Software developer Eric Vale has been investing for four years. A move from his home country of Canada to the UK prompted his first foray into stock markets.
“I moved to the UK in 2013 and started earning more money,” he explains. “It felt wrong to leave cash in a savings account earning next to no interest. So I started to look at my investment options.”
Vale, who lives in Kingston, London, with his wife and young son, splits his money between tax efficient investments.
“I have a SIPP and a stocks and shares ISA, both with AJ Bell. I also have a cash ISA and hold money in NS&I Premium Bonds,” he says.
“Although I invest in individual shares and funds, I like to keep quite a high proportion of my money in cash, or other low risk assets such as Premium Bonds. I know I can access this money should I need it, and it helps to reduce the overall level of risk I’m taking with my money.”
Vale trades when he have enough money to buy “a decent number” of shares in a company or fund. This usually happens quarterly, but can be less frequent if his family expenses are higher than normal. With a second child on the way, Vale says he may well miss the next payment into his ISA.
Looking for a Decent Track Record
Vale looks at a fund’s performance record and its fees before investing. “I have one or two active funds, but most of my fund investments are in passive tracker funds, generally because these have lower fees,” he says. “But I do try to back one or two more active managers who I think have the potential to outperform the market.”
One of these actively managed funds is Orbis SICAV Global Equity. Morningstar analysts give this fund a Silver Rating and it has earned a five star performance rating too.
Vale says: “Over the two years that I’ve been invested I’ve made a 25% return on my money. This isn’t as big as some of the returns I’ve made on individual shareholdings, but it’s nowhere near as risky, as this is a well-diversified global fund.”
Fatima Khizou, an analyst at Morningstar says: “Investors who stick with this fund for the long haul should be rewarded.”
She points out that while the portfolio holds a large number of stocks, around 80% of the assets are concentrated in the top 50 holdings. The team pays little regard to the benchmark, and its bottom-up and contrarian approach means that the portfolio’s country and sector exposures tend to diverge significantly from the fund’s index.
Khizou adds: “Despite significant deviations from the index at both the country and sector level, performance has typically been driven by stock selection. This fund continues to have many positive attributes, including an experienced investment team, a proven approach, and an excellent long-term track record.”
Taking a Value Approach to Stock Selection
When it comes to buying shares, Vale tries to spot “undervalued companies which have the potential for higher prices.” He adds: “I try to research my selections and read some experts’ views on these companies.” But he also invests on a “gut feeling”, saying: “When you invest in individual stocks you know these are going to be high-risk holdings, so I prepare myself for the worst.”
Some of his recent purchases have delivered strong returns. One of his best investments has been in Fresnillo (FRES), a company involved in the exploration and development of gold and silver mines in Mexico.
Vale says: “I bought it because it looked good value for money at around £7 per share. I held it for a few months and saw a low return on my money of about 5 to 10%. But then Brexit happened and share prices sky-rocketed in a matter of weeks. I sold these shares at more than £19 per share, doubling my initial investment.”
Bad Timing Destroys Profits
Shares in Fresnillo have fallen since then and are now trading at around £13 a share. However, Vale admits his timing has not always been so successful.
“One of my worst investments was in Hikma Pharmaceuticals (HIK). I thought it looked like good value for money at around £24 per share. But sentiment turned against the company, and the share price has declined significantly.”
Vale adds: “These shares are still in my portfolio but are now trading below £12 a share, which means I’m sitting on a 50% loss, excluding some dividends that have been paid out over this time.”
Morningstar analyst Michael Waterhouse says: “While we previously thought Hikma's low-labour-cost operations helped give the firm a low-cost edge, we think the continual rise of new entrants, particularly from low-cost emerging-market peers, is pressuring pricing across the industry.”
Morningstar equity analysts recently downgraded the company’s fair value from £18 to £13.70 per share.
