Private investor Sophie Hexington has switched some of her investments to take advantage of a fee offer – one year’s investment at zero cost.
She explains: “I had been thinking about switching my son’s Child Trust Fund into a Junior ISA, but it was one of these jobs that I had put off doing.”
However, she was prompted to take more decisive action after her mother-in-law had offered to boost payments into this savings pot.
“She had been saving for my son in a cash account, and was fed up with the poor returns. So she suggesting closing this account and re-investing the balance into his Child Trust Fund,” Hexington explained. “This made me re-evaluate where my savings were going for my son. I want to make sure we make the most of her generous gift.”
Hexington, a charity administrator, previously invested in a stakeholder account with The Children’s Mutual. This was taken out when her son Leon, now aged 12, was born, invested in a tracker account with an annual fee in excess of 1.5%, far above the majority of passive funds.
Converting to a Junior ISA Saved Costs
Three months ago she converted this investment into a Junior ISA. “There certainly seems to a lot more choice of investment funds with Junior ISAs. I seem to remember when Leon was born that the accounts all looked very similar,” she said.
She decided to take out a Junior ISA with Orbis Access Investment, in part because they were offering a fee holiday.
“The money invested in the first year remains free-free until Leon reaches his 18th birthday,” Hexington said. “When I realised that this would include all the money I was transferring over this seemed like an excellent deal. We are going to try to maximise savings into this account this year to make the most of this offer.”
Hexington chose to invest in the Orbis Global Equity fund. This fund has a five-star rating from Morningstar, reflecting its strong performance relative to peers. William Gray, the head of the fund management team, gets a coveted Silver Rating, reflecting Morningstar’s confidence in his ability to continue to deliver for investors.
Morningstar analyst Fatima Khizou says: “Investors who share the team’s long-term perspective are in good hands here.” She adds: “The investment approach is focused on fundamental detailed bottom-up research that seeks to identify shares that are priced attractively relative to their intrinsic value.”
Performance Fee for Top Rated Fund
This approach has clearly paid off. Since its inception in January 1990 to the end of October 2015, this fund is 5.1 percentage points per year ahead of the global large-cap blend equity Morningstar Category average. Unlike most other retail funds Orbis charges a performance fee, possibly reflecting its origins as an institutional manager. This means investors pay a higher fee when the fund outperforms its benchmark by a significant margin.
Hexington says: “I didn’t know much about performance fees, but I like the idea that if the fund managers don’t perform then I don’t have to pay them anything.”
Iif the fund outperforms significantly Hexington is less worried about paying higher fees than her stakeholder account, because the bulk of the investment will remain fee-free until Leon’s 18th birthday.
“At that might point I guess it will be time to reassess our options again,” she adds.
Hexington says sorting out her son’s finances has encouraged her to take a closer look at her own savings and investments.
“I have a relatively small workplace pension. My husband who works in financial services has a much more generous pension which I hope will provide for both of us,” she said.
“However, this has made me see the benefit of boosting my own savings. I was quite surprised at how much my son’s Child
Trust Fund was worth. I’d set up a monthly direct debit and have added some birthday and Christmas money over the years, but these modest amounts have helped to build a reasonable nest egg.”
A New Adult ISA Account
Rather than take out another pension Hexington said she decided to start her own ISA, using the online platform Hargreaves Lansdown. Currently the money is split between just two funds: Henderson Cautious Managed and CF Lindsell Train UK Equity.
She says: “I wanted to pick steadier funds that will hopefully provide a solid performance. I’ve focused on the UK to start with. Hopefully I will diversify more in future, but I want to see how it goes for now.”
Both funds have been good performers in recent years. Morningstar describes the Henderson mixed-asset fund as “a strong choice for a plain-vanilla equities and bonds mandate with an experienced manager”. It has a Silver Rating. The manager, Chris Burvill was the sole named manager of this fund from launch in Feb 2003 until July 2012 when he was joined by co-managers John Pattullo and Jenna Barnard.
CF Lindsell Train has a more significant equity weighting, but is also focused on the UK. This Gold Rated fund is run by Nick Train, described by Morningstar as “a seasoned and talented UK equity manager who has demonstrated a highly consistent approach”.
Analysts at Morningstar say: “Train's process is differentiated and has proved successful over a number of market cycles. He selects companies from the bottom up and looks for unique and strong franchises that can prosper through a number of business cycles.
“This process has led to strong absolute returns and, given the strategy has clear biases and risks, unusually consistent relative returns in the last five years.”
What funds are in your ISA or SIPP? What have been your most successful investments to date? If you'd like to feature in Investment Views and tell us about your investment strategy please contact the Editorial team on UKEditorial@morningstar.com
