2021 Recommendations | Winterflood Research

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Last year turned out to be a good one for the Investment Companies sector, despite the volatility in the first quarter of 2020, and the sector provided the second highest positive contribution to the All Share in 2020 after the Mining sector. In this environment our model portfolio registered a rise of 10%, compared with 4% for our composite index although behind the 18% rise for the FTSE All Share Equity Investment Instruments Index. Since we launched our model portfolio in 2016, we have generated annualised performance of 13% compared with 9% for our benchmark.

During 2020 we recommended a total of 41 funds, of which 28 (or 68%) outperformed in share price terms against relevant comparator indices during their time on the list. At the start of this year we have introduced 15 new names to our portfolio, while making 12 disposals. As a consequence, the portfolio now consists of 38 names, and can be broadly characterised as funds managed by proven managers with strong long-term performance records, and funds that offer a value opportunity.

After briefly touching 22% in March last year, the sector average discount has recovered and is currently around 2%. We estimate that the average discount for our model portfolio is 1.7%, albeit five of the names are trading on double-digit discounts. We have retained our preference for larger liquid funds. The average market cap of the portfolio is £1,364m, with all funds having a market cap above £100m. The weighted average historical dividend yield on the portfolio stands at 2.5%.

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