PORTFOLIO

All the winners

JOHN BULL

How well or badly have the unit trusts performed in this bear market? The strict arithmetic shows up a moderately encourag- ing record. By the end of May the Financial Times all-share index was 12.7 per cent down on its reading on 1 January. The Unit- holder index, which plots unit trust track records (you will find it in an excellent magazine, the Unitholder) registered an 11.5 per cent fall over the same period. More interesting, out of the 183 trusts in opera- tion, only sixty-five failed to match the all- share index. Now this is in some contrast to the position during 1968. As equity prices shot up, well over half the trusts fell behind the market. The reason was that managers were mostly cautious men, suspicious of the rise, determined to keep part of their ne- sources uninvested, determined also to hold a number of defensive shares. On the way down these characteristics pay off.

The Unitholder list of top performing shares over the five months to 31 May shows Hodge Overseas in number one posi- tion with a rise of 0.7 per cent, followed by Atlantic Units (up 0.3 per cent) followed by Pan Australian (down 2 per cent). Hodge Overseas is a £3 million fund with eighty- five or so shares providing an international spread; at the last count a large proportion of them were in the mining and plantation sectors. With some commodity prices at record levels, this has proved a winning policy. There is a more general point which needs to be made about the Hodge trusts. The Hodge Group's debut in the unit trusts world was not particularly successful. The funds attracted criticism because they were absurdly specialised (the Education Trust had to have its name changed to Education, Technology and General Trust), because they went for high yields just at the moment when they became difficult to obtain and because, by all the usual criteria, perform- ance was poor.

Performance all round is now much better. What is left unsolved is the problem of Hodge's tactical position within the in- dustry—in the sense that selling units ►n large numbers now seems to require access to bank counters (for instance, Unicorn via Barclays; Lloyds Bank has its own trust; Westminster/Hambro) or the use of a sell- ing force out in the field (Save and Prosper has such a team, so do some of the assur- ance companies which have come into the business like Prudential and Pearl). Hodge has none of these advantages.

Atlantic Units, in number two position at the end of May, comes from the Save and Prosper stable, the biggest unit trust management group of all. Atlantic Units was formed in March. 1964, and specialises as its name suggests, in Wall Street stocks. At the beginning of the year it had nearly £6 million invested in sixty-one American stocks. Performance this year is good be- cause Wall Street has not been the easiest place to make money. The Dow Jones index is down, and many of the slickest funds have shown considerable losses. Likewise the Pan Australian record this year is en- couraging, for the Australian market has also been on the bear tack.

The three bottom trusts at the end of

ffolkes's industrial alphabet

Fis for Executive suite

May were Special Situations (minus 24.5 per cent), Export Priority (minus 22.3 per cent) and Stronghold Priority (minus 21.6 per cent). The very interesting point about this trio is that they are all managed by the same group, London Wall. The idea of `Special Situations' is 'a portfolio chosen to maximise any profits from special situations arising from take-over bids or mergers'. Export Priority concentrates on shares with a high export potential, and Stronghold Priority seems to be a general fund.

It is often argued that investment fund management should be judged over the longest possible period so that luck is eli- minated from the record and that the test includes bear markets as well as bull markets. There is much in this, but there are just two reasons why short-term records are important. In the first place, the small fund is easier to manage than the large one, particularly if the objective is maximum capital growth (without regard to income). I am really describing here what has become known as a `go-go' fund.

Aggressive dealing in a small number of shares is their hallmark. If they are success- ful, they attract such huge funds that before long their early techniques will no longer cope with the situation (in short, they be- come too big to job successfully in and out of a small list of shares). And, secondly, investment management teams do change, sometimes completely. The short-term record may show these development up.

In any case, I am always suspicious of any investment philosophy which involves a 'lock-up-and-forget' approach — even though I have made no changes in my own two portfolios over the past week.

Valuations at 30 June 1969 First portfolio

100 Empire Stores at 52s 6d £262 125 Phoenix Assurance at 33s 3d £208 330 Witan at 18s 10fd .. £311

500 E. Scragg at I 8s 9d .. .. £469 500 Clarkson (Engineers) at 18s 9d £469

60 Rio Tinto Zinc at 118s .. .. £354 1,000 Associated British Foods at 8s 81c1 .. £434 1,000 Jamaica Public Service at 6s 3d .. £313 133 Electric and Musical Industries at 44s .. .. £292 100 Lyons 'A' at 83s .. £415 200 British and Commonwealth Ship- ping at 33s 9d .. .. £337 200 Forte's Holdings at 46s .. £460 200 Bowater at 54s £540 1.000 English Calico at 7s 6d. .. £375 Cash in hand .. .. £1,123 £6,362

Deduct: expenses £260

Total £6,102

Second portfolio

600 Pillar Holdings at 16s 102d £506 15 Kaiser Steel at £36 12s £550 250 Lonrho at 46s 6d £581 100 British Petroleum at 144s £720 300 Vosper at 20s 9d £311 1,000 Allied Breweries at 15s 41c1 £769 • 300 J. Bibby at 24s 7fd £369 100 Burmah Oil at 103s £515 Cash in hand .. £915 £5,236

Deduct: expenses £185

Total £5,051