Edward Caston invests for income, having long seen the benefit of shares and funds that focus on dividend pay-outs. This has enabled his investments to grow, even through periods when the stock market has been more volatile.
“I am not saying I haven’t lost money, particularly over shorter-term periods,” he says. “Sometimes it can be a little scary looking at the annual statements. But I try to buy and hold for the longer term. I’ve panicked in the past and sold holdings too soon. But I’ve learned that good investments tend to outperform in the long run, you just have to stick with them.”
Caston works in information technology. Early in his career he worked for an investment company, which encouraged him to take a more active interest in the stock market.
“I’d invested in BT shares following their privatisation in the 1980s,” he says. “I also picked up shares in Halifax, Alliance & Leicester, and Northern Rock when these demutualised and floated on the stock market.”
All subsequently were merged with, or were bought out by rival banks, with Northern Rock disappearing in the wake of the financial crash. Caston says this “mixed experience” made him more wary of individual shareholdings, and he has since largely invested in funds.
Caston, who lives in Berkshire with his wife, says: “Over the years we’ve tried to build a diversified portfolio, with overseas investments as well as my core UK holdings.”
Caston says his main goal is to save for his retirement. “I have a work pension, and my wife, who is a teacher is on track for a decent pension too.
“But we wanted to give ourselves a bit more flexibility about when I retire. We have also been able to use some of our savings to help our daughter with a deposit for her first home.”
Caston is currently looking to boost returns on his SIPP and ISA portfolios. “I am looking at perhaps slightly higher risk funds now to try and boost overall returns in the next 10 years.”
Income Fund Picks
One of his better long-term holdings has been Artemis Income. He says this fund has an “excellent long-term record”.
Morningstar fund analysts agree, awarding it with a Bronze Rating.
Analyst Peter Brunt says: “For investors seeking core exposure to UK equities with an above-market dividend yield and growing income steam, we still find this a solid product.”
For many years this fund was one of Moringstar analysts’ highest-conviction funds, thanks to its experienced management team.
For over a decade this consisted of Adrian Frost and co-manager Adrian Gosden. They were joined by Nick Shenton in 2014 – but Gosden left in 2016. Frost has committed to at least three more years on the fund, but this does raise questions about management changes in the years ahead.
Brunt says: “While Artemis has yet to find a replacement for Gosden, Frost and Shenton have coped well. We believe they remain a complementary partnership that can add value over the long term.”
Caston says he does not take an income from this fund, but reinvests it for the longer term.
He is also optimistic about Marlborough European Multi-Cap. This fund has an income bias - has a four-star rating from Morningstar. The fund has produced annualised returns of 16.99% over the past five years.
Caston says: “I wanted to boost my exposure to European markets. I think this sector looks attractive in the near term, on a two to five-year period.”
Growth Fund Picks
To supplement returns Caston has more recently invested in the Slater Growth Fund. This UK-focused fund has a five-star performance rating and a Bronze Morningstar Analyst Rating.
Fund analyst Samuel Meakin describes it as “an attractive option for investors looking for a high-conviction portfolio of UK companies selected from the bottom-up.”
The fund is managed by Mark Slater, who is chief investment officer, chairman and founder of the company.
The fund aims to achieve long-term capital growth by investing in companies with strong competitive positions, sturdy balance sheets and good free cash flow generation.
The fund is unconstrained and as a result is overweight in smaller and mid-cap companies. Meakin says: “This approach has benefitted the fund in a number of years, and more generally over the longer term, but it can also be detrimental over shorter periods, such as in 2016.”
Another longer-term holding, Invesco Perpetual Global Equity, has produced excellent returns over the longer term. Over a 10-year horizon it has produced annualised returns of 9.34%.
Caston is currently avoiding bond funds entirely despite his interest in income. He says: “As an income investor I have had some exposure to this sector in the past. But I think they look very overvalued at present. If I want to de-risk my portfolio I simply increase the amount of money held in safer assets, like cash ISAs and Premium Bonds.”
