Have you got a "Too Hard" pile of investments? I was fascinated to read my colleague Christine Benz’s explanation this week of all the investments she rules out. I consider Christine to be one of the most knowledgeable, competent and engaged investors I know - so it was particularly reassuring to hear that she too just can’t be bothered when it comes to certain asset classes.
I started investing about a year after I became a finance journalist. I was in the privileged position of speaking to fund managers and investment professionals on a daily basis and I felt I should really put my money where my mouth is. This remains true today in my role at Morningstar, where I get to speak to some unfathomably smart and knowledgeable investors, whose ratings I have at my fingertips. And yet, my investment habits are still very cautious.
Like Christine, I don’t hold individual shares. The daily fluctuations of the stock market require far more monitoring than I have the time or inclination for, and I’d agree with her thesis that: if even most active managers outperform the market, what chance have I got?
Hot assets like cryptocurrency are another area I don’t touch – and while I might have to HFSP (that’s Have Fun Staying Poor in crypto-fan talk) as a result, I find it all too speculative and unpredictable. Debt, too, scares me and I like the certainty that comes with overpaying on the mortgage and holding some savings in cash, even if it doesn’t come with the lucrative gains that the stock market can offer.
That might all make me sound incredibly boring. But frankly, isn’t that the point of investing? It’s not supposed to be a high-octane casino, it’s about taking a long-term approach and securing your financial future.
Your own "Too Hard" pile might look entirely different: maybe you enjoy stock-picking and rule out active funds, perhaps you’re not a fan of ETFs or can’t get your head around sustainable investing - there's no right or wrong answer. A "Too Hard" pile isn’t about limiting your risk or returns, it’s about knowing what you do and don’t believe in, and which investments you have the time to understand and monitor. If you don’t have a list yet, maybe now is the time to make one.
Music to Investors' Ears?
When the Hipgnosis Songs Fund (SONG) launched a few years ago, it seemed a very esoteric proposition and one which some commentators predicted wouldn’t gain any traction. Certainly, it was a pretty new concept: the investment company buys up the music back catalogues of popular artists and enjoys the royalties which are paid every time the songs are played or streamed. It’s so simple, it’s a wonder no-one thought of it before. And, now the trust has £1.5 billion of assets under management, it’s no surprise that other trusts have started to pop up, operating on a similar model.
It’s an interesting one for investors, particularly those looking for either income or diversification. When we think about diversifying a portfolio, we have to talk about correlation – a jargony term for how closely aligned the movements of two assets are. Stocks and bonds, for example, have historically been thought to move in opposite directions. So a portfolio which contains both should be fairly balanced.
But with globalisation, quantitative easing and the like, finding uncorrelated assets has become a harder task. So much so, that investors have had to move into weird and wonderful places in order to find it: think infrastructure, renewable energy, private equity and, of course, music royalties. Because it's probably fair to assume that music streaming isn't particularly tied to the movements of the FTSE.
The relative newness of some of these investment areas may earn them a place on your “Too Hard” list (see above). But some of them are surely worth closer inspection. A music royalties investment trust probably shouldn’t be the core holding of your investment portfolio, but it could jazz it up around the edges.
Morningstar Fund Managers Awards
Morningstar’s 15th annual Fund Manager of the Year Awards are set to take place in September, and we’ve just unveiled our list of finalists. There are few professions which haven’t been impacted by the events of the past 18 months, and I don’t envy a fund manager’s job of having to cut through the noise and find the winners amidst the chaos.
This year’s shortlists of fund managers and rising talents are hearteningly diverse, and feature funds from some of the most out-of-favour areas of the market, showing that truly talented managers can shine even when the going gets tough. We’ll look forward to finding out the winners in a few weeks but, for now, a huge congratulations to the finalists.
