Peter Soulsby retired almost three years ago, after a career working in the banking industry, but remains an active investor. Peter, 58, wants the funds he holds in his Isa and self-invested personal pension (Sipp) to continue growing in order to support him and his wife through their retirement.
Thanks to pension freedoms, which came into effect in 2015, Peter plans to access his money through a flexible drawdown plan. “I also want to keep a certain amount of capital invested for a rainy day fund,” he adds.
Peter first started investing back in the mid-1990s. At this time he had returned to a banking role in the City, which enabled him to make contributions from his monthly salary. Now he is retired, he doesn't have the income to fund monthly contributions into his Isa or pension, but he still actively manages them and will switch holdings if funds underperform or if underlying conditions change.
Peter holds both his Sipp and Isa via Fidelity Wealth, and through them invests in a range of funds and investment trusts, with a focus on equity markets across the globe.
When it comes to selecting funds, Peter takes a disciplined approach, trying to ensure he has a diversified portfolio in terms of both asset mix and geography. “I try to research which are regarded as the best funds for each asset class and geography by comparing funds in the top decile," he explains. “I do consider seriously the fund manager’s track record over one, three, five or 10 years if available, and also consider how a fund is run. I prefer the fund to be lead by a team, rather than a star fund manager, and to a lesser extent I look at the fees.”
Willing to Pay for Alpha
Instead, Peter is prepared to pay higher fees for a fund manager who consistently delivers outperformance and so-called “alpha”, which is added value over what the fund's benchmark achieve. However, he adds: “I generally do not pay more than about 0.8% on my investments on an ongoing basis.”
When it comes to his investments, some of Peter's best performing funds have been global funds run by very active fund managers. These include Fundsmith Equity Fund, Lindsell Train Global Equity Fund, and Rathbone Global Opportunities.
Fundsmith Equity has both a five star and Gold rating from Morningstar; analyst Peter Brunt says: “This is one of the strongest options for investors seeking exposure to high-quality global equities.” Strong performance has seen the fund grow to the largest in the UK market, with more than £18 billion of assets under management.
Brunt describes the manager Terry Smith, who founded Fundsmith LLP in 2010, as “an original thinker”. He adds: “[His] investment philosophy is to buy and hold, ideally forever, high-quality businesses that will continually compound in value.”
This high conviction approach can lead to elements of sector concentration, but Brunt says: “We believe Smith has a good handle on the risks… and has added significant value above and beyond the strategy’s style basis.”
Avoiding Stock Investing
Lindsell Train is another five-star fund, and has a Silver rating from Morningstar. Morningstar points out that there is less of a proven track record on this global fund, when compared with the fund group’s UK equity fund. However, Brunt says “We like the managers’ clear investment philosophy and their disciplined, consistent approach.”
Fees were reduced on the fund this year and returns have been impressive for investors: over the past five years it has delivered annualised returns of 23.3%.
Rathbone Global Opportunities is another fund with a five-star rating, again reflecting its strong performance in recent years. Over the past five years, it has delivered annualised returns of 18% to investors, according to Morningstar, and a similar rate of return (16.8% a year) over the past decade.
Not all of Peter’s investments have proved to be so lucrative, however. He says: “I bought three UK dotcom shares in the late 1990s. I invested about £1,000 in each and virtually lost all of the capital on each of these three investments."
Since then, he has avoided investing in single stocks, preferring instead to use funds and investment trusts, whose portfolios help provide diversification. He uses both active and passive options, too.
Peter alters his investment strategy as economic conditions change. For example, he has recently cut his exposure to the UK as a result of Brexit: “At the moment I have no more than about 11% of my portfolio invested in the UK."
He tries to keep abreast of the news to keep a broad outlook and feed this into his investments, and also believes that looking at long-term themes and trends is an important element of investing and growing your money over the long-term.
He adds: "I am currently staying heavily invested in equities, but am pruning my exposure selectively in order to take some risk off the table. I believe there is still upside to global equities over the next six to nine months, but I will probably seek to focus more on capital preservation strategies and add to opened and closed-ended fund which are highly regarded for the ability to protect capital from the first quarter of 2020.”
