Investor Views: “I've Been Too Cautious with My Pension Money”

Private investor Mohammed Amin tells Morningstar how his cautiously-managed portfolio has still delivered exceptional returns

Emma Simon 5 August, 2015 | 11:45AM
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Mohammed Amin first started investing 40 years ago, when he started work as a teacher. The former partner at PricewaterhouseCoopers is now retired, and uses the income from his investment portfolio to supplement his pension.

He says: “I get a small workplace pension from PWC and my wife now gets the State Pension. Otherwise, we live off the income from our investment portfolios.”

As well as managing both his and his wife’s SIPP and ISA, Amin also takes responsibility for managing the pensions for each of his four children.

“I’ve always dabbled in investments.  I started off investing in unit trusts, but now tend to invest primarily in direct shareholdings, investment trusts and ETFs.”

Amin said he has discovered that as an investor “I am my one worst enemy”. He says he doesn’t like selling at a loss – which can compound problems – but he equally doesn’t like selling to lock in gains either.

“As a result I end up hanging onto a lot of shares and my portfolio has been quite unwieldy at times. Since retiring I have been looking to streamline my holdings somewhat.”

Best Ever Equity Investment

His most successful investment, by some margin, has been Amazon (AMZN). He bought shares in the internet retailer back in 1998, and still holds them. He calculates that since then the stock has given him the equivalent of an annual growth rate of 27.6% – and that includes the dot com crash in 2000 and global recession of 2009. 

Morningstar equity analysts point out that Amazon has been a phenomenal success story for these early investors – but its key challenge for the future is to turn its rapid growth and market dominance into profits for shareholders.

They admit that the fair value estimate seemingly requires a leap of faith based on whether Amazon will be able to monetise its growth. 

Gold Rated Investment Trust Delivers

Amin also holds a number of investment trusts. One of his larger holdings is BlackRock Smaller Companies (BRSC), which accounts for around 4% of his portfolio.

Morningstar fund analysts rate this trust Gold, indicating they are very confident in its ability to continue to outperform peers over the medium to long term.

Its four-star rating shows how well it has performed in the past compared to similar trusts. Its share price has risen by almost 25% over the past five years, compared to a benchmark of just 16%. 

Other investment trust holdings include Caledonian Investment Trust (CLDN), Finsbury Growth & Income (FGT), Personal Assets (PNL) and Templeton Emerging Markets (TEM). 

Amin says: “I think investment trusts offer a real cost advantage over open-end funds. I also like the fact they can borrow occasionally and seem to be more comfortable holding cash. The managers have more discretion and this can help boost overall returns. Open-end fund managers can hold cash if they are worried about a market downturn, but in reality few do.”

Amin is also a fan of ETFs, although at present he only invest in one, Lyxor Global Quality Income (SGQL). Rather than simply track a main stock market index this follows the SG Global Quality Income Index - a selection of worldwide stocks selected for their ability to distribute both a high and sustainable dividend level. 

Banking Stock Proves a Risky Investment

But Amin says it hasn’t been all plain sailing; he got his fingers badly burned with RBS (RBS). “I didn’t invest in this for a risky gain. This was a safe steady stock that I bought for its reliable yield. It just shows how investments can go so badly wrong.” 

Despite building up a formidable portfolio, Amin says he is looking to take a little more risk with his pension money, to ensure it grows and continues to provide a decent yield throughout his retirement. “If anything I think I’ve been too cautious in the past.” 

One option he is considering is building his own quant system to automatically invest in stocks that comply with his key metrics.

“Usually I get to know the company, and think about how it makes its money, before investing. This is the reverse approach. It would help me identify new opportunities and also when I should sell holdings. 

“I’m not going to take this approach with my whole portfolio - but I might just invest small amounts using this method and see where it goes.”

How do you decide what funds or shares to buy? Do you have a fail-safe sell trigger? If you'd like to feature in Investment Views and tell us about your investment strategy please contact the Editorial team on editorial@morningstar.co.uk

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
Amazon.com Inc195.26 USD-1.35Rating
BlackRock Smaller Companies Ord1,390.00 GBX-0.57Rating
Caledonia Investments Ord3,280.00 GBX0.31Rating
Finsbury Growth & Income Ord851.00 GBX0.35Rating
Lyxor SG Global Qual Inc NTR ETF C GBP23,018.17 GBP-0.27Rating
NatWest Group PLC375.30 GBX0.00Rating
Personal Assets Ord492.50 GBX-0.10Rating

About Author

Emma Simon

Emma Simon  is a financial journalist, specialising in investment and consumer issues, writing for Morningstar.co.uk

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