Mathias Ballard, who is in his late 30s, has recently sold some of his direct shareholdings, with view to putting the money instead in investment trusts and other funds.
He says: “Until now I’ve mainly invested directly into stocks, but I am finding it more difficult to get decent returns.”
He adds that having a young family means he no longer has as much time to spend researching companies.
Ballard, who works in IT, says: “I have two sons under the age of five, and would rather focus my time on work and family. I’d rather pay for a fund manager to do this leg work, particularly if there is more of a focus on global stocks.”
Ballard says he is looking at the investment trust sector as he has a focus on value-driven active management.
“I like the way that the shares are traded on the stock market, the same way as many of the blue-chip holdings I currently own,” he says. “There is also the advantage of buying trust shares at a discount, if this is appropriate.”
Closed-end Funds With Potential
Currently Ballard has a couple of trusts on his ‘buy list’ and already has a holding in Lindsell Train Investment Trust (LTI).
This trust, run by the esteemed manager Nick Train, has a top five-star quantitative rating, reflecting its strong performance in recent years, relative to its benchmark and peers.
Over the past five years the trust has delivered annualised total returns of 34.7%. Not surprisingly this strong track record means that trust is currently trading at a premium to net asset value.
Although this trust has a global remit, currently just under 80% of its assets are in the UK. It has holdings of around 10% in both Japan and the US each.
Ballard says: “I bought with shares trading at a premium. This did cause me to think twice, but I have seen reasonable returns since then. Of course this would be a problem if they suddenly fell to a discount, but the track record is good so I am comfortable with this level of risk.”
Ballard says he is looking at a couple of emerging market trusts including JP Morgan Global Emerging Markets Income Trust (JEMI).
This has a Bronze Rating from Morningstar analysts. Analyst Simon Dorricott says: “This fund remains attractive for those seeking income-oriented exposure to emerging markets.”
He adds: “Around 60% of the portfolio is invested in firms that can grow their earnings and dividends and deliver yields of 3% to 6%, whilst the remainder will be spread across high- and low-yielding names. This flexibility of investing in stocks with different yield characteristics gives the manager a better chance of achieving the dual objective of income and capital growth.”
The trust is currently trading at a discount of around 6%.
Taking Gains as Prices Rise
Elsewhere Ballard is gradually selling existing holdings when market opportunities arise. “I am sitting on a couple of shareholdings that are not looking particularly attractive so I don’t want to sell at a loss. Some of them are still paying reasonable dividends so there is no immediate rush.”
Current holdings he is looking to sell include the AA (AA.) and WPP (WPP).
Shares prices in the AA have slumped from a high of 416.7p in March 2015. The roadside assistance provider floated on the stock market in mid-2014.
Over the past three years shareholders have seen an annualised loss of 25.1%. This compares to an annualised gain of 7.62% in the FTSE 100.
Shares in the advertising group WPP have had a similarly bumpy ride of late. Over the past three years shareholders have seen annualised losses of 12.23%. In the last year alone the share price has fallen by 27.67% according to Morningstar data.
This was partly caused by the departure of its long-term chief executive Martin Sorrell. This followed an internal investigation by the company into improper use of funds by him – an allegation is has strongly denied.
The current share price of £8.56 is well below its fair value estimate of £14.50.
Senior equity analyst Ali Mogharabi says: “WPP is the largest player within the advertising space, operating in more than 110 countries worldwide.
“We expect the firm to maintain its market-leading position as it generates competitive organic growth, continues to make acquisitions, and increases focus on the faster-growing emerging and the overall digital ad markets.”
He adds: “While WPP shares declined significantly after the third-quarter results, we believe the stock’s potential 50%-plus upside is attractive. In addition, we think WPP’s dividend, which we view as safe, currently yields more than 6%.”
Lacklustre Pension Performance
Ballard uses his ISA allowance to invest in these shares to supplement his pension savings. “I have a pension through work. This is invested in a couple of funds, but to be honest the performance has always looked fairly lacklustre. This is one of the reasons I stuck to individual shares when I first started investing.”
He has also invested money in a couple of Junior ISAs for his sons, which he says he hope will help contribute to future higher education costs.
He says: “My wife has been the main driver on this. She puts in their child benefit, and we top it up with any birthday or Christmas money they receive. However, I’ve tried to make an additional lump sum payment into these accounts at the end of each tax year.”
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