It was while working for GlaxoSmithKline (GSK) that Bill Mathieson was first struck by the potential of investing in the stock market. Now aged 68 and retired, after a career working for various pharmaceutical companies and the NHS, Bill says: “At the time I was in a share match scheme and the returns on the shares, plus the dividends they paid, made me focus on building a portfolio which would pay an income so my wife and I could enjoy our retirement.”
Bill also saved into an AVC pension (Additional Voluntary Contributions – a way to boost your workplace pension contributions) for 10 years while at GlaxoSmithKline, and this produced an excellent return on his initial investment, alongside his main company pension.
Bill, who lives in Aberdeen with his wife, still has investments in GSK, which he holds through a stocks and shares Isa as well as a Sipp, both of which are held with AJ Bell. “This has proved to be a very successful investment,” he says.
Pharma giant GSK has a three-star rating from Morningstar. Analysts say: “As one of the largest pharmaceutical companies, GlaxoSmithKline has used its vast resources to create the next generation of healthcare treatments.” They rate its innovative product line-up and expansive list of patent-protected drugs, which earn it a wide Economic Moat rating. This mean the firm is well protected from competitors in its sector as there are high barriers to entry when it comes to launching new drugs and medicines.
This has been reflected in the returns delivered to shareholders. Morningstar data shows the shares have delivered annualised returns of 6.05% over the past five years, slightly more than the 5.58% from the FTSE 100.
Bumper Blue-Chips
As well as GSK, Bill invests in mix of single shareholdings and funds. Many of his stock investments are in large companies that have a track record of paying decent dividends, including two-star rated Diageo (DGE) and three-star rated Unilever (ULVR).
Both fit in with his general investment principles: “My focus is on building a portfolio that delivers a decent income stream. I am a long-term investor, so am looking for companies with staying power, not speculating on short-term rapid growth. And I only invest in companies that I understand.”
Diageo and Unilever are prime examples of this; both manufacture and distribute premium household brands. Diageo was created in 1997, following the merger of Grand Metropolitan and Guinness. As Bill points out, he is a customer as well as an investor in the company, as he enjoys the odd glass of malt whisky.
Diageo’s other premium drinks brands include Smirnoff vodka, Tanqueray gin, Johnnie Walker and whisky and liqueur Baileys. The firm, a favourite of buy and hold investors such as Nick Train, has delivered impressive returns for investors over the longer term. According to Morningstar data investors have seen annualised returns of 13.27% over the past three years, and 13.12% over a 10-year time frame.
While Bill’s strategy has generally produced decent returns, not all of his blue-chip investments have been so successful. He has been a long-time investor in Lloyds Bank (LLOY), for example, but is now considering selling these shares. “I am not sure about Lloyds. The share price does not reflect a basic bank doing basic banking and, as a result, I may remove it from my portfolio,” he explains.
Indeed, the bank has failed to deliver positive returns to shareholders over a three- or five-year period. Over a 10 year timeframe it has delivered annualised returns of just 3.25% — considerably less than the FTSE 100 as a whole. However, Lloyds does have a four-star rating from Morningstar, reflecting that its share price is currently trading below what analysts consider to be a “fair value” for the company.
But Morningstar analysts also assign a “very high” uncertainty rating to the stock, and it has a narrow moat, meaning its products and customer base are not particularly well-protected from competitors.
Morningstar analysts say this is a “pure UK banking play” with 95% of the bank’s assets based domestically. “The bank has undergone considerable restructuring since 2011, and the aftermath of the financial crisis and has emerged as a low-risk domestic retail and commercial bank,” they add.
Looking Further Afield
Elsewhere, Bill is looking outside the UK but sticking to what he knows, with the healthcare sector firmly on his radar. He is currently looking to purchase shares in either Roche (RO), Novartis (NOVN) — both listed on the Swiss stock market — or Pfizer (PFE), a US pharma stock. “But I do understand the need to have a balanced portfolio so will look at my investments as a whole,” he adds.
To provide more diversification than his single stock holdings, Bill also invests in a number of funds including including Bronze-Rated Baillie Gifford Global Alpha and Silver-Rated Merian UK Smaller Companies. He also holds one of AJ Bell's ready-made “moderate risk” portfolio; this invests in a range of passive investments, which helps keep costs down.
Now he has retired, Bill can dedicate more time to his investment portfolio, which he hopes will allow him and his wife to make the most of their lives now they have stopped working: “Our three children have left home and all live independently, so we don’t have to support them financially any more. But we do have six grandchildren.”
