Neil Aspen, a software engineer, says he has seen his investments benefit from a “Brexit bounce”. But he is worried this effect may be short-lived, and is wondering whether it is time to cash in his gains and diversify his portfolio holdings.
Aspen, who is in his early 40s, has been investing for a decade. He says: “I’ve been married for about 10 years. It was soon after we got married that I started to think more seriously about putting money away for the future.”
Starting Out With Cash Savings
Like many investors, Aspen initially started saving in cash ISAs and Premium Bonds. But when interest rates fell he was forced to look at other options, as the returns “were next to nothing”. He adds: “I took quite a bit of time switching savings to get the best rate, but when you worked out what you got in pounds and pence for the switch it didn’t really seem worth the bother.”
Aspen describes himself as “a modest investor”. “We don’t have much tucked away but I’ve tried to put a little into investment ISAs over the past 10 years. My general strategy has been to invest in a handful of different funds.
“I invest on a monthly basis into my work pension, and also try to put a bit of money aside a couple of times a year into an ISA. These are investments for the long term. I don’t look how these are doing on a day-by-day or even month-to-month basis. I find it a bit stressful if values have fallen, but I’m hoping over the long-term I will see a more reasonable return on my money.”
Next Step – UK Equity Income Funds
Aspen, who lives in Bedfordshire, mostly stuck to UK-based funds. “I have money in a FTSE All-Share tracker, and also in Royal London UK Equity Income.”
However, in the last couple of years he has put a small amount of money into investment funds that have a more global remit. He says: “I feel a bit more nervous sticking my money into emerging market funds. These are global funds, but seem lower risk as they invest in a range of assets.”
Aspen’s UK investments have benefited from the rise in the FTSE 100 after the EU Referendum. But he is concerned that share prices are overheating, particularly in the UK.
“I’ve only ever really bought funds before. I’ve not had to sell any, so it’s difficult to know what to do for the best. I'm not sure whether to cash in some of these gains and reinvesting these proceeds elsewhere. The question is where would I invest?” he says.
“Overseas markets can be just as risky, so perhaps I should just stick with my current investments. I’m tempted to put more money into the defensive funds now, and if prices do fall then top up the UK holdings.”
Aspen has been pleased with the performance of Royal London’s Equity Income fund to date. This fund has a five-star rating from Morningstar, and a coveted Silver Rating.
Morningstar analyst Samuel Meakin says: “This fund benefits from a highly experienced manager consistently employing a proven strategy. Martin Cholwill has been at the helm of this fund since March 2005. He has more than 30-years' experience in the industry and has been managing UK equity income funds since 1996.”
Meakin adds: “Cholwill's strategy is sensible for delivering yield and competitive total returns for investors. He targets companies with strong free cash flows that provide the opportunity for rising dividend payouts. Valuation is also important; the manager seeks stocks that are out of favour with the market and so may offer a premium yield.”
Aspen also invests in Legal & General UK Index. This passive fund follows the FTSE All-Share, and has a four-star performance and a Silver Rating reflecting the fact that Morningstar analysts are confident it will continue to perform well in the future, relative to peers.
Hortense Bioy, an analyst at Morningstar says: “This fund is a worthwhile investment proposition for those looking to gain broad exposure to the UK equity market.” The fund aims to fully replicate the FTSE All-Share at a low cost. These lower costs have helped it deliver outstanding returns. Bioy says: “Compared with its peers in the UK large-cap blend equity Morningstar Category, which includes both active and passive funds, this tracker has delivered consistent above-average returns over the long term, landing in the second quartile in 11 out of the past 13 calendar years.”
Multi-Asset Funds Add Diversification
Aspen also has money in two mixed asset portfolios both of which have a more global remit. These include Jupiter Merlin Balanced Portfolio – which has a maximum of 85% of its asset in equities. He also invests in the Standard Life Investments Global Absolute Return Strategies – often known as GARS.
The Jupiter portfolios are managed by John Chatfeild-Roberts and Algy Smith-Maxwell. The run a series of different risk rated portfolios, the more cautious of which have reduced exposure to equities. This balanced portfolio is described as moderately adventurous.
The managers of these portfolios take a high conviction approach. Although charges are relatively high, thanks to its fund-of-funds structure, Morningstar analyst Randal Goldsmith says this approach has served investors well, with outperformance in tougher investments years, such as 2008, 2011 and 2015.
The Standard Life fund has been hit by relatively poor performance in 2016, but Goldsmith says this more defensive approach should be effective if stock markets do move into negative territory again.
Goldsmith says: “SLI GARS’ investment process is well-thought-out and has been stable throughout, despite disappointing performance in 2016.
“GARS’ process has a number of features that we like: it can take advantage of ideas anywhere, in any asset class accessible by liquid securities, and with the flexibility to leverage low risk/return ideas or hedge more volatile ones; the portfolio includes only ideas that SLI’s multi-asset investing team has conviction in, and each one is sized according to its contribution to risk, rather than the more traditional approach of under/overweighting versus a benchmark index
