When Lauren Mason stared working as an investment writer three years ago, she decided it was time to start her own investment portfolio.
She says: “Initially I was looking to invest in funds that offered exposure to different regions, in particular Japan, emerging markets and Europe. I have a pretty long-term horizon, so can afford to be a bit more aggressive, and take some risks in my portfolio.”
Mason says: “I am still fairly young, so I don’t have specific goals in mind. I am hoping that by starting to invest I will have a reasonable pot of money by the time I come to retirement. Hopefully will give me more flexibility in future too.”
Initially, Mason was just looking at funds with different regional exposure. But over the past couple of years she’s taken a more in-depth approach by “drilling down into individual portfolios” to try and understand the style and approach different managers take.
She says: “I have taken a value-based approach to my investments. I think this has the potential to deliver better returns over the long term.”
She also points out that ‘value’-style funds have underperformed compared with growth funds in recent years. This seemed like a good opportunity to buy into this sector, she says.
A couple of her initial investments were into Schroder Global Recovery and Man GLG Japan Core Alpha.
Schroder Global Recovery is managed by Nick Kirrage and Andrew Lyddon. It is not currently rated by Morningstar. As the name suggests, this fund invests in companies that the manager things are undervalued, relative to their long-term earnings potential. The managers take a disciplined approach to buying out of favour companies at all stages of the investment cycle.
The Man GLG Japan CoreAlpha fund is managed by Stephen Harker, and has a three-star rating from Morningstar, reflecting its relatively strong recent performance against its benchmark.
Mason says: “My aim was to drip feed money into these various funds and hold them for the longer term.”
Choosing the Fund of Funds Route
Over a couple of years she invested in various higher risk overseas funds but more recently has moved these holdings into a managed fund-of-funds portfolio.
She says: “I noticed that the Chelsea Financial Services aggressively-managed portfolio contains a number of the funds I held, so I have transferred my holdings.”
Mason says this offered two advantages: it is easier to keep an eye on the performance of one fund, and it has also reduced the charges she pays overall.
“These were quite high-octane funds I was invested in, so the charges were high. By accessing this via a fund-of-funds portfolio I have actually reduced the total fees I pay, as I am invested in fewer funds overall.”
She hopes this will be a “buy and hold” portfolio. “It’s good to know that there is a manager keeping an eye on this portfolio, who can make changes, should economic circumstances changes, or if one of these funds underperforms or changes its manager.”
Mason sees this managed portfolio as a “core holding”, but also invests in a number of satellite funds. She explains: “This fund has a global outlook. I still have individual holdings in a number of UK-based funds.”
Two Satellite Funds From Schoder and Marlborough
She hopes this creates more diversification. Among these satellite holdings are Marlborough UK Micro Cap Growth and Schroder Recovery.
This Marlborough fund has a five-star rating from Morningstar, reflecting its strong performance in recent years against peers. In the past five years it has delivered annualised returns of 19.12% according to Morningstar.
The fund is managed by Giles Hargreave – and as name suggests this fund invests in a range of smaller UK companies that make up the FTSE Small Cap index – it automatically excludes any investment trusts that appear in this index.
Although the fund invests in companies with a market capitalisation of up to £100m, a considerable proportion of the portfolio will be invested in companies with a market cap of less than £50m. At times the fund may also hold cash while it the manager seeks suitable investment opportunities.
Schroder Recovery is managed by Nick Kirrage and Kevin Murphy. This fund pre-dates the Global Recovery fund that Kirrage also runs, and it was the success of this fund that prompted Schroder to launch a global version.
However, while the long-term track record is impressive - delivering annualised returns of 11.1% over the past 10 years - the fund has underperformed its benchmark in the last couple of years. This previous outperformance has helped the fund gain a four-star rating, but Morningstar analysts are currently in the process of updating their research on this fund.
For now Mason is content to stick with her portfolio. “I may over time make changes to the satellite funds, but I prefer a buy and hold approach rather than selling on the back of short-term underperformance. I know these are higher risk funds so am prepared for periods of volatility.”
Mason has seen a positive return on all her investments since she started investing three years ago.
