Unlike most retired investors, Paul Gosling is looking for capital growth, rather than income, when it comes to his ISA investments.
He says he is “fortunate” enough to have a decent final salary pension from his time working as a local government officer. This is inflation-proofed – a benefit w many of today’s workers won’t get.
“I consider myself very lucky. My wife and I have enough income for the time being, thanks to this, and our State Pension.” But the couple are looking to invest in ISAs to provide them with some capital growth for the future.
Gosling says his pension can cover day-to-day living costs, but it is good to have his ISA investments to fall back on “when the car needs repairs” or for other unexpected additional costs. He said the couple did cash in part of their portfolio to help pay off the remaining mortgage when he retired.
Gosling says that he has invested in ISAs, and before that PEPs, for many years.
“I haven’t been able to max out this allowance every year – and have sold holdings along the way,” he shared. “But if we have some surplus cash or spare money we do try to invest it in these tax-free savings plans.”
Where is Your ISA Allowance Going?
For this year’s ISA investment Gosling is considering putting money into Fundsmith Equity. He says: “A lot of my ISA funds are invested in the UK, so I am looking for more global exposure.”
This fund has a five-star rating from Morningstar, reflecting its strong performance since it launched in November 2010. It is managed by Terry Smith, who has a Bronze Rating, reflecting Morningstar’s confidence it his ability to continue to outperform peers.
In its first five years of trading the fund is up 16.7% on an annualised basis; by comparison, the MSCI World Index is up 10.3%, while the average global large-cap equity fund has returned just 6.7% - again on an annualised basis.
In many ways the fund is as characterised by what it won’t own as by what it will. Muna Abu-Habsa, an analyst at Morningstar says: “The overriding philosophy is that Smith looks to invest in compoundable earners, which ideally he could own forever. Ultimately he aims to invest in companies that are already winners and does not seek to identify tomorrow’s winners.”
Gosling says he has been impressed with the performance of this fund. “The cash dividend stream is good and it looks like the kind of fund you can hold for the long term. I think the strong dollar has probably helped its performance, as it holds a number of large US stocks.”
Gosling says he holds around “dozen or so” funds in his ISA. He invests through Chelsea Financial Services and says he has been happy with the service they’ve received. “It’s not like dealing with a huge firm, you get to talk to the same people, so they get to know you and understand what your objectives are.”
He says: “I’m taking a medium risk approach. I’m happy to invest in what I would call ‘conservative’ equity investments.” He says he tends to steer clear of gilts and bonds. “I believe they are going through a sticky time.” But he says the main reason he doesn’t invest in them is because he finds them overly complicated.
Active Funds With a Proven Track Record
Gosing says he likes active funds where the manager has a proven track record of delivering returns. Other holdings include Old Mutual UK Alpha fund, Woodford Equity Income fund, and Marlborough Special Situations fund.
The Old Mutual fund has a three-star rating, but Morningstar says investors “continue to benefit from the stewardship of an immensely talented UK equity manager, Richard Buxton”. He has a coveted Silver Rating from Morningstar.
However, analysts at Morningstar say they have “some reservations” about the appointment of this fund manager to chief executive officer of Old Mutual Global Investors. However, Buxton is supported by a strong UK team. But it notes it notes that despite his Vaughan adds: “We believe in this instance that this [transition] will be manageable… Buxton has rewarded investors with significant outperformance over the long term, relative to both the FTSE All-Share index and the UK large-blend Morningstar sector average.”
The Marlborough Special Situations fund has a four-star rating. The fund seeks to provide capital growth through a speculative policy of investing in smaller companies, new issues and companies going through difficult periods, but with good recovery prospects.
Meanwhile, Neil Woodford manager of the eponymous Woodford Equity fund, enjoys the reputation of one of the UK’s most successful managers. Vaughan says: “The strategy of this fund is clear: to generate a positive capital return in the long term and growing this income while offering capital preservation.
“Woodford has proved willing to stick to his strategy even during periods of poor performance. As a result his long track record - that covers 34 years - and encompasses numerous market cycles is strong.” The fund is Bronze Rated by Morningstar analysts.
