Michael Whelan has built up a diversified portfolio after more than 40 years of investing. Whelan, who is now retired and used to work in the financial services industry, says a number of core holdings have stood him in good stead over the years and have boosted the value of his retirement funds.
Whelan, who lives with his wife in Sussex, says the couple have both Sipps and Isas, which he manages on their behalf: “Typically we have been saving for retirement. But we have also been able to help our two grown-up children along the way.”
Both children are now married and settled into good careers, he says. “They had some help at the outset but now earn more than enough to manage, so we can focus on ensuring our savings enhance our retirement.”
Whelan invests in a mix of funds and investment trusts as well as some structured products, with two funds in particular delivering good returns over the years: the Finsbury Growth & Income investment trust (FGT) and Axa Framlington UK Select Opportunities.
Both are run by fund managers that have built up formidable reputations within the investment industry. Finsbury Growth & Income investment trust is managed by Nick Train, who through his Lindsell Train company, runs a number of highly-rated funds.
The trust has a five-star rating from Morningstar, reflecting its strong performance in recent years, and is currently trading on a small premium of 0.43%. It aims to achieve capital and growth and to provide shareholders with a total return in excess of the FTSE All-Share Index. The trust invests mainly in UK-listed shares, although it can have up to 20% of the portfolio in quoted companies worldwide.
It has delivered consistently high returns over the medium and long-term. According to Morningstar data, the trust has delivered a total annualised return to shareholders of 18.82% over the past 10 years. Over three years it has delivered total annualised returns of 16.32%.
Income Focus
Axa Framlington UK Select Opportunities has been another strong performer over many years, but the fund now has a neutral rating from Morningstar. This follows the decision by its long-standing manager, Nigel Thomas to step down from day-to-day management of the fund at the end of last year.
The fund has been part of Whelan’s portfolio for many years, but more recently he has switched this holding on news of the fund manager’s retirement, looking instead for funds with more of a income than growth focus.
Morningstar analyst Simon Dorricott says: “From the start of 2019, this fund will be managed by Chris St. John, a move that has been well-flagged by Axa IM.” As Dorricott points out, St. John has build up considerable experience over many years, managing both small- and mid-cap portfolios as well as larger all-cap mandates, before taking over this flagship fund.
Dorricott adds: “St. John is clearly an experienced investor, but his experience of this type of mandate and of large-cap stocks is more limited. Going forward, we expect the broad structure of this fund to remain unchanged, with large-, mid-, and small-cap stocks each taking up around a third of the portfolio, giving a significant bias down the market-cap scale versus the FTSE All-Share Index. The growth style will remain, with St John focusing on stocks able to deliver strong earnings growth over a three- to five-year time frame. “
Over the long term though this fund has delivered impressive returns for investors. According to Morningstar data, the fund has delivered total annualised returns of 10.83% over the past 10 years, although it has only delivered returns of between 4% and 5% over a three and five-year timescale.
Whelan says he has supported the philosophy of fund managers such as Thomas. He says: “When you look at the current political and economic environment you can see we are definitely in an era of change, which means there will be winners and losers in the investment world. Thomas summed it up well when he said 'I don’t believe things will necessarily get better or worse — they will just become different.’”
Structured Products Over Absolute Return Funds
Elsewhere in his portfolio, Whelan has invested in a number of structured products over the years. He explains: “Structured investments with defensive qualities are providing steady returns. If you can obtain a return where the index can go as low as 65% of the starting price and produce a positive return, that is a strong defensive quality for a 6 to 7% return."
He adds “When the market is volatile these products tend to provide higher returns as obviously the risk increases. However, these products and the risks associated with them are relatively easy to understand when compared to Absolute Return funds They are also marketed as a defensive option, but I am not keen at all on them as I think they are too complex and opaque.”
Whelan has taken a more defensive stance in recent years, partly influenced by his retirement, and also by external events. He admits to panicking initially after the EU Referendum result and cashed in quite a lot of his investments, only to repurchase them after taking stock later in the year. It shows how even those who have worked in the financial sector can still act irrationally when it comes to their own money, he says.
“However, I am happy with the investments held now following that review and the only difference is I am holding about 10 to 15% in cash at this time," he says. "This will see me through the next few years if the global economy does take a turn for the worse. This is not just due to Brexit but politics and economics globally.”
While Whelan may have a more defensive income-orientated view, this doesn’t stop him investing in some direct shareholdings when the opportunity arises. He bought shares in AJ Bell (AJB), when the investment platform and stockbroker floated on the stock market at the end of last year.
Whelan says: “I have invested through AJ Bell and their online YouInvest platform so was offered the opportunity to partake in this stock market launch.”
Shares floated at 160p in an oversubscribed IPO in December, and have since more than doubled in value, reaching a high of 477p in May. They have subsequently slid back to 418p but are still showing a healthy gain. He adds: “I try to keep a broad diversification in my portfolio. Some share will be higher risk but this is balanced with some tried and tested fund managers.”
