says he rarely trades his pension and ISA holdings.
“My pension fund is primarily a SIPP, carved out of the self-administered scheme we had at Finsbury Asset Management, which I left in 1997,” he said.
Source: FE Analytics
“Some of the holdings date back to that scheme. As this implies, I trade the fund very infrequently, so most of the holdings have been there for 10 years or more. In fact, two trades would be a busy quarter.”
King says the holdings vary from 2 per cent to 10 per cent of the total.
“The asset allocation is firmly focused on equities; my view is that if you capture the upside of equity bull markets, supplemented with strong alpha, you can ride out the setbacks with ease.”
One of the largest holdings is the £3bn Scottish Mortgage trust, although King says it should really be the largest.
James Anderson, manager of the trust since April 2000, plays a strong theme of "disruptive technology". Scottish Mortgage has a heavy bias towards growth equities, with top-10 holdings including Facebook, Amazon, Baidu, Google and Apple.
A recent change to its mandate has enabled it to invest up to 5 per cent of its assets in unlisted tech stocks.
Anderson believes many next-generation tech companies do not need as much capital to scale up their business as their predecessors did, meaning far greater returns can be made as private equity investors.
The trust has made 350.61 per cent over the past 10 years, more than double the gains of its IT Global sector average and FTSE All World index benchmark.
Performance of trust, sector and benchmark over 10yrs
Source: FE Analytics
King says there is quite a broad spread of themes in his portfolio without a significant portion in "core" holdings.
“However, there is a bit of a bias towards the UK with the Invesco Perpetual Smaller Companies and Finsbury Growth & Income trusts,” he added.
Both trusts have seen strong outperformance over the past 10 years, each beating their sector average and benchmark.
Invesco Perpetual Smaller Companies, co-managed by Jonathan Brown and Richard Smith, has returned 308.44 per cent over this time, compared with 235.77 per cent from the IT UK Smaller Companies sector.
Performance of trust, sector and benchmark over 10yrs
Source: FE Analytics
The Finsbury Income & Growth trust has made 285.56 per cent, beating its IT Equity Income sector average by 85 percentage points.
Performance of trust, sector and benchmark over 10yrs
Source: FE Analytics
King says his most recent trade was adding a speculative holding in the £41m Jupiter Dividend & Growth trust, but it is less than 1 per cent of his total pension.
He has similar positions across his ISA portfolio, as well as direct holdings.
“There are numerous overlaps between this and my pension fund but also quite a number of different holdings. If I see an investment opportunity, where I invest from depends largely on where I have the cash; I think personal finances should be regarded in aggregate rather than as separate pools.”
“It is important that investors should look at their total holdings across pensions, ISAs and so on.”
“Naturally, dealing is restricted by the compliance rules at Investec, but I have never found these to be a problem, as an enforced delay can just as easily be a blessing as a nuisance.”
“I’m not very good at selling out of things because how much you can add in the long-term by switching from one holding to another I am sceptical about.”
“It also probably benefits from benign neglect. For example, the gold holding seemed pretty stupid for a while but it has been bouncing back quite nicely recently. Sometimes it pays to just hold on to something.”
In the previous article in the series, FE Trustnet looked at the funds Mike Deverell, investment manager at Equilibrium, holds in his ISA.
