Chris Morris says his parents encouraged him to invest. “They opened an ISA for me when I was 18. But, quite sensibly, they didn’t tell me about it at the time.” Over the next few years they continued to contribute to a range of funds, that performed well, giving Morris a small nest egg by the time he reached his mid-20s.
He started investing himself into the ISA at the age of 25. He says: “I invest on a regular basis, putting aside a little each month. I’ve tried to expand the number of funds I invest in, though looking at the performance over the past three years, the fund picked by my parents have performed a bit better.”
As these are long-term investments Morris – and his parents – have invested in higher risk sectors. Morris says he has tried to be a bit more adventurous than his parents, but this gamble has not always paid off.
He still has investments in some of the funds chosen by his parents. These include First State Greater China Growth, First State India Subcontinent and Marlborough Special Situations.
These First State funds both have coveted Gold Medal Ratings from Morningstar analysts, reflecting analysts’ confidence that they will continue to outperform, and five-star ratings, reflecting their strong performance in recent years against peers.
Outstanding Returns from First State Funds
Germaine Share, a fund analyst for Morningstar says: “First State Greater China Growth remains one of our best ideas for equity exposure to the region. Top-notch portfolio manager Martin Lau has 21 years of investment experience.” She points out that he is supported by an experienced team. “The trademarks of the team’s process are its absolute return focus, low portfolio turnover and a benchmark-agnostic mentality.” Since the fund’s inception in 2003 it has gained 16.49%, beating the MSCI Gold Dragon Index by 576 basis points.
Morningstar analysts are as enthusiastic about First State Indian Subcontinent, which they say “deserves to be viewed as best in class”, continuing: “There is much to like here, not least Vinay Agarwal who has been lead manager since August 2012. His depth of analysis is impressive, not only when looking at the major macro issues that drive the Indian economy, but especially when getting down to the nitty gritty at the stock level.”
Marlborough Special Situation has a four-star rating – reflecting its strong recent performance compared to peers. The fund invests in UK smaller cap companies.
Funds That have Not Fared So Well
But while these funds have been strong performers, Morris says his more recent investments have not fared so well. He says: “I kid myself it’s a good time to buy, but I seem to have a knack of buying just before share prices fall.”
He says this was the case with his recent investment into Axa Framlington Biotech. After several years of outstanding growth – between 2013 and 2015 – valuations fell in 2016. Morris says: “Looking back I clearly bought at the wrong point. Shortly after I invested prices fell by around 50%.” However, while still volatile, valuations have been heading upwards over the past year. The fund has a three-star rating from Morningstar.
Russia Shares Continued to Slide
Morris says this wasn’t his only mis-timed investment. He had similar problems with Neptune Russia & Greater Russia. Morris explains: “I bought after several years of relatively poor returns for this fund. I thought I was probably getting in at the bottom. Unfortunately, this was not the case and valuations continued to slide.”
This fund has a Bronze Rating from Morningstar. Analyst Lena Tsymbaluk says: “The fund benefits from a seasoned investor in Robin Geffen, who has 20 years’ experience in Russian equities. However, the analyst team has seen high turnover in the past few years. This combined with the fund’s risk profile mean our conviction for future outperformance has waned.”
She pointed out that the fund’s unconstrained approach can result in high levels of active risk, which may mean “a lumpy performance profile”. She adds: “For example, the manager tends to have significant underweighting in energy, relative to the index. Although the manager’s rationale for avoiding the big energy companies such as Gazprom is clear (corporate governance issues) this is a huge relative call to take in the country, which is dominated by the oil and gas sector.”
Morris says returns have also been volatile with BlackRock Gold & General. However, this fund has a coveted Gold Rating from Morningstar, with analyst Fatima Khizou saying this fund “continues to be a strong choice for investors seeking mainstream gold and precious metals equity exposure in a risk-controlled manner.”
Why I’m Sticking With High Risk Sectors
Despite more mixed returns from his these more recent investment, Morris says he is sticking with them for the time being. “These all look like good solid funds, run by experienced managers. The markets that they are in may not be doing so well at present. But by investing monthly at least I am buying at a lower price and will hopefully benefit as and when these sectors recover. I think these are all areas that have potential to deliver good long term returns.”
Morris says he is not investing for any particular long-term goal. “Hopefully I am building up a nest egg for the future, so the money is there if I need it.” He says he has cashed in small profits to help pay for holidays.
Morris lives in North London and works as in the VCT-sector. He says: “I think VCTs are brilliant investments, but not quite right for me at present. Most need a minimum investment of £5,000 and you have to be prepared to tie your money up for at least five years. Although I am invested for the long term I like the flexibility ISAs offer, because I know I can get my money if I need to.”
