Patrick Connolly will be known to many as the spokesman for financial advisers Chase de Vere. But when it comes to investing his own money, he says, he is now taking a more cautious stance, after several years of gains.
“When I was younger I was purely focused on capital accumulation so everything was in equities. This is still important, but I’m now aware I need an element of capital protection too.”
He said the shift came at the start of this year. “I was wary of an investment environment where stock markets had risen for six years and fixed interest investments were looking increasingly expensive.”
As a result he has altered the make-up of his portfolio. “I decided it was time to reduce some risk in terms of my asset allocation. Around half of my portfolio is still in equities, around 20% in multi asset funds – which will of course include some equities, 20% is in absolute return funds and 10% in cash.”
This de-risking mainly involves existing pension and ISA holdings. Some of his biggest holdings now include Newton Real Return, Axa Framlington Managed Balanced and Fundsmith Equity.
Newton Real Return has been a consistent performer, and is, according to Morningstar analysts “a strong choice for investors seeking consistent absolute returns”.
It is managed by Iain Stewart, who has 30 years’ experience with Newton and has a Bronze Rating from Morningstar. Since the fund launched in 2004 it has met it target of Libor plus 4% over rolling five year periods. In addition it has achieved gross positive returns in every single calendar year since launch.
The Axa Framlington fund is a traditional balanced fund, investing in a mix of equities and bonds. It has been managed by Richard Peirson since 1994, and his strong performance has earned him a Silver Medal rating from Morningstar. Analyst Randal Goldsmith says: “We have a high regard for Peirson, a proven and highly experienced manager… who has managed this fund with consistency, commitment and skill.
“Peirson takes responsibility for portfolio allocation decisions within the fund, controls cash flow and personally manages both the fixed-interest and UK equity components.”
Fundsmith Equity’s is a far newer fund, but its strong performance since launch in 2010 has earned it a five star rating from Morningstar and its manager, Terry Smith, a bronze rating. Morningstar fund analysts say this fund “remains a strong choice for those seeking a lower-risk global equity fund.”
Taking On Risk in a Tax Efficient ISA
But Connolly does take more risk with the regular monthly payments he makes into his ISA. This money is primarily invested in higher risk funds and out-of-favour regions.
He says: “I’m currently invested in emerging markets, smaller company funds and natural resources. I deliberately pick volatile funds and am prepared for further falls. In the short-term this could prove beneficial if I’m buying cheap and there is an upswing in prices.”
At the moment these out-of-favour funds include Miton UK Smaller Companies, Schroder Recover and JPMorgan Natural Resources.
Schroder Recovery has a four-star rating from Morningstar and its managers - Kevin Murphy and Nick Kirrage - have a Silver Rating. But over the year to date it has down by 9.43%. However Connolly points out that its three and five year track record have been good.
The same can’t be said of this JP Morgan fund. It has lost almost 25% of its value over the last three years, is down 18% over five years and has lost a staggering 28% this year alone.
Connolly said it’s a risky bet, but he’s only drip feeding very small amounts into this fund at present, on the hope of a future recovery.
Connolly said he is mainly saving for retirement, but also hopes to ensure there is enough to pay off any outstanding mortgage he may have in his 60s.
“I didn’t have much spare cash after I got divorced, so needed to take an interest-only mortgage. I make sure I’m disciplined in terms of making mortgage overpayments,” he said. “Surplus savings are used to pay off the mortgage, rather than adding lump sums to my ISA or pension. However, I do save around 10 to 15% of my salary into my pension.”
Connolly lives with his son and says that he tries to get him interested in investments. He has taken out a Junior ISA for him.
“He has some understanding of it and I hope will use the money sensibly when he has access to it.”
Best Investment? A Cash Savings Account
His said his best investment to date was a £100 payment a Northern Rock savings account. It subsequently de-mutualised, paying him a £2,260 windfall.
Connolly added: “I paid this into a Fidelity PEP, and then soon invested it into the Fidelity Special Situations fund and European fund, both managed by Anthony Bolton. Within a couple of years my £100 was worth around £4,500.”
Tech Funds Prove a Costly Mistake
Still, despite being a certified financial planner it hasn’t always been plain sailing. Like many people he admits to getting his fingers burnt in the dot com bubble.
“I invested £1,000 into the Henderson and Societe Generale Technology funds then watched as they plummeted in value. I sold out when both were worth about £400,” he admitted. “This has made me very wary of believing any hype or investing in something which had already gone up significantly in value.”
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