Martin Reid has been an investor for a number of years and has built up a portfolio of 12 to 15 funds.
He says: “My wife and I have used both financial advisers and wealth management services and have built up a portfolio of ISAs and pensions.”
Reid works in the financial services industry, but says he is not involved “in the frontline” of investment decisions. He says: “I have more of a technical role so have sought additional help when it comes to selecting investments.”
He has used advisers to help him construct a portfolio and manage it on an ongoing basis. But in some cases he has taken a more active role in choosing particular investments.
More recently Reid has opened a Junior ISA for his daughter and invested in an Orbis global equity fund.
He says: “Initially I was just looking at the performance of different global equity funds, and this was one that seemed to have delivered decent returns over the longer term, though I didn’t know much about the company.”
Unlike many other retail fund managers Orbis charges a performance fee and this is one reason that persuaded Reid to invest in their JISA.
He says: “It strikes me that the interests of investment companies and their investors are not always aligned. Fund managers generally get paid a fee whether or not they beat their benchmark. This certainly is attractive for their shareholders.
“But I don’t know whether this meets my requirements, as an investor looking to maximise the value of my savings. It seems to me that with a performance fee our interests are more closely matched. Orbis doesn’t collect a fee unless it beats its benchmark on a consistent basis, which means my money is growing too.”
Higher Risk Choice for a Longer Time Horizon
To date, Reid has been happy with the returns made on this investment. The Orbis Global Equity fund has a five-star rating from Morningstar, reflecting the fact that it has outperformed both its benchmark and peer group in recent years.
According to Morningstar data it has delivered annualised returns of 21.56% over the past three years and returns of 12.88% over the past 10 years.
However, Morningstar has also given it an above average risk rating, over three and five years.
Reid is aware that this is a higher risk investment. He explains: “When we invested initially our daughter was only three years old, so this money is going to be locked away for at least 15-years. On this kind of time horizon I feel we can afford to take a bit more risk.”
He adds: “We are in a fortuitous position, because we can afford to invest on her behalf, and already have a bedrock of other savings and investments.
“This isn’t money we are relying on, so hopefully by taking some risk we will be able to generate higher returns. But if it doesn’t it is not the end of the world. I realise not everyone is in such a position to be able to do this.”
Passive and Active Fund Portfolio
Reid initially deposited a lump sum into this JISA but he is now making monthly contributions. He and his wife have also started making monthly contributions again into their own ISA holdings.
He says: “My daughter is five now and has started school so my wife has returned to work. Our finances are on a bit more of an even keel, so this is something we wanted to do. We will also benefit from pound cost averaging if markets are a bit choppier from here.”
When it comes to the rest of his portfolio, Reid is invested in a range of funds. “On the whole, they are a pretty vanilla holdings. I have a few global equities funds and some UK and European Equity funds. I feel more comfortable investing in markets I know a bit about, rather than more obscure emerging markets. I also have some exposure to global bonds and UK fixed income.
He says he has holdings with a number of large international fund managers such as Fidelity.
Reid says he has a mix of passive and actively invested funds. He explains: “A lot of advisers recommend passive strategies as obviously the costs are lower. This makes sense but there is still a cost to investing so you never achieve market performance, even if you have a mix of low cost ETFs.”
For this reason he has a range of lower costs options, mixed with some more actively managed funds with a view to boosting overall performance.
Fundsmith Beats the Benchmark and Peers
One of his better performers have been Fundsmith Equity, managed by Terry Smith. This has the highest rating from Morningstar, with both a five-star and Gold Rating.
The fund has comfortably beaten both the benchmark and peers delivering annualised returns of over 20% in the last five years, according to Morningstar data.
Morningstar analyst Peter Brunt says: “This is one of the strongest options for investors seeking exposure to high-quality global equities.”
He adds: “Smith's investment philosophy is to buy and hold, ideally forever, high-quality businesses that will continually compound in value.” The fund has a low turnover of stock each year (less than 5%) as the manager takes a very long-term view on holdings.
Brunt adds: “Investors should be aware that this is a very high-conviction and long-term approach. There are elements of sector concentration and valuation risk in the portfolio.”
However, he adds that Smith appears to have a “good handle” on these risks. He adds that the fund has benefited from “style tailwinds” since launch, but adds that the manager has delivered significant value over and above this.
Reid says this validates his view to back a very active manager. But it is important to keep track of performance. “The advisers I use are good at keeping track of this, and ensuring our investment still match our current goals and risk profile.”
This has led to some changes in the past. “For example I did have a holding in Invesco Perpetual High Income when Neil Woodford was the manager but I don’t hold this fund now.”
