The coronavirus pandemic has had an unprecedented effect on many aspects of life, and March’s stock market sell-off shows all too clearly the impact on investors.
Retired investor Paul Robertson is not currently relying on portfolio of shares to cover day-to-day living expenses but is concerned about what the long-term implications of the virus and economic lockdown may mean for his holdings.
His wife, who is still working for the NHS, is also weighing up her retirement options. Paul says: “The bulk of our pensions will come from the state, through public sector occupational pensions and the state pension itself.”
But Paul also has three private sector pensions from his time working in the aerospace industry. Two of these are with FTSE 100 companies, where he hopes the schemes should still pay out regardless but one is with a company now subsumed by an American parent, which is potentially vulnerable.
So while the couple have a secure income stream from these schemes, Paul has also built up a share portfolio using Isas and self-invested personal pensions (Sipps). As well as holding shares and investment trusts within these, Paul keeps some money in cash to meet any unforeseen expenditure as well as to take advantage of any investment opportunities that arise. The couple, who live in Surrey, hope they will be able to leave some of their Sipp as an inheritance to their sons.
Catching a Falling Knife
But Paul is reluctant to invest more in the stock market at present, despite today’s depressed share prices. He is well aware of the dangers “in trying to catch a falling knife”.
“My current strategy is to batten down the hatches. I have no confidence in which shares will recover fully post-lockdown and which might suffer long-term impairment or even disappear completely,” he says. “Some companies might go on to greater things, but it’s hard to identify those at present. I believe most of our holdings should be okay but I am prepared to see some companies go bankrupt.”
Paul has a number of “stand-out” holdings in his portfolio, which have a produced a steady, healthy and reliable income stream over the years.
This includes Merchants Trust (MRCH), which he has held for many years and which he has added to at various intervals. The UK large cap investment trust, which has a two-star rating from Morningstar, has continued to yield a decent income while delivering capital gains. Currently yielding 6.63%, the trust has delivered annualised returns of 7.55% over the past 10 years.
Another solid holding has been his investment in Segro (SGRO), a property investment trust. Despite market turbulence this has delivered total returns of 26.79% over the past year, according to Morningstar data, and total annualised returns of 14.01% over a 10-year period.
Looking to the Long-Term
While some of Paul’s investments have fallen in value since the start of the lockdown, he knows it is important to look at the longer-term gains they have delivered. For example, he has a holding in Safestore (SAFE) — a company that delivers lock-up facilities and storage options for both consumers and businesses. Paul says: “These shares are down by about a quarter since the start of the lockdown in March, but they are still trading at six time the price I paid for them.”
These longer-term gains make it easier to stick with investments when they inevitably have periods of underperformance. Another example is Rentokil (RTO). “I have ridden out a 50% share price fall with this holding in the past, but shares are now trading at three time the price I bought them at,” he says.
However, such recoveries do not always materialise and Paul admits he has probably was far too slow to get rid of his Centrica (CNA) shares. He eventually sold these last year, but realised a 61% loss on this holding. But as a long-term investor — who first started investing while at university — Paul says "it would be unrealistic to build a portfolio without incurring some losses along the way".
