Like many investors, Giles Ward says he is becoming “used to economic uncertainty”. Ward, who is in his mid-50s, says: “In many ways it feels like we are still recovering from the global financial crisis. There have been certain assets that have performed well since then, and overall my pension and ISAs have grown in value. But there remains a nervousness – as though we are waiting for the next bubble to burst.”
I’m still a decade away from retirement, but I don’t want to take too many risks
Ward, who lives in Kent, says that recent political and economic events – such as Brexit, the falling value of the pound and now the US election – have added to this feeling of uncertainty. “I’m still a decade or more away from my retirement, but I don’t want to take too many risks with my investments.”
Ward, who works as a finance director for an engineering company, has recently increased his exposure to gold in his SIPP. Rather than buying bullion direct he has chosen to invest through iShares Physical Gold ETC (IGLN).
“I have had a very small gold investment for quite a few years now,” he says. “I know commodities can be volatile – and gold doesn’t produce an income. But I have seen a reasonable return on this investment.”
But while gold prices have increased recently, the weaker price of sterling has dented returns for UK investors, like Ward.
Gold Provides a Ballast
It recently emerged that legendary investor George Soros had sold his holding in gold ETFs and was looking to invest in energy stocks and emerging markets. But Ward is not looking to cash in recent gains. He sees this as a long-term holding that will hopefully provide some ballast to his overall portfolio.
“I don’t see the current climate changing any time soon. I think things will remain volatile for a couple of years,” he says. “This doesn’t mean I am going to stop investing in shares or bonds – but it seems sensible to have some alternative assets in there as well.”
Investing in Absolute Return Strategies
To try to insulate his portfolio against any future stock market shocks, Ward has invested in both absolute return funds and strategic bond funds.
Current holdings include Newton Real Return, an absolute return fund that has a silver-medal rating from Morningstar.
Morningstar analysts describe this fund as “a strong choice for investors seeking a target-return multi-asset fund with an emphasis on capital protection.” It points out that the manager, Iain Stewart, is among the most experienced multi-asset target-return managers in the UK. He has run this fund since it launched in April 2004.
The fund targets to deliver a return of the Libor rate, plus 4%, annualised over a rolling five year period. To help it achieve this, the manager has a very flexible mandate. The portfolio is divided between return-seeking assets, mainly equities, and stabilising assets, mainly bonds and cash. The manager also invests in derivatives to limit downsides on the share investments.
This strategy has provided impressive returns, with the fund meeting its target consistently. It has also provided positive gross returns in every calendar year, although there was a small loss on the retail share class in 2011, after fees.
When it comes to bonds Ward invests in M&G Optimal Income. This fund has a three-star performance rating from Morningstar, and a Silver-medal rating meaning analysts expect the fund to outperform its peers over the long term.
Fund manager Richard Woolnough runs a number of bond funds for M&G, but this is the one with the most flexible remit. The fund can invest in up to 20% equities if there are concerns about bond market, or be 100% invested in investment-grade, high-yield, and government bonds, depending on how the manager views the market. Duration is also actively managed, often using a derivatives overlay.
Ashis Dash, an analyst at Morningstar says Woolnough has used this flexibility well, generating an annualised return of 7.7% from January 2007 to June 2016, substantially ahead of the 3% for its category.
Dash adds: “The combination of an experienced manager with a solid track record, ample resources, and a tried-and-tested strategy affirm our conviction in this fund.”
Stock Picks and Property
Ward adds that while he is nervous about the market he does invest in equities. “Long term I know this is likely to be the best home for my money. In recent years I’ve tended to either buy ETFs or tracker funds that simply mirror a certain index, or opt for more cautiously managed mixed-asset funds. Here I’m paying for active management but I feel like I am getting something for my money.”
Ward and his wife have also invested in property: “I have a couple of buy-to-let flats. The first was bought around 10 years ago with an inheritance. It has given us a good steady income and a fantastic capital return, so we bought a second smaller flat nearby around three years ago.
“At the time we worried we were buying at the peak of the market, but property prices have continued to edge upwards. I’m not sure it will rise in value significantly from here. But if it delivers us a steady income that should help when we do eventually retire.”
