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 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.


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!

Wednesday, 27 June 2018

Polar Capital Technology - Portfolio Purchase

My need for income generation is now much reduced following the start of my state pension and therefore I will begin to tilt my strategy more towards growth.

In January 2017, I added Scottish Mortgage to my SIPP and have recently topped up the holding. Earlier this year I added Mid Wynd to my ISA and this week I have added a third tech-focussed trust Polar Capital Technology.

Launched in 1996, the trust has grown rapidly and now has assets under management of over £1.7bn. It is a global trust however 70% of the holdings are listed in the US. The trust is managed by a team and led by Ben Rogoff since 2006.

The trust has 107 holdings (currently) and the top 15 account for 50% of the portfolio and include Microsoft, Alphabet (Google), Apple, Facebook, Tencent, Amazon and Intel. These tech companies are fundamentally transforming the way we live our lives in a similar way to the impact of the industrial revolution.

The combined market cap. of the so-called FAANG stocks - Facebook, Apple, Amazon, Netflix and Google - now exceeds the total annual GDP of the UK. I believe the long term growth prospects for this sector offer investors significant rewards. Yes, these tech stocks have done well since the market turmoil of 2008/09 and there is likely to be some volatility but I see no reason why the sectors ability to disrupt and grow should not continue.

3 Yr Comparison v Scottish Mortgage
(click to enlarge)

Over the last five years the trust has delivered a total return of 201% compared with 162% for the DJ World Technology Index.

Here's a link to the latest monthly factsheet (pdf). The trust is due to report full year results in July.

For me, these three holdings which includes SMT and Mid Wynd will account for around 15% of my portfolio (SIPP/ISA). Some investors will avoid technology investments as they are perceived to be higher risk global equity options but maybe in the long run it is higher risk not to hold the sort of companies which are shaping the future. Of course these holdings will mostly be covered in a low cost global index fund and the likes of Vanguard Lifestrategy will continue to be my core holding and my tech trusts forming part of a wider, diverse portfolio.

My initial purchase price is at £12.50 which represents a 2% discount to NAV and as with SMT, I will look to top up during periods of share price weakness down the line.

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!

Saturday, 23 June 2018

Brexit Vote Revisited

One of the benefits of having my own blog is the opportunity to have a say on anything I like.  Of course most of the articles I write are on investments and personal finance related matters. A couple of years back I wanted to put down some of my thoughts on the Brexit debate and outcome. At times it seems like the country has spoken of little else since then and now at the second anniversary there will be more media debate and analysis so apologies in advance and if this subject is a real turn-off ...feel free to skip.

So, June 24th 2016 and I was very surprised at the outcome given all the dire warnings of immediate economic armageddon if we voted to leave from just about every establishment figure from George Osbourne (who?), Mark Carney, Christine Lagarde from the MFI, Barak Obama and a host of so called experts and economists.  Indeed we were told there would need to be an emergency budget the day after if we voted 'Leave'.

Here is my last post which summed up my thoughts on the matter shortly after the referendum.

The Treasury estimated that up to 820,000 jobs would disappear within two years of a vote to leave. Two years on and the reality is that more Brits are in work than at any time since records began. There are now over 1.5 million more jobs created since the referendum...currently ~32 million.

The Democratic Process

In years past, one way to resolve an issue would be an armed battle between two sides. I think we have moved on a little since then and most sensible people would agree that this method is a bit crude and unsophisticated and maybe the better solution is to debate the issues and then have a vote. Of course, the vote must be free and fair and everyone affected should take part. This is democracy and it only works if both sides agree beforehand to accept the outcome...if one side does not accept the outcome then we may well return to the old ways of doing things.

We have a general election every five years. There are some close results, sometimes within just one or two votes either way and there could be several recounts but it is traditional that one person is elected and the losers accept the decision of the voters. They can redouble their efforts next time round.

So, there was a debate in Parliament in June 2015 on whether to hold a referendum and after all the debates, the MPs overwhelmingly voted by 544 to 53 to hold a referendum on whether we should leave or remain in the EU. This was also supported by the House of Lords. It would be decided by a simple majority of 50% +1. There would be a simple question - "Should the UK remain a member of the EU or leave the EU?". Everyone aged 18 or over could vote.

The government sent out a leaflet before the referendum advocating a vote for 'Remain' with a promise that it would implement the decision of the electorate.

What is more, everyone's vote counted unlike a general election when voting is on a constituency level and many votes are 'wasted'. In the referendum, every vote for and against in every part of the UK counted and when every vote had been counted the final figure was 'Remain' 16.1 million (48.1%) and for 'Leave' 17.4 million (51.9%). The turnout on the 23rd June was very high at over 72%. If the majority of 1.3 million people were to stand finger tip to finger tip, the line would stretch from the UK to the football World Cup in Russia. Here's the BBC results breakdown

The Aftermath

Like most people in the country, I was surprised by the outcome. I voted to leave but really did not expect the majority would vote to leave. I thought it may be close but I was of the opinion that it would be 55% remain similar to the referendum in Scotland in 2014.

I would have been disappointed but I would have accepted the outcome like a good democrat and moved on.

A year later and we had another general election which placed Brexit firmly at the top of the agenda. There was not much difference between Labour and Conservative.

"As we leave the EU, we will no longer be members of the single market or customs union" Conservative Manifesto 2017

Immediately after the election, John McDonnell said “I think people will interpret membership of the single market as not respecting that referendum.” This was consistent with Labour’s manifesto, which promised to retain the “benefits or the single market and the customs union” without being a member of either.

The Liberal Democrats offered an alternative to the main parties with their pledge of a second EU referendum on the Brexit deal.

The Tories increased their share of the vote to 42.4% but lost 13 seats and their majority, Labour narrowed the gap increasing their share to 40% and gained 30 seats and Lib Dems managed just 7.4% of the vote and a gain of 4 seats. The big losers were the SNP who lost 21 seats and UKIP who lost their only MP and managed just 1.8% of the vote compared to 13% in 2015.

Of course there has been much analysis and discussion post the referendum. I have seen articles which suggested 'leave' voters were too stupid to realise what they were voting for. I think what has caused most disappointment/sadness on a personal level is the refusal on the part of a hardcore of remain voters to accept the outcome. I can understand their disappointment and maybe shock/disbelief but surely the very essence of out democracy is that we accept the decision of the majority.

For sure those 33 million people who cast a vote cannot possibly have understood all the implications of the vote. For me, I guess mostly it was a 'gut feel' like so many other decisions in life which defy precise logical analysis. Yes I read the papers and listened to the TV debated in the lead up. I discussed with friends and relatives and researched online but at some point, maybe a month or so beforehand, I had more or less made my decision. I will not know until maybe 10 years after we have left (if we actually leave) whether it was a good decision or completely bonkers. If I had to vote again tomorrow, it would be exactly the same.

I am very much of the same opinion as MSE's Martin Lewis who made the point "The principle of our democratic process far outweighs any benefits from remaining in the EU" (Question Time 3/5/18)

There have been challenges in the courts, calls for the referendum to be run again, objections from the SNP who think the result should not apply to them because Scotland voted remain - even though a year earlier they lost their own referendum as Scotland voted to remain as a part of the UK.

There have been anti Brexit rallies in London, Oxford, Bristol and elsewhere and now we have a campaign from the usual suspects...Chuka Umunna, Anna Soubury, Lord Adonis, the Lib Dems/Greens for a 'people's vote' on the final deal organised by remainers whose motives I mistrust as I believe they really don't accept the decision of 2016 and don't want our elected MPs in Parliament (all elected after the referendum) to have the final say on whatever deal is agreed with the EU after 2 years of intense negotiations.

It is not surprising these anti-Brexit rallies are in London and university town as the clever people tended to vote remain. I noted at the time that 29 out of 30 areas with the most graduates voted 'Remain' whilst 28 out of 30 areas with the fewest graduates voted 'Leave'. I have seen figures which suggest as many as 80% of under 40s with a degree voted remain. However, when it comes to democracy, everyone's vote carries equal weight. Having a degree does not mean their vote is worth more and believing you know more than others does not confer a right to override the decision of the majority. 

The fact these people are persisting in their efforts to undermine the referendum reflects their misplaced sense of superiority and demonstrates how out of touch they are with ordinary people. Whilst purporting to promote liberal values, social mobility and inclusion these clever people hold in contempt the poorer working-class people from the North who despite all the warnings of dire consequences voted leave and refused to bow down to the so-called experts.

For me, a referendum on the final deal is a non-starter. It would undermine the 2016 referendum. If the Brexit vote was about anything, it was about sovereignty and returning power from the EU to our Parliament. Therefore it should be our elected MPs in the Commons who have the last word on the final deal when the negotiations are concluded.

I can accept that these people are not happy with the decision to leave. I can accept they genuinely believe that leaving the EU will be a disaster for our economy and jobs but it seems to me that just as I cannot possibly know how things will turn out after we leave, neither can the may not be so good but also it may work out better than they fear. The most legitimate course in my humble opinion, would be to wait a reasonable time after we actually leave to see how things settle down and how our economy performs and if not happy after say 5 years, THEN start a campaign to rejoin the EU.

Of course, no one can predict the longer term consequences of leaving but so far it has been business as usual but then again we have not yet left. Of course there is no shortage of clever people who 'know' this will be a huge mistake and want to save us from a dire future. They are driven by fear of the unknown and prejudice which is understandable as they probably have more to lose than some other less educated people however for all their further education, in reality, they have no more insight into how things will turn out than the rest of us.

In..Out..Shake It All About..

I really believe that neither side will be served by an final outcome which is half in, half out...that would be the worst outcome for the UK. Many want us to remain as part of a customs union but that would mean we could not independently strike our own trade deals with other countries and therefore severely compromise our freedom as a sovereign country which I think was at the heart of what those voting for leave actually wanted. We therefore need to find a solution which results in independence and the UK becoming free to make our way and, of course, free to make mistakes just as it was before 1974.

At the end of the day, I believe the real division is not between those who voted one way or the other. I believe it is between those who respect democracy and those who persistently refuse to accept the outcome and are doing anything they can to delay, reverse, obstruct and generally undermine. This is not good for our country and for those involved in the negotiations with the EU. It is negative and I strongly believe with just 9 months to go, we need more people to look at the positives which could come out of all this if we approach things with confidence and optimism.

If the final outcome is a UK which is little different from how things were as members of the EU then we will all end up the poorer. Brexit must happen, democracy demands that the wishes of the 17.4 million people is respected...I do not like to think about the consequences if the relatively small but influential group of clever people get their way and we do not get what we voted for.

So, where are you with all this? Did you vote leave or remain? Did you know what you were voting for? Do you accept the outcome or are you not yet reconciled to leave? Have your say in the comments below...we still have freedom of speech, it's a democracy!