James Farrow has always focused his investments on solid, long-term growth rather than making speculative punts. Now retired from a career as a research scientist, working on the molecular basis of human disease, most of his investments are in his AJ Bell Isa, alongside a number of workplace pension schemes and a small self-invested personal pension (Sipp).
James hopes his savings will now help him through retirement and potentially facilitate a move overseas now he has stopped working, as well as helping out his family. He says: “These investments recently allowed my daughter and her family to continue with a house purchase when both the adults lost their job due to the coronavirus pandemic. The mortgage company initially threatened to withdraw the loan unless security could be provided. Fortunately, I was able to help.”
James, who lives in Yorkshire, aims for diversification in his portfolio but shifts the balance of his holdings to reflect his view on where gains are likely to come from in future. In recent years, that has led him to US and global funds as well as technology-focused options. More recently, however, he has been increasing his exposure to Asia and Emerging Markets as well as investing more in ESG-focused funds. James adds: “I have some exposure to smaller companies too, because the gains in the long-term can be more substantial.”
High Risk and Low Cost
However, these higher-risk areas contrast with the core of his portfolio, which is made up of low-cost tracker funds and more balanced active funds, which include bonds and property in their asset mix.
And there are certain regions he tends to steer clear of, he says: “Perhaps as a result of living in South America in my early years, I regard funds based in that region, as well as those focused in Russia and Africa, as outside my risk limits because of political instability.”
James invests in a broad range of funds and is invested with many of the largest and most successful investment houses in the UK. His portfolio includes investments with Baillie Gifford, Janus Henderson, Blue Whale, Fundsmith, Miton, Lindsell Train, JP Morgan Asset Management, Jupiter, and Fidelity.
Funds like the Gold-rated Fundsmith Equity, run by Terry Smith, have produced impressive returns in recent years. According to Morningstar data, this fund has delivered annualised returns of 18.24% over the past decade.
His Baillie Gifford funds have also been strong performers, with many invested in emerging markets and the Far East. As an investment house, Baillie Gifford runs a number of highly rated open-ended funds as well as investment trusts, and strong performance across its range has seen a steady stream of inflows into its funds in recent months.
Absolute Return Has Disappointed
As well as investing with star fund manager Terry Smith, James also invested with Neil Woodford when he launched his own investment house and flagship Woodford Equity Income fund. This fund was subsequently shuttered in 2019 after a run of poor performance, before closing completely and many investors suffering significant losses. Many investors have been angered by the recent news that Woodford plans to launch a new investment firm, albeit for institutional investors.
James’s own losses in Woodford Equity Income were modest, he says: “It only represented a very small part of my savings.” Instead, he has seen more substantial losses from investing in Absolute Return funds. These funds aim to deliver a positive overall return through different market cycles, but many have failed to deliver on these promises and have underperformed in both falling and rising markets.
James says that one of the lessons he has learned from this is to stay clear of funds where the investment mechanisms lacked clear transparency. Instead, he has become more assiduous at monitoring performance in light of some of these issues and particularly with the recent market turmoil that occurred at the start of the Covid-19 pandemic. “I have moved away to some extent from equity income funds, and have moved out of certain investment houses,” he says.
