Lee Smythe is a chartered wealth manager whose job is to help others plan for the future and invest their own money.
He says he tries to follow the same logical approach when it comes to his own investments.
Smythe, who lives in Kent, with his wife and three teenage children, says: “I have always been an investor, ever since I left school.
“I had an interest in economics and the way investment markets work and at that early stage this manifested itself in the desire to invest in shares of companies I thought could do well.”
These days, Smythe doesn’t invest in individual shares, but instead looks at funds to ensure he has adequate diversification.
His main priority is to fund his own retirement. At 44 this may be several decades away, but he also wants to ensure there are funds for more immediate needs.
“This might be helping the children through university or moving home.”
Not surprisingly given his job, Smythe’s first priority is to ensure his savings and investments are making the most of the various tax-efficient schemes available.
“I have a stocks and shares ISA and a personal pension as my main investment vehicles, and split contributions fairly evenly between these.
“They both have tax advantages and whilst the pension is best for me from that respect, the ISA allows the flexibility to access funds earlier that the pension, should I need them.
“I keep very little cash, other than for short-term spending as the interest rates currently available make this a poor use of my money.”
Fundsmith and Lindsell Train Have Outperformed
Smythe typically has around six to eight investment funds within his ISA and pension portfolio. He says: “The main criteria for selecting investment are consistency of returns and value for money.
“It is important to ensure that funds have a good track record, through regular outperformance rather than as a result of just one stellar year.”
Two of his top performing funds have been Fundsmith Equity and Lindsell Train Global Equity, with both funds delivering top quartile performance. In practical terms, this means the money he’s invested in each of these funds has doubled in value over the past five years.
He adds: “As global equity fund they are both a higher risk option. But I have a long-term investment horizon and so any short-term falls in value won’t affect me on a day-to-day basis.”
Both of these funds are highly rated by Morningstar. Fundsmith Equity 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 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.
Lindsell Train Boasts Experienced Managers
Meanwhile Lindsell Train Global Equity has a Silver Analyst Rating and a five star performance rating - the top class.
Brunt says: “This fund is a standout choice for investors comfortable with a highly concentrated portfolio that can look markedly different from the MSCI World Index.”
He points out that managers Nick Train and Michael Lindsell have more than 30 years experience including several years managing global equity portfolios, prior to launching this fund in 2011.
The crux of the managers’ investment philosophy is the belief that a concentrated portfolio of high quality cash-generative, strong and easily understood business franchises will outperform the market and reduce volatility over the long term.
Brunt says that there are periods – like 2016 – when it will underperform. But he adds: “The managers unwavering adherence to their investment philosophy and strong stock selection have resulted in considerable long-term success on an absolute and risk-adjusted basis.”
Smythe will invest in funds that he recommends to his clients. He adds that this will partly depend on individuals’ investment goals and appetite for risk, but he thinks it’s important that he is investing his own money into recommendations he makes.
He uses an investment platform “for easy access and administration”. He adds: “I tend to invest monthly from surplus income, rather than accruing a sum first and then deciding what to do. This can spread the risk a little too, when compared to committing larger amounts all in one go, particularly when investing in higher risk funds.”
He will rejig his portfolio when necessary, but adds that there haven’t been “any real disasters” along the way.
He says: “I have learned that diversification and patience are the key to longer term returns. However back in the early days of trading individual shares and trying to make a quick profit there were a few scary moments.”
