Like many investors, Simon Burnett has seen his share portfolio take a significant hit thanks to the recent market falls. Paper profits have evaporated to losses almost overnight.
But rather than trying to switch out of the market or change his holdings, Simon is dipping in to his cash savings to buy more equities. “We have just seen the biggest falls in the markets for 90 years,” he says. “While some positive positions have fallen to losses, I am not anticipating further falls - at least not to the extent we have seen."
As a result, 50-year-old Simon is reducing his cash savings and increasing the monthly amount on his regular investment plans. With interest rates at record lows after the Bank of England slashed rates twice last month to 0.1%, Simon reasons that there is little point holding more cash, so expects to keep adding to his investments through 2020: “At this point, I am happy to put that money into stocks that I expect will do well over the longer term.”
Simon, who is self-employed, has seen his take-home pay hit by the coronavirus and the subsequent economic lockdown. Remuneration from one company he works for has dropped by 30% even while his workload has increased. That means he doesn’t have any spare income to boost his investments and why he is dipping into his cash savings.
But Simon had started this process of reducing his cash holdings as early as October last year, when the stalemate of Brexit seemed likely to resolve. He also took profits from some of his equity holdings in February and March and has since returned to several of these sold stocks, which have seen their share prices subsequently fall. “They seem like solid companies that I can hold and forget for the longer-term,” he says.
Simon’s portfolio is currently split across nearly 50 different stocks, the majority of which are investment trusts, with around a third invested in shares listed on the racier Alternative Investment Market (Aim). “Together these holdings are spread across a broad range of different sectors and industries and geographic areas,” he adds.
Investment trust holdings range from Aberdeen Asian Income Fund (AAIF) to the International Biotechnology trust (IBT), for example, giving him exposure to growing emerging markets and the higher-risk biotech sector.
The Aberdeen Asian Income fund has a Bronze Morningstar Analyst Rating and three-star performance rating. Morningstar analysts say the fund “boasts an experienced, capable, and well-resourced investment team”. However, while Aberdeen Standard has a large dedicated Asia-Pacific equities team, which is led by Flavia Cheong. However, Morningstar analysts no longer think the trust is a standout when compared with some peers in the region. The fees levied here are also expensive when compared with the options available to investors for Asia Pacific equities, they say.
Specialist and General Trusts
Other specialist holdings include the Silver-rated Law Debenture Corporation (LWDB). This trust is, according to Morningstar a “unique proposition”, incorporating a successful independent professional services business and an actively managed portfolio of global equities, albeit with around 69% in the UK.
Elsewhere Simon also invests in more general global trusts such as Scottish Investment Trust (SCIN), which invests in a portfolio of international large-cap stocks.
When it comes to direct shareholdings, Simon’s picks include investment platform AJ Bell (AJB), specialist electronic manufacturer Solid State (SOLI) and the Harworth Group (HWG), a company which specialises in regenerating former collieries and other brownfield sites.
Prior to the markets falling at the beginning of this year, all had produced solid returns in recent years, although Solid State’s journey had been a bit bumpier, with shares falling from a peak of 910p in mid-2015 before climbing again in 2018 and 2019.
Simon, who lives with his wife and daughter in Buckinghamshire, hopes his investment portfolio will enable him to retire within the next 10 years, even despite the latest bout of turmoil.
“I am happy to ride out the current storm. I have been an advocate of, and enjoyed the rewards of, pound cost averaging for 25 years now, so I am sticking to the long-term plan,” he says. “While the immediate future appears uncertain, I don’t necessarily think it will mean I have to work longer before I can retire. Ultimately, though, it depends on the depth and length of the recession we are moving into.”
