Piers Horswell was able to retire early thanks to the new pension freedom rules, which were introduced in April 2015. He is now in his late 60s but stopped working a number of years ago.
Prior to the freedoms being introduced, it was compulsory to buy an annuity at retirement with your pension savings. As interest rates fell in the wake of the global financial crisis, so too did annuity rates, meaning retirees faced being locked in to a considerably smaller annual income.
“I didn’t like the lack of flexibility offered by an annuity – and the rates were very low at the time,” Horswell says.
“The freedoms have given me a lot more flexibility of when and how I take income from my investments. I am not as restricted to maximum or minimum income levels, and can either take some of the income earned or withdraw capital lump sums as needed.”
Horswell previously worked in the banking sector and has built up an extensive portfolio of funds and shares. These include shares in FTSE 100 companies, as well investment trusts and open-end funds.
While his main investment objective is to provide a decent standard of living for himself and his wife, Carolyn in retirement, Horswell also hopes to leave some assets to his three children.
The couple currently live in East Sussex but are planning to downsize and move closer to the south coast within the next year.
Horswell says: “Not surprisingly, since I retired I have had more of a focus on income investing. But this doesn’t mean that my portfolio is completely biased to this.
“I have held a number of more growth-orientated investments for a number of years and will continue to hold them, as they have been solid performers.
“I think a mix of styles work best as we move through different market cycles. I have built up a reasonable investment portfolio through my SIPP and ISA allowances.”
Building a Diversified Portfolio
Horswell says he has tried to build a diversified portfolio. He invests in a range of UK and overseas equity funds, and also has some exposure to fixed income.
But he says he has tried to take this geographical and sector-based diversification one step further, by broadening the range of assets he holds.
For a number of years Horswell has invested in both property and commodity markets. And he has more recently invested in infrastructure. Horswell says that he often uses investment trusts to access these less liquid markets.
Property Trusts Add Income
When it comes to property, he says one of his better holdings has been TR Property Investment Trust (TRY). This trust has a five-star performance rating and a Silver Analyst Rating reflecting analysts’ opinion that it will continue to outperform its benchmark and peers.
This trust invests a modest proportion of its assets directly in physical property in the UK, while the bulk of its investments are in shares of property and property-related businesses across Europe.
Morningstar analyst David Holder says: “TR Property remains one of our highest-conviction ideas for active management within the Pan-European listed real estate sector.”
The trust’s assets are managed by Marcus Phayre-Mudge, who has extensive knowledge of physical and listed real estate and has been involved in this sector from the 1990s.
Holder adds: “The investment team believes that listed real estate markets aren’t efficient and certainly not transparent and that they can capitalise when these factors lead to mis-pricing of securities. Ideas are garnered by more than 100 company visits per year and on-the-ground research to access rental and capital markets through Europe.”
Commodities for Growth
Alongside this property-focused trust, Horswell also has a holding in BlackRock World Mining Trust (BRWM). As the name suggests this trust invests in a portfolio of mining and metal securities across the globe. It invests primarily in shares of companies active in these sectors, rather than directly in the commodities themselves. The trust has been managed by veteran manager Evy Hambro since 2000.
Morningstar analyst Fatima Khizou points out that the trust has outperformed its benchmark over the short term, but has failed to deliver over longer time frames and for this reason the Analyst Rating has been dropped to Neutral.
She adds: “The medium to long-term picture is less compelling”. She points out that the trust has also underperformed during more challenging periods for the mining sector, such as between 2012 and 2014.
Infrastructure: A Niche Player
Horswell has recently made a small investment in the VT Gravis UK Infrastructure Income fund. This fund only launched at the start of 2016, so has yet to build a full three-year track record.
This is a fund-of-funds which mainly invests in other investment trusts that have direct holdings in the sector. This includes projects varying from railways to roads to solar energy projects. It will invest in infrastructure debt as well as infrastructure equity.
Horswell says this remains “a niche part” of his overall portfolio, but says to date the fund has delivered a “healthy” yield of 5%. He hopes this sector will not prove too correlated with either equity or bond markets, so may provide some downside protection, should markets fall.
He says: “There are certainly reasons to be a little nervous about equity markets. But I don’t think it makes sense to pull money out of the market. I tend to just shore up some of my defensive holdings and will keep an eye on the income I take from my portfolio.”
