Aptly-named Michael Stocks has chosen to invest his cash in direct shareholdings, rather than funds.
He says: “I have a company pension which invests in a range of funds. When it comes to my own savings I prefer to invest in individual shares. I am willing to take on more risk in the hope of increased returns.”
Stocks takes a two-pronged approach to these direct shareholdings. He invests around half of his money in the Alternative Investment Market (AIM), the stock exchange for smaller, growing companies. The remainder is invested in larger FTSE100-listed companies, but even here he is not playing it safe, with the majority of his money in unloved and undervalued banking shares.
Bold Banking Stocks
He says: “I have shares in all the major banks including Lloyds (LLOY) HSBC (HSBA) and Santander (SANB), as well as a smaller holding in RBS (RBS). I don’t see this is a particularly high risk strategy, but I’m hoping that long term these will prove to be profitable holdings.
“When you look at what share prices were in the banking sector 10 years ago they look undervalued today. As I see it, most of the PPI problems are under control, and will soon be out of the way. Once interest rates start to rise, which I imagine will be within the next few years, banks are likely to be far more profitable. By buying when share prices are low I hope that these will prove to be a good investment over the next 10 years.”
He admits that RBS is the riskier stock, as it is still largely owned by the Government. “There is always the risk that if the Labour Party came back to power then they could nationalise this bank, which would effectively wipe out the value of my shareholdings, but this seems relatively low risk to take.”
AIM Listed Energy Companies for Growth
Stocks admits that he is taking considerably more risk with the other half of his portfolio. At present he has all of his AIM holdings in one share: Sound Energy (SOU). He first bought shares in this company almost three years ago, since then Stocks says he has tripled his money.
“I bought at a low point, and since then this has been an excellent investment.”
According to Morningstar shares in this company are up almost 30% over the past three years. However, like other companies involved in the exploration for gas or oil, prices can be volatile, depending whether or not they find sufficient quantities of oil or gas to extract cost-efficiently. Over five years, for example, the share price is down by 18%, and share prices have slipped in the last year.
Stocks says he is prepared to live with this volatility. He is not planning to cash in the returns he’s made at present. But he says if the share price, currently around 16p, rises significantly he will reinvest these gains into his portfolio of ‘less risky’ banking stocks.
Rather than banking profits, Stocks has been topping up his holding in Sound Energy. Some of these additional money has come from selling other shares that have not performed as well.
For example, Stocks says he invested in mining company Lonmin (LMI), listed on the FTSE250, which mines platinum in South Africa. According to Morningstar figures this company’s share prices has fallen by more than 60% over the last three years, and in excess of 88% over the last year.
Stocks says: “The share price was down, so I thought this may be an opportunity to buy an undervalued stock, but it has continued to fall. I saw my money halve and decided it was time to cut my losses. It was quite a hit, but I’ve invested the remaining stake into Sound Energy, so hopefully this will help make good some of these losses.”
Workplace Pension Invested in Property Funds
Stocks works for a chemical printing manufacturers, based in Cheshire. He has a pension through his job, which invests in a range of funds. He says: “They have closed down the old final salary scheme, so we have the option of choosing which funds we invest in. By investing in a range of global funds I can get more diversification. I’ve also chosen a couple of property funds. I see this as a useful counter-balance to my own direct shareholdings.”
For a core holding, that offer a lower risk approach, Stocks invests in a Standard Life multi-asset fund - which has between 20% and 60% investment in shares.
He also invests in Schroder Global Real Estate Securities and Fidelity Global Property fund.
The Schroder Global Real Estate fund has a four-star rating, reflecting its strong performance in recent years. Schroder brought the management of this fund in-house in recent years, and while Morningstar says this transition “has got off to a good start”.
However the fund analysts add: “It is still early days given the brevity of the managers’ track record here, but also more broadly in running a global property securities fund. The fund retains its Morningstar Analyst Rating of Neutral.”
The Fidelity Global Property fund has a three-star performance rating from Morningstar.
