64-year old Andrew Nolan has not de-risked his SIPP portfolio “despite heading rapidly towards retirement”.
Nolan, who works as a customer client manager for a private bank, says: “I’ve recently switched roles so I am now working more as a consultant, on a part-time basis.
“I am not planning to stop working at the moment, but I am aware that there within the next 10 years I will probably stop working completely.”
He says: “At my point in life, I am aware that the received wisdom is to shift money out of equities and into safer assets, such as bonds, gilts and cash. It strikes me though that given the current climate this would be a foolhardy thing to do.”
As he points out, the returns on cash remain historically low, despite the recent increase in base rates. He adds: “I think bond and gilt prices still look over-priced. I sold out of all bond holdings about six years ago, and have made decent returns on an equities since then.
“I am sticking with this strategy for now. I am planning to keep my SIPP invested beyond retirement so am will hopefully by looking at a least a 20-year time horizon. It doesn’t seem to make sense to be overly cautious at present, particularly as I am still working and in good health.”
However, while Nolan’s SIPP portfolio is invested in equities he does hold a few “lower risk assets” elsewhere. He says: “Over the years I have saved a reasonable amount into Premium Bonds. I also hold a Cash ISA for shorter term savings.”
“Overall I have around £30,000 invested in Premium Bonds and get a steady payout on these, although most ‘wins’ are just for £25.”
Nolan, who lives with his wife in Sussex, adds: “It seems more sense to stick with Premium Bonds that invest in bonds or gilts. The returns on all are low, but at least I know my capital is safe, and we have the flexibility to dip into this money should we need it.”
Switching to Funds
When it comes to his SIPP, Nolan has switched to managed funds in recent years. “I used to have a fair few direct share holdings, but have found it trickier to make gains in recent years.”
A number of shares lost significant value in the wake of the financial crash. “I had holdings in banks like Lloyds (LLOY), which seemed to be a safe and steady stock that paid a reliable dividend.”
These payments ceased in the wake of the financial crash, and its share price plummeted. Although the bank has returned to profitability and paying dividends its share price remains significantly below pre-crash levels.
But it wasn’t just financial holdings that lost ground in the market fallout. Nolan says: “I also had a holding in Tesco (TSCO), which also has endured a bumpy few years.”
The supermarket giant - which has a three-star rating from Morningstar - saw significant share price gains between 2000 and 2007. But its profits were hit by competition from discount supermarkets, such as Lidl and Aldi. Shares suffered a further tumble in 2013, in the wake of an accounting scandal.
Nolan says: “It wasn’t just the experience of one or two shares that have fallen in value. I think for a private investor it is very hard to spot opportunities in the market.
“As far as I can see the larger fund managers rule the roost in trading, so prices for the individual are not always as attractive as they could be. “Similarly when in the past I might have followed tips from newspaper or other specialist publications, I don’t think this necessarily pays off. If they know about an opportunity, then surely the market has already factored in this reaction.”
Jupiter European Outperforms
Nolan has always invested in funds. They now account for the bulk of his portfolio. He tries to invest in a mix of funds, covering different geographic regions and risk profiles.
One of his best investments has been in Jupiter European. This fund, which has a Gold Rating from Morningstar, is managed by Alexander Darwall.
Morningstar analyst David Holder says: “Alexander Darwall has managed the fund since February 2001. This is a notable achievement and this stability and consistency of investment approach is an undoubted contributing factor to the fund's success.”
Darwall has a “high conviction approach” and the fund is unconstrained so can take significant bets against the benchmark.
One of his “steadier” holdings has been Invesco Perpetual Global Growth. Nolan says this is one of his longer term holdings and he has been pleased with the returns to date. The fund has a three-star rating from Morningstar.
Dabbling in Emerging Markets
Nolan is not averse to investing “small amounts” in higher risk areas. For example he has a holding in Aberdeen Emerging Markets. (Now part of the merged Aberdeen Standard Group).
This fund, managed Devan Kaloo, has a Silver Rating from Morningstar. It also has a three-star rating, reflecting its average performance in recent years.
Morningstar analyst Mark Laidlaw says: “While the resulting impact of the merger has led to a few personnel departures, the bulk of the [fund management] teams remain intact.”
Talking specifically about this fund Laidlaw adds: “The year 2017 has been a test of character for Aberdeen Emerging Markets, but there’s still plenty to like here in our opinion.
“The firms boasts a large and experienced investment team led by Devan Kaloo, a 17-year veteran of the firm.” He points out that the relatively underperformance recently is partly due to the fund by underweight in tech stocks, thanks to the fund’s long-term strategy of focusing on valuation. But he adds: “Long-term investors have been well-rewarded.”
Nolan has always expected emerging market funds to be more volatile. “I am keeping an eye on this holding, particularly given the merger. I don’t like switching funds but if it continues to over perform on a five-year basis I may consider alternatives. But I don’t think I will be selling out of emerging markets completely.”
