Gautam Gupta, a finance manager from London, has been investing for around fifteen years. He says: “I started looking at ways to invest my spare cash when I began my second job, in London, in 2001. I started off investing in property and individual shares. I enjoyed researching and reading up about individual companies.”
The main advantage of an ISA is the savings on capital gains tax
Despite some strong gains, Gupta says that, over time, this strategy became unsustainable, admitting: “It is very time-consuming to keep on top of all the information for a large number of companies.”
As a result, he switched some of his holdings into mutual funds instead.
“I found it easier to invest in these funds, but a few years down the line I became more aware of the higher charges on some of these funds,” he added
The fees he was being charged became more apparent to Gupta following the Retail Distribution Review, a regulatory initiative which forced asset managers, financial advisors and platforms to become more transparent about charges.
“In some ways my investment strategy has come full circle. I do still invest in some mutual funds, but tend to favour company shares, investment trusts and ETFs, where the charges are more competitive,” he says. Gupta uses his annual ISA allowance and also has a few pensions.
“The main advantage of an ISA is the savings on capital gains tax. But in most cases my investments are not anywhere near the CGT threshold,” he added.
Which Stocks Have Delivered?
Over the years Gupta’s investments have produced “mixed returns”. One of his better investments has been in BAE Systems (BA.). In fact, he has very recently taken profits from this stock. Over the past few years he also describes Vodafone (VOD) as a “solid performer” in his portfolio.
BAE Systems has a two-star valuation rating from Morningstar meaning analysts consider it to be overvalued. The stock has risen in value by 20% over three years. It is up by 33% in the last year alone, according to Morningstar, comfortably beating the returns on the FTSE 100, which itself has had a buoyant 12 months.
Jeffrey Vonk, equity analyst at Morningstar points out that BAE, one of the world’s largest defence contractors, has had a bumper year, with results ahead of expectations. However, he said that the company’s shares still look overvalued at current levels, despite an expectation that many countries, including the US, will increase defence spending.
Vodafone, has seen its share price slip marginally over the past 12 months, but it has been a steadier performer over five and 10 years.
Morningstar equity analysts say that recent price falls mean the company is trading below its fair value estimate of £2.40 per share. The company has a narrow moat, meaning it has some protection from competitors moving into its market.
Analysts point out that in recent years Vodafone has gone through a transitional period, going from world’s largest mobile-only telecom firms to a diversified operator, offering converged mobile and fixed-line services in most of its developed markets. This it said should put it in a better position to grow in future.
Which Stocks Have Not Delivered?
Gupta admits not all of his investments have been as profitable: “There have been a few shares that were good for a long time, and produced decent returns, but then all these gains were lost.” He says probably the worse example of this was Tanfield Group (TAN), an AIM-listed investment company.
Back in 2007 shares in this company were rocketed to peak of £10.17 according to Morningstar data. Gupta said the shares starting sliding from this point: “Rather than sell out I held on, hoping that these shares would come good again. I even invested more via a new rights issue. But it turned into quite a horror story.”
In July 2008, after complaints from analysts about poor standards of disclosure and weak financial controls, the share price plunged from £3.70 to 60p. Today shares in the company are trading at just 14p.
Gupta says: “I lost around 99% of the money I’d invested in this company. It certainly had a big influence on how I subsequently invested my money.”
But although Gupta is more cautious as a result of this experience, this does not mean he is shying away from smaller company investments. In fact, he says this is where he think the best gains are to be made at present.
“At the moment many assets look very expensive – both in the bond and equity markets. I’m taking profits from bigger blue chip shares, but I think it’s quite hard to find good investment opportunities in the UK. I’m on the look out for smaller company investment trusts with potential, but many look over-priced at present,” he said.
Overseas Investment Opportunities
Gupta is looking for investment opportunities overseas, saying: “At the moment I’m actively putting my money into a couple of investment trusts that invest in India.”
He points out the Indian stock market has been steadily increasing in value over the past few years, and the rupee has appreciated against other currencies. The two trusts he invested in are the Aberdeen New India Investment Trust (ANII) and the India Capital Growth fund (IGC).
These are both pretty small trusts, he says. But returns to date have been encouraging. The Aberdeen trust has a four-star performance rating from Morningstar, while the India Capital Growth fund has a three-star rating. Both funds have also been trading on substantial discounts, offering opportunities for investors like Gupta.
He adds: “These are long term holdings. I am confident as the Indian stock market continues to develop they should provide reasonable returns.”
