Henry North, a local government officer, is using an inheritance to help fund his investments.
While this money had initially been earmarked to fund an Open University degree, he is now taking out a loan to pay for his studies instead. It's a risky course of action, admits Henry, but he is hopeful that investments returns will help pay off some of the borrowing costs.
He says: “I have calculated that if this strategy fails then I should have enough through my salary and future pay rises to cover the loan costs. Of course, there’s always the chance I could lose my job, but if I don’t earn enough I am not liable to make the repayments.”
Henry, 47, has become more focused on his investments after disappointing returns on his pension. Henry had a "top-up" pension, separate to his main workplace savings pot — known as an AVC (or additional voluntary contribution) plan. But the ownership of this pension had transferred a number of times in the past 20 years and the performance has been dismal as a result
He explains: “I worked out that I’d have been better off if I’d just saved the £24 a month into a savings account paying 2% interest.”
Fortunately, the provider was offering a "buyout" option, which effectively doubled the value of his plan. Henry took this option and has reinvested the proceeds into a Sipp.
Henry, who has two teenage children, but has split from his partner, also invests in an Isa and holds both Premium Bonds and various cash savings accounts.
He says: “Almost two years ago I borrowed a few books from the library about investing and finance. It made me think more about where I invest my money, and encouraged me to hold fire at present from paying off more of my mortgage.”
Instead, Henry invests in a mix of funds and individual shareholdings. He says: “I try to invest in a range of funds spread across different regions, although I avoid areas I feel could mean trouble. So, for example, I haven’t invested in any US funds.” This is because he thinks “the Trump effect” may have a negative effect on the US stock markets.
Instead, Henry has stuck with European, Asian and Japanese funds, looking for those with a low fees and a good performance track record.
This is certainly reflected in his investment in bronze medal-rated Baillie Gifford Global Alpha Growth. This fund has a four star rating from Morningstar, reflecting its strong performance relative to peers. Morningstar analyst Fatima Khizou rates the fund's extremely experienced management team with the three lead managers on this fund having an average 25-years’ tenure at Baillie Gifford.
Khizou says the managers take a “patient” approach and tend to hold shares for the long term, resulting in a low turnover of holdings, which helps lower overall cost. She adds that the team’s growth approach has typically seen this strategy leading the pack when markets rally but has also led to elevated levels of volatility.
Racy Shares
In his individual shareholdings, Henry takes a more contrarian approach, looking for "value" stocks and those in high growth areas. He says: “These individual shareholding have produced the best returns to date. In fact, I wish I had been more patient to start with and not put so much into funds initially.
“Even if these holdings have not grown hugely, they have also lost less than some of the funds I’ve invested in. Typically I’ve bought small quantities of a few stocks, after careful research and consideration.”
One of Henry’s best investments has been in the graphene manufacturer Versarien (VRS). This UK-based research company is involved in developing valuable new materials through the commercialisation of new manufacturing processes.
Although share prices have been volatile in the past 12 months, the company's share price has rocketed over the past three years. According to Morningstar data, investors have seen incredble total annualised returns of 112.54% over three years. This compares to just a 7.35% total annualised returns from the FTSE 100 over the same three year period.
Over shorter — and longer — timeframes returns are less impressive though, reflecting the volatility of Versarien's shares. Over five years, investors have seen total annualised returns of 27.27% (still comfortably outperforming the 6.44% delivered by the FTSE 100) while over one year invesotrs have suffered a 47.68% loss on their money, compared to a 3% gain from the Footsie.
Henry also has holdings in other high-tech companies, including Ilika (IKA), which is involved in solid state battery technology. In other words, this company — like Versarien — develops novel materials for mass market applications
Again, returns have been volatile. According to Morningstar data, the company saw significant price gains during 2014, but the share price then fell for the next four years. So far in 2019, the shares have seen a more modest rise but they still remain well below the levels recorded in late 2014.
Volatility to Continue
While Henry expects this kind of volatility when it comes to investing in individual shareholdings - particularly in riskier engineering, manufacturing and tech sectors - he is worried about how political events might effect future share prices across his portfolio.
“Things like Brexit do worry me, but I’ve tried to be disciplined about it. My fund investments are longer-term holdings so I try to ensure I’m not constantly checking valuations," he says. “All the funds I hold have lost money this year, the worst by perhaps 6%. But over five or 10 years is that likely to continue? I don’t think so, so I am sticking with these investments.”
However, he does have other concerns too: “There are some risks I didn’t account for - for example, I’ve got shares in one water company. I don’t know what will happen to this investment if Labour decide to re-nationalise this industry. But that’s beyond my control so I am not worrying: my original decision had merit for me so I’m continuing it for now.”
