Retired private investor Gordon Pope is in his late 60s, but this does not mean he has switched his portfolio out of risky assets. Rather than gilts and corporate bonds, he prefers a strategy of individual shares and emerging market funds; looking to provide him with both growth and income.
Pope started investing in shares in the 1980s, after the wave of privatisations, and has no plans to switch into safer assets more usually associated with a retirement portfolio.
He says: “For the moment I tend to favour emerging market investments, and I’m increasingly looking at funds that offer an income and are placed to benefit from sterling’s weakness. I also like natural resources, though at the moment tend to exclude companies that are heavily involved in mining and gas and oil extraction.”
Best Performing Shares
One of the shares that has produced his best returns in recent years has been SSE (SSE), which owns the Scottish and Southern Electricity Networks, Southern Electric, Scottish Hydro and Swalec brands.
Pope says: “My initial shares were acquired when it was privatised as Southern Electricity, and I’ve added more shares at intervals. Overall the value has more than doubled. The yield on the purchase price was more than 12% – and still 6% at today’s share price.”
Morningstar equity analysts gives SSE a three-star rating, and says the utility company has a ‘narrow moat’, meaning that shares are fairly valued at this price and the company has a small competitive advantage over peers.
The company has increased its portfolio of hydro, wine and other renewable-generation assets, which by 2025 should account for around 40% of its portfolio. Andrew Bishof, an equity analyst at Morningstar says SSE’s future performance will hinge on demand for renewable energy, electricity prices, and potential regulatory risks.
He adds: “Although we believe that higher demand and prices might provide additional upside for some of the company's peers, the company's dividend, its exposure to power markets, and its regulated growth profile could combine for an appealing total return proposition for income-oriented investors at the right price.”
Stocks that Have Failed to Shine
Not all of Pope’s shareholdings have performed as well. He says: “It’s not all been sunlit uplands. Cattles was probably the biggest disaster.”
This consumer finance company, based in Yorkshire, once appeared in the FTSE 100 listing of the UK’s largest companies, before being demoted to the FTSE 250. It went into liquidation in September 2016. Pope says: “I ended up pretty much losing all my money. I think the final payout from its administration was about 1p per share.”
He also got his fingers burnt investing in banking shares in the wake of the financial crisis. He invested in Lloyds Bank (LLOY) but said a combination of the “disastrous, politically engineered takeover of HBOS aggravated the damage already being inflicted by the financial crash.”
Pope adds: “I finally lost patience with these shares, and sold out in 2016, when the latest rally appeared to peter out. I sold them for around an eighth of their peak value.”
Since the bank returned to full private ownership in 2017, and looks a better proposition for investors, according to Morningstar analysts, who give Lloyds a four-star rating. This means analysts consider it to be trading below its fair value estimate of 84p per share.
Equity analyst Derya Guzel says: “We retain our narrow moat rating for Lloyds, which remains our preferred name within the UK banking space.” However, Guzel points out that the bank’s reported profit continues to be affected by PPI and conduct charges.
A Disaster Come Good
Other of Pope’s shareholdings have gone through similar difficulties, but have come through the other side. He describes his holding in Rentokil (RTO) as a “disaster that has come good”. He explains: “At one point I was down nearly 75% on the price I had paid for these shares. I saw little point in crystallising the loss and thought the company should be capable of being turned around. Today the shares are 75% above the purchase price.”
One of the sectors that Pope is interested in is healthcare. He says: “Apart from established companies such as Smith & Nephew (SN.), where it’s easy to see what is on offer, I prefer investment trusts looking at companies developing therapies, since the chance for an individual investor to back winners and avoid losers is remote.
“I’m less keen on direct healthcare provisions as that is an area vulnerable to unpredictable currents from a variety of sources.”
When buying shares he is always keen to ensure that he’s not already too exposed to this stock, or sector, through any collective investments. He adds: “I’ve learned not to trust companies where the CEO’s ego appears to be a major factor in decision making.”
Keeping Cash Ready to Act
Pope invests through AJ Bell and TD Waterhouse, and tries to make the most of tax-efficient wrappers such as ISAs and SIPPs. He tries to leave a cash float in both accounts, which can be used to take up any rights issues, or interesting buying opportunities. He adds: “It also means that we can use this if we need a cash injection into our bank accounts without having to sell shares.”
After leaving a career in sales, Pope set up his own consultancy, but says he has now mainly retired from this work. He is increasingly focused on shares that produce a healthy dividend stream, which he hopes to use to supplement his pension income in future.
He says: “Both my wife and I were in professional positions which enabled us to save towards our retirement. We have two sons, but I joke with them that anything I leave them will be a miscalculation on my part.”
