Disclosure – Non-Independent Marketing Communication. This is a non-independent marketing communication commissioned by Seneca Global Income & Growth Trust. The report has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on the dealing ahead of the dissemination of investment research.
Throughout 2020, a small number of stocks have driven the majority of returns across global indices. The most obvious example has been in the US. Over 2020, to 09 September, the S&P 500 has delivered returns of 8.6%.
However, the tech-heavy Nasdaq 100 has delivered returns of close to 34%. Leading the group have been a handful of mega cap technology stocks, namely Tesla and the FAANG stocks.
However, September saw major volatility for technology stocks after what had been a spectacular run. 2020’s market leaders – Amazon, Apple, Microsoft and Facebook – were some of the worst hit, while Tesla plunged 21.1%, its biggest one-day drop on record.
There has been growing debate about valuations among technology companies for some time now and against that backdrop – even if Amazon’s seemingly unstoppable rise isn’t coming to an end, yet – it makes sense to consider ways to diversify one’s portfolio away from the momentum driven ‘growth’ style which tends to dominate most investors’ holdings.
Looking wider for returns…
Seneca Global Income & Growth Trust (SIGT) is an example of an investment trust with managers that aren’t afraid to go against the grain.
The North West based investment team, Gary Moglione, Mark Wright, Richard Parfect and Tom Delic, make an active decision to avoid the ‘sexy’ high growth stocks which attract the hot money, instead favouring companies which they believe to be fundamentally misunderstood and wrongly valued by the market.
The team coin their unique strategy as ‘Multi-Asset Value Investing’ (MAVI), developing on the framework originally devised by Benjamin Graham and David Dodd, who first developed the theory of ‘value investing’ at Columbia Business School in 1934.
In doing so, they have created a very different integrated, value-oriented framework for investing across a wide range of asset classes, as well as across the four phases of the business cycle.
MAVI enables them to invest in an attractively valued, lowly-correlated assets that, when blended together, should deliver quality outcomes for investors in line with their long term expectations.
Drawing on this philosophy, within the SIGT equity portfolio, an example of a recent addition in the portfolio is Purplebricks.
Although the team were aware of the company for some time, it was only once the company had a sharp derating (due to the company’s decision to exit the US and Australia) that the team felt the stock was misunderstood and mis-valued.
The company has previously traded at valuations similar to that of an out-and-out technology company, and as such any reverse in sentiment could see sizeable upside in addition to the potential for operational growth the business possesses.
Alongside the value influenced approach, as we have alluded to above, another attractive characteristic to SIGT – particularly for private investors who have other things beyond managing their portfolio to occupy their time – is the multi-asset nature of the strategy.
Currently, SIGT is comprised of four asset classes; UK and overseas equities, fixed income, specialist assets including infrastructure, leasing, alternative energy, private equity and property trusts, with specific research responsibilities applied to each asset class.
As we discuss in our recent note on the trust, the wide research strengths and approach to portfolio construction provides great freedom for the managers to choose investments which they believe are best placed to perform, and the ability to mix asset classes adds valuable diversification.
By investing in a multi-asset fund, the managers believe that investors can take advantage of market volatility, capturing the upside via high ‘beta’ holdings, while protecting long term capital through a wide range of income producing assets.
There are close to 2,000 equities traded on the London Stock Exchange alone. British investors have almost 4,000 unit trusts and OEICs, 3,600 ETFs, and over 500 investment trusts to choose from.
Even in less volatile times, choosing the right combination of these investments is a challenge, and in the volatile world in which we live that job is even harder.
Facebook, Amazon, Apple and the like may dominate the market for some time yet, but as recent sharp volatility among these stocks has shown, there is risk attached to putting all your eggs into one basket.
In this context, the contrarian, long term value influenced approach taken by the team at Seneca could add welcome diversification to many portfolios.
Before investing in the Seneca Global Income & Growth Trust, you should refer to the Key Information Document (KID) for details of the principle risks and Information on the trust’s fees and expenses. Net Asset Value (NAV) performance is not linked to share price performance, and shareholders may realise returns that are lower or higher in performance. The annual investment management charge and other charges are deducted from income and capital. The KID, Investor Disclosure Document and latest Annual Report are available at http://www.senecaim.com
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