Monday, 9 July 2018

My Strategy is Evolving


As it is over 3 years since I last reviewed my investing strategy, I thought maybe time for an update on where I am going with it.

Looking back to early 2013 when I started this blog, it is clear there has been quite a significant move. Back then I was focussed on a portfolio of individual higher yielding UK shares combined with a ‘basket’ of investment trusts to generate the natural income I required in retirement.

Fast forward to 2018 and the individual shares are all sold along with some of the investment trusts in both ISA and SIPP drawdown. They are replaced by a large portion of Vanguard index funds and a few more diversified ITs such as Scottish Mortgage, Mid Wynd, TR Property, HICL Infrastucture and Capital Gearing.

My circumstances have changed this year as I now receive my state pension. It will be £8,450 for the coming year and this is around £2,000 per year more than I had been expecting when I last reviewed my strategy in 2015 which has come as a pleasant surprise. It means I have less need for income from my investments - ISA and SIPP. This means I need to reassess my plans and make a few changes to my portfolio to reflect the new situation.

The Next Phase

My focus over the past 10 years has involved funding my decision to take early retirement from age 55 yrs. Therefore the plan had been to generate income from my investments to bridge the gap to state pension...and now that part of the journey is mission accomplished!

There now needs to be a plan for the next decade and beyond which takes account of my changed situation.

I follow a fairly simple lifestyle - it seems to me the easiest way to grow wealthier is learning to live with less, because living with less has a higher success rate than attempting to make a fortune, and fortunes tend to push aspirations and desires higher anyway. I am lucky in that I seem to always have had an ability to live within my means so, whilst my lifestyle remains modest - some would say frugal - this is more by design and choice. I accept most people would happily spend the additional money on more holidays, clothes, new car maybe and a host of other delights. However for someone who likes a simple life, spending money on these things would be a bit pointless. Plato said "The greatest wealth is to live content with little".

One book that had a big impact for me in the 1970s was Erich Fromm 'To Have or To Be' which I suspect is as relevant today as it was 40 years ago. I probably did not realise at the time but it no doubt shaped the way I look at life.

As generating income is no longer required, I am now free to consider more options. My basic income needs are now secure with the start of the state pension which will rise year on year to keep pace with inflation. The capital which has been used in my SIPP and ISA to generate the income needed to live on over the past 10 years is now released for other uses. I could think about a better house in a more expensive area...my final move maybe... and also consider a combination of capital preservation and a return to some options for growth. Some themes I have in mind would be technology, biotech, new wave energy and AI/robotics.


Where I am up to now?

Now in my mid 60s, I am hoping for another 20 years if I am lucky. Well, the first thing to say is I accept there are no perfect strategies - what works for one investor possibly will not work out for another. Also, each person will be at a slightly different stage, different goals, varying timeframe etc. The can therefore be no 'one-size-fits-all'.

That said, obviously some strategies have more chance of a good outcome compared to others.

I am hoping equities will continue to provide a better return than bonds so I will continue to tilt in their favour for a while longer. The UK income trusts have done the job required but global diversity is a better option. The resignations of the Brexit secretary followed by the Foreign Secretary today has thrown the whole process into turmoil and I suspect this will put further pressures on sterling for some time.


I was fascinated by the research highlighted in a recent post which suggested the higher returns from equities were generated by just a handful of individual stocks. Therefore to have a chance of generating this outperformance over bonds, I need a global index fund which should include the 1 in 20 companies which deliver or hold an actively managed fund which has a good chance of identifying and holding some of these big performers in its portfolio.

I will therefore continue working towards a core of global low cost multi-asset such as my Lifestrategy, HSBC Global Strategy etc. which will increase to around 60% of my portfolio (currently 40%) and then several satellite holdings of actively managed globally diverse funds such as Scottish Mortgage and Mid Wynd which can hopefully add a little extra return.
 
(click to enlarge)

My UK equity income trusts and other income holdings are no longer needed so I will be looking to replace them at some point. My managed investment trusts have provided mixed returns in recent years. Some have done very well - Nick Train’s Finsbury Growth & Income and smaller company specialist Aberforth for example, others are more 'steady Eddies' such as City of London - whilst others have struggled - for example Edinburgh which has now been sold.

All the evidence suggests that most actively managed funds do not consistently beat the market over time - but some do! For example Finsbury, Aberforth, Polar Capital Technology and Scottish Mortgage have outstanding records over the past decade despite taking a huge 50% hit to their share prices in the market turmoil of late 2008.

I know I can never achieve a perfect portfolio - I am continuing to believe in the concept of ‘good enough’.

Feel free to share any thoughts with others in the comments section below - how is your strategy evolving?

Monday, 2 July 2018

Baillie Gifford Managed - Portfolio Purchase


Following on from my purchase of Polar Capital Tech last week, I have now decided to add this global multi-asset one-stop managed fund to the mix.


This £3.4bn fund invests in a mix of global shares, bonds and cash..but not property. It is listed in the 40% to 85% for the Mixed Investment 40-85% Shares Sector. It tends to hold 70 to 80% allocation to shares and a bias towards growth-focused companies. 

Overall, long-term performance has been good and return over the past 5 years has been 70.8% compared to 43.0% average for the sector. However I would expect the fund with 70 to 80% equities to perform better than the ones with 40 to 50% equities over the past few years.

The fund has ongoing charges of 0.43% and a current turnover of ~15% p.a. which reflects the managers commitment to long term buy/hold. 

I appreciate the focus on patience at Baillie Gifford which means the managers will make their assessment on portfolio holdings over a long period, maybe up to 10 years. This helps to remove the pressure to react to market volatility and peer pressure on performance.

Diverse

This is a global fund with a wide geographic mix of mainly equities. The main breakdown is UK 20%, USA 20%, Europe 17%, Asia Pacific 12% and Emerging Markets 7%. The rest is made up of global bonds which are a mix of government and corporate as well as around 6% in cash. This is a managed fund so the geographic mix as well as the balance between equities/bonds will fluctuate.

Some of the larger equity holdings include Amazon 2.2%, Netflix 1.1%, Facebook 0.9%, Prudential 0.9%, Nestle 0.8%, Diageo 0.7%. In addition to stand-alone equities, the fund holds several of its own funds such as BG British Smaller Companies, BG Japanese Smaller Companies and BG Emerging Markets Growth fund.

7 Yrs Comparison v VLS 80
(click to enlarge)

This fund would certainly do a similar job to the likes of Vanguard Lifestrategy 80 or HSBC Global Strategy Dynamic as a global multi-asset stand alone option for those who are happy to keep things very simple. This fund will therefore become a part of my multi-asset core portfolio alongside Lifestrategy and HSBC Global Strategy.

My initial purchase price is £10.62. I will see how things develop and compare to my Vanguard funds but may well be looking to build a larger stake in this fund over time. At the present however, I would prefer sterling to be a little higher so will reassess when the £ is back above £1.40 (currently $1.32).


My asset allocation has shifted as a result of recent sales/additions and is probably best depicted by a pie chart which I will update from time to time on my 'portfolio' page.
 
July 2018  (click to enlarge)


Feel free to comment below if you have any thoughts on the BG Managed fund.

As ever, this article is merely a record of my personal investment decisions and should not be regarded as an endorsement or recommendation - always DYOR!