James Brack said he was “very nervous” about the stock market when he first started saving for his future.
“Initially, I set up a direct debt to invest a fixed amount each month, but half of this I put in a bank account.”
He soon saw the error of his ways. While the cash savings earned “next to nothing” he started to see more substantial returns building on his investment ISA.
Like many investors, it was this return – and what it enables you to achieve financially – that whet his appetite for equities, and made him a more enthusiastic investor.
He says: “We started saving just before the financial crisis. I wouldn’t have thought this would have been a good time to be in shares. But the returns we have made from our ISA have enabled us to put a deposit down on our first home.”
A couple of years ago, he bought a home with his partner Mia and they recently had their first child, Austin. Last week, the couple became engaged to be married.
He says: “We have continued to save, and the returns have funded some home improvements, including a new kitchen.”
Now they have their son to provide for, Brack says his priorities have changed slightly.
“We want to ensure we do the right thing by him, and are looking to build a decent savings pot for the future,” he says. “To this end, we want to reinvest the returns we make, and let our money grow – rather than spending some of our gains.”
The couple is looking to increase what they save on a monthly basis when Mia returns to work and are also keen to set up a separate savings plan in Austin’s name.
But while his investment philosophy might have evolved, Brack is sticking with the same funds for the time being. All are longer-term investments that are at the higher end of the risk scale.
Emerging Markets Funds for Long Term Returns
The money he invests into his ISA, managed by Chelsea Financial Services, is split equally between four funds: Aberdeen Emerging Markets Equity, First State Global Emerging Market Leaders, Marlborough Special Situations and Marlborough UK Micro Cap Growth.
The two emerging market funds both have a Silver Ratings from Morningstar fund analysts.
Aberdeen Emerging Markets also earns a four-star rating from Morningstar, reflecting its strong performance against peers; while the First State fund has an even more impressive five-star rating.
Both funds are run by strong management teams, where there is a lot of support for the lead managers.
According to Morningstar analysts, the team running the Aberdeen fund is “impressive”. Hugh Young, the lead manager, heads up “one of the most stable teams in the sector”, with a wealth of experience to draw on.
“When it comes to the investment process the focus is on management and corporate governance. The team looks for quality sustainable business models with high returns on assets and capital as well as strong balance sheets,” said Morningstar analysts.
Analysts remain similarly upbeat about the First State fund, despite the recent changes to the parent company. They say that although there is less support from manager, Jonathan Asante, the thorough investment process should continue to serve investors well.
Both funds have outperformed, relative to other emerging market funds. But neither has managed to avoid the rout in these markets recently. In the year to date the Aberdeen fund is down 12.6%, while the First State fund is down 8.5%.
Brack says he is sticking with these funds for the time being. “I’m trying not to look at returns on a month by month basis. These are long-term investments, and as I am putting money in regularly, this helps smooth out the ups and downs.”
Although markets have been rocky of late he says he is still far happier investing his surplus cash than savings it in the bank where it was earning virtually nothing.
Look to Smaller Companies for Big Returns
Poorer returns in emerging markets have been balanced by more positive returns elsewhere. Both these Marlborough funds are run by the experienced manager Giles Hargreave and have a focus on UK smaller companies.
Marlborough Special Situations is up almost 14% this year so far, and over the past five years has had annualised returns of over 18%. The fund has a four-star rating from Morningstar.
It’s a similar situations with Marlborough UK Micro-Cap Growth fund, another four-star performer. The fund has achieved a 13.25% return this year to date and over the past five years has achieved annualised returns of almost 20%.
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