James Needham, a marketing executive, adopts a “buy and hold” approach with his portfolio of investment trusts.
Needham, who is 64, has been an active investor for more than 25 years, but takes more of a “back seat” approach these days. “In theory, now that I am only working a couple of days a week I have more time to research individual stocks and look after my investments,” he says.
“But in reality, I’ve found that taking a more laissez-faire approach has led to better returns in the long run.”
When Needham first started investing he bought direct shareholdings, trading regularly. He says that this approach sometimes proved costly.
“There is extra cost in doing this, and to be honest I didn’t always make the right calls. I was too quick to sell very often, rather than running my winners.”
There were other shares, such as Halifax – now part of Lloyds (LLOY) – which he conversely held on to for too long.
Needham initially invested in privatised utility companies and also had shares in a number of the building societies that de-mutualised and floated on the stock market, such as Alliance and Leicester, Halifax and Northern Rock.
He adds: “I also invested in quite a lot of smaller technology-based companies on the hope that one or two might make it big. But very few of them did. I made some good returns, but a lot of losses too.”
Turning to Trusts for Diversity
During the 2000s Needham switched his approach. “It takes a considerable amount of time and effort to build a properly diversified portfolio, so I started to look at fund options.”
At the time, Needham was working for a financial services company and as a result started to look at investment trusts.
“At the time the stock market was quite volatile. These seemed better long-term holdings,” he says.
“I started off with a global generalist trusts such as Alliance Trust (ATST) and Foreign & Colonial Investment Trust (FRCL), but over time I have diversified into more niche areas.”
He adds: “I liked the way that I could buy these investment trusts in the same way as I’d buy ordinary shares, but they offered greater diversification. At the time the costs were also less than open-end funds, but this difference had levelled out more recently.”
Both of these trusts have been long term holdings and still form part of Needham’s investment portfolio. He keeps an eye on whether the trusts are trading at a discount or premium, and will sell or top up holdings when appropriate.
Constructing a Reliable Portfolio
The core of his portfolio is a couple of large global generalist trusts. This includes the Silver Rated Foreign & Colonial Trust, which celebrates its 150 year anniversary this year.
The fund aims to grow both capital and income, and has paid investors a rising dividend for the past 46 consecutive years.
Morningstar fund analyst David Holder says there is the expectation that these dividend increases will continue. He adds that fund manager Paul Niven, who has chaired the investment policy group since 1996 has proved to be “an assured pair of hands for the management of this trust”.
Holder adds: “The board is very conscious of ensuring that the trust remains valid and attractive for existing and new investors in an increasingly complex financial world.”
Alliance Trust is another large and long-standing investment trust, having launched in 1886. This global trust has had a slightly more chequered history of late, and has a Neutral Rating from Morningstar.
Needham says he is sticking with the trust, despite a period of relatively poor performance.
Following a strategic review in 2016, the trust decided to adopt a multi-manager approach. Needham says he is supportive of this: “I was considering selling prior to this change but the trust was trading at a relatively large discount so I held on, hoping for some improvement. Given the action taken by the trust, I think it makes sense to stick with it for now.”
He points out that Witan (WTAN) – another global trust – made a similar change about five years previously, and this led to increased returns for shareholders. Over the past year this trust has outperformed its benchmark according to Morningstar data.
Specialist Trusts for Racier Assets
When it comes to more specialist holdings, Needham invests in Standard Life’s Smaller Companies Trust (SLS).
This trust has a Gold Rating from Morningstar analysts. Holder says: “Our conviction here is underpinned by the manager Harry Nimmo. He has shown great consistency and the ability to add value over his long tenure since 1997.”
Nimmo heads a team of seven small cap specialists that spans UK, European and global stocks, although the vast majority of assets are managed in UK funds.
Holder adds: “There is a great deal to like for investors seeking dedicated UK smaller-companies exposure from AIM-listed companies through the FTSE 250.”
Other more specialist holdings also include VinaCapital Vietnman Opportunity Fund (VOF).
As the name suggests this is a single-country trust, investing in companies that have a substantial majority of their assets, operations or revenue based in Vietnam.
Needham says: “I have some exposure to emerging markets through various global trust and some more general emerging market funds. But although this is high risk it did look like an interesting opportunity. It has made decent returns to date but I expect it will be volatile over the longer term.”
Over the past three years the trust has produced an annualised return of 31%. It has a five-star performance rating, reflecting the fact that it has outperformed its peers.
At the moment Needham is investing for growth, but he says he likes the fact that many of these trusts are decent dividend players. “When I do finally retire I’m not planning to radically alter my investment portfolio. But I hope to be able to start taking an income from some of these investments, rather than reinvest these dividends,” he says.
“This will hopefully give me some additional income, on top of my company and state pension.”
Needham currently lives with his wife and one of his two daughters in Oxfordshire.
