Emily Barlow, an accountant from London, has always prioritized saving for retirement. Although she is currently on maternity leave, she is continuing to make payments into her pension plan.
She says: “I started saving into a pension in 2001, when I was only 23. Initially I couldn’t afford to save very much, I was probably putting in £75 a month. But at the time that was a big sacrifice to make.
“As I’ve progressed in my career and my salary has increased I’ve boosted the savings I make into my pension. My father – who is also an accountant – always stressed to me the value of the tax relief.”
Barlow says she is glad she took his advice; over the past fifteen years these monthly contributions have built up steadily and she is now sitting on a reasonable fund.
She adds: “The age at which people get their State Pension keeps getting pushed back. By the time I come to retire I’m not sure what it will be worth, so I think it’s important to build up my own fund.”
To do this she invests in a SIPP run by AJ Bell. She has invested in the same product since she started her pension saving.
Within this wrapper she invests in three funds, but the majority of her money is in FTSE 100 shares. She says: “I’m interested in buying shares that pay decent dividend streams. I then reinvest these payouts back into my SIPP holdings.”
Top Stock Picks
Barlow holds 20 stocks in her portfolio at present. “I tend to be more of a buyer than a seller,” she says. “I’m buying for the long term, so even if the share doesn’t do particularly well I tend to hold onto it. However, if I think it is going to continue rising in value I will top up certain holdings.”
This strategy has worked well with her holding in housebuilders Barratt Developments (BDEV). She explains: “For a while the losses on this were looking pretty horrendous, but more recently it has moved back up.”
When looking to buy new shares she also looks which sectors her existing holdings sit in ensure she has a balanced portfolio.
Current holdings include Aviva (AV.), BAE Systems (BA.), Diageo (DGE), GlaxoSmithKline (GSK) Royal Mail (RMG), Sainsbury (SBRY), Tui (TUI) and Unilever (ULVR). She says these last two have performed particularly well in recent years.
Unilever has a four-star fair value rating from Morningstar analysts, meaning they consider it undervalued at the current share price. They point out that its scale and scope give it competitive advantage over others, both in domestic and global markets: 58% of sales are now generated in emerging markets and the firm offers substantial exposure to growth markets.
Morningstar analysts say the company has a wide economic moat meaning it is difficult for competitors to breach its market positions. It attributes this to two sources: “Unilever’s entrenchment in the supply chain of retailers, and a cost advantage.” Morningstar adds: “The firm’s broad portfolio of products across multiple categories and supermarket aisles creates a virtuous cycle of competitive advantages that new entrants simply could not replicate.”
Diageo is another four-star fair value rated stock, according to Morningstar analysts, meaning they consider it undervalued at the current share price. The company manufactures and sells a range of well know branded spirits, from Johnnie Walker and Smirnoff to Baileys and Guinness.
Last month Morningstar analysts noted that stock market volatility in the wake of the US election could cause share prices to slip slightly. But they added: “We think heightened levels of uncertainty could create attractive buying opportunities for long-term investors interested in building a position in competitively advantaged global consumer names.”
Analysts think Diageo’s size and the strong brand recognition of its products gives it a wide economic moat.
Stocks that have Not Fared So Well
While most of her portfolio is in positive territory Barlow has suffered losses on her holding in Lloyds (LLOY), which she invested in before the 2009 financial crisis.
“Lloyds share price has risen moderately in recent years but it still around 50% below the price I paid for it,” she admits.
However, she points out that this loss is less than the gains she’s made on Tui and Unilever. Barlow says she does not intend to sell these Lloyds shares any time soon: “These are investments I plan to hold for 15 to 20 years. So I will sit on it for now.”
This decision seems sensible in light of Morningstar equity analysts’ view of the bank, pointing out it remains “one of the sturdiest banks in Europe”. Although it nearly destroyed itself in 2008 with the notorious acquisition of HBOS, Morningstar reckons it is well on the road to recovery.
“After years of bailouts and setbacks, the bank has essentially righted itself, and the government has largely sold down its stake. Lloyds has closed HBOS’ worst businesses, wrote down much of its bad assets, has re-emerged as the powerhouse UK bank that it once was,” the analyst report reads.
Funds for Diversification
Barlow used funds in her pension help her to diversify: none are invested in UK large cap shares. Instead she has holdings in Invesco Perpetual Corporate Bond, Man GLG Japan CoreAlpha and Stewart Investors Global Emerging Leaders.
This corporate bond holding was one of her first investments. It has a three star performance rating from Morningstar and coveted Gold analyst rating. Morningstar says: “Bolstered by exceptionally stable managers, this fund continues to thrive.”
While Barlow has been happy with the performance of this fund – which she says was recommended by her uncle – her best fund holding is the Japan fund, which has delivered an impressive 100% return.
This is another fund that has a Morningstar analyst Gold rating. Morningstar analysts say: “The managers use a rigorous, repeatable process that draws on their extensive knowledge of the Japanese market. They look for companies that appear to be undervalue when compared with rivals, they tend to favour quality companies that are dominant in their sector.”
Barlow adds: “Some of the companies I’ve worked for haven’t offered decent company pensions, so I’m glad I started saving young.”
Barlow says that as well as contributing to her own pension plan, she’s also started one for her newborn son, instead of a Junior ISA.
“There doesn’t seem to be much tax advantage in investing in ISAs for children – and they obviously get access to these funds at the age of 18. A pension seems a better long-term alternative,” she says.
