Investing for My Grandchildren - Year 1 Update

Many parents and grandparents like the idea of saving for children/grandchildren. 

My 5 grandchildren are aged between 21 months and 7 yrs and last year I decided to start a regular savings plan with Baillie Gifford and to put aside a regular monthly sum of £50 with the option of adding the odd lump sum amount from time to time.

I am fairly traditional 'old school' when it comes to money and remember what I was like at the age of 17 or 18 yrs and what I may well have done with a large sum of money at a young age. I therefore want some control over the account as I would like them to have the money a little later, maybe at the age of 21 yrs (earliest) rather than 16 or 18. This rules out a few options such as junior ISAs and bare trusts set up in the children's own name.

The plan is therefore in my name with the grandchildren all named as designated beneficiaries. The plan offers a low cost way of saving via a range of investment trusts.

There are 4 global trusts :

Scottish Mortgage

Monks

Scottish American

Edinburgh Worldwide

and 3 trusts which focus on the Far East:

Baillie Gifford Japan

Baillie Gifford Shin Nippon

Pacific Horizon

Flexible

The plan will run for the next 15 to 20 years or so and over this timeframe I am obviously looking at global growth. Although I am starting with the one investment trust, I do have the option to split my monthly contributions between two or more trusts. The minimum is £25 for each trust and there is the option for a lump sum addition into any trust - min £100.

The Trust Choice (But Note Changes to Come)

To start off I have selected the Scottish Mortgage trust as this is the largest global trust with the lowest ongoing charges. I am obviously familiar with SMT as I hold it in my own SIPP and ISA. The managers have a good reputation for consistent performance in areas which I believe will provide a good chance of out-performance over the coming years. It has turned £1,000 into £8,000 over the past 10 years which equates to an average of over 23% per year. At this rate, an annual contribution of £1,000 over 15 years would grow to just over £60,000. However this period is not typical as it has the distortion of the financial crash of 2008/09. I am hoping for a return of nearer 10% per year. If it can deliver anything near this over the coming years my grandchildren will have a tidy sum in the region of £8,000 each - fingers crossed.

Charges

For the best long-term returns, it is important to ensure the costs of the investment are low. This is one of the reasons the low cost index funds generally out perform the more expensive managed funds. The big advantage of the savings plan is there are no platform charges from Baillie Gifford and also no transaction charges for the purchase of shares which is important when a monthly drip-feed plan is operating. Therefore the only charges will be the ongoing charges for the Scottish Mortgage trust of 0.37%. There is however a charge of £22 for each withdrawal but as I am not planning on this for many years it should not be a problem.

Performance - End of Year 1

I started off with an initial lump sum of £200 and have 12x monthly contributions of £50 into Scottish Mortgage - total £800. The share price has ranged from £4.45 to £5.60p so some months have seen a relatively high price such as last Summer, which means less shares purchased. I have therefore accumulated a total of 159 shares at an average price of £5.00.

Scottish Mortgage Share Price - Past Year

I have also invested a one-off lump sum of £100 into Edinburgh Worldwide taking advantage of the dip in the share prices last December. So, an additional 60 shares purchased at £1.64 and currently £1.88.

The total contributions over the year have been £900 and the current value is £970 - a return of £70. So far, so good.

BG Drops Savings Scheme

I just heard yesterday that Baillie Gifford have decided to abandon the savings scheme and transfer all customers accounts to Hargreaves Lansdown. This will ultimately involve transaction fees on the monthly contributions for investment trusts (funds are free) as well as platform fees of 0.45%. However, I understand the free dealing/platform arrangement currently in place with BG will continue for 3 years after the transition. The advantage will be the investments will not be limited to the 9 BG trusts so I could look at the wider market and possibly something climate-friendly such as BGs Positive Change fund or WHEB Sustainability.

I am awaiting further details from BG. While I consider all the changes and implications, I will continue to drip feed my £50/month into the Scottish Mortgage trust with HL for the time being. The share price can be volatile but the drip feed is a good way to even out the swings.

Feel free to comment if you are currently saving for children or grandchildren and share your experience with others.

Orsted - New Addition

This energy company based in Denmark is a global leader in offshore wind with around 30% of global capacity and operations in Denmark, UK, Germany and Holland. It also operates several wind farms outside of Europe in the US and also Taiwan.

Renewable energy is very much in the ascendancy due to concerns about climate change. It is estimated the global wind energy sector will attract investment of $1 trillion over the next 10 years as the world makes the transition to low-carbon energy.

The company has made a remarkable transformation of its business model over the past decade. It was formerly known as DONG - Danish Oil & Natural Gas - and, as its former name suggests, was involved in energy production from North Sea oil and gas and also coal-fired power.

In 2008, the company decided to change its business model from black (fossil fuels) to green (renewable wind energy). At that time the company was 90% oil/coal and 10 years later, it has moved to 75% green and aims for 100% by 2025.

In 2016, the company floated on the market in the second-largest IPO in the world that year. The following year it sold off its North sea oil and gas business to focus on renewable offshore wind and also changed its name. The float price was 235 DKK and just under three years later it has risen to 500 DKK.

UK Operations

Their offshore UK operations have the capacity to supply over 3 million homes with green electricity. This will increase to 5.5 million homes when current additions at Hornsea 1 & 2 come online in 2020. This development will be the largest offshore wind farm in the world. There are two further phases at Hornsea in the planning stage and a further wind farm proposed off the Isle of Man.

Hornsea 1 - The worlds largest offshore wind farm

Matthew Wright, UK Managing Director at Ørsted, said:

“Hornsea 1 is the first of a new generation of offshore power plants that now rival the capacity of traditional fossil fuel power stations. The ability to generate clean electricity offshore at this scale is a globally significant milestone, at a time when urgent action needs to be taken to tackle climate change.

“Ten years ago, the thought of a project of this size was just a dream, but thanks to continued innovation, a determined effort from both the industry and supply chain to drive down costs, and the natural geographical benefits that surround us, the UK has positioned itself as a world-leader in offshore wind". 

Last December, the company installed a 20MW battery storage facility at Liverpool. Variable wind generation (and solar) leads to grid supply volatility. While natural gas is still providing 50% of our energy requirements this is not a problem but as the proportion of renewable capacity grows (currently 30%), there will be an increasing need for storage of wind/solar to smooth out energy distribution via the network.

20 MW Carnegie Rd Storage System, Liverpool

Results

Full year results (pdf via company website) for 2018 were announced earlier this year. Net profits increased by 46% to DKK 19.5bn (2017 13.3bn). The share price increased by 28% over the year to DKK 436 having risen as high as 474 in November. The company currently has net cash of DKK 2.2bn. Return on capital is running at 32% (2017 25%).

The shares yield around 2.0% based on the current price of DKK 495.

Future Plans

The company has ambitions to increase its current wind portfolio from 5GW capacity to 15GW by 2025 and then double to 30GW by 2030. The firm expects a 20% annual increase in profits and will be investing DKK 200bn ($30bn) in renewable projects over the next 5 years. It has identified next stage development potential in Poland, India, South Korea and Japan as well as looking into the feasibility of floating wind technology.

The company's vision is to see a world run entirely on renewable energy. In the latest annual report, the CEO says he expects the market in renewables to triple over the next decade and expects Orsted to take part in this global build-out.

To help combat climate change, the world needs to transition quickly from fossil fuels to renewables. Orsted aims to be part of this change and wants to be part of the solution. It targets enough clean energy to power 50 million homes by 2030.

I would prefer to hold this as part of a collective investment trust or ETF but, so far, have not seen it listed so I have decided to add it as a stand alone share holding...another addition to my 'green' portfolio. The purchase price was DKK 490 or UK £57.00 per share.

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!

Impax Env. Markets Trust - Results

I added this investment trust to my ISA portfolio last October in response to my growing concerns relating to climate change following the IPCC report (COP 24) and the possible implications for the economy and investments landscape.

Impax (IEM) is an investment trust with a market cap. of around £550 million and its objective is to help investors benefit from growth in markets for cleaner and more efficient energy, water and waste services. 

The trust was launched in 2002 and is run by Jon Forster and Bruce Jenkin-Jones who have a long term record of experience and expertise in this market. They see a strong momentum in these areas and wish to appeal both to those who require growth from their investments as well as those who are more concerned about the environmental impact of climate change.

IEM is focussed on global growth and the portfolio has around 60 holdings - predominantly smaller and medium sized - mainly in USA (41%), Europe (34%) and Asia/Japan (18%). 

The main sector focus is Energy Efficiency (33%), Water (20%), Food/Agriculture (14%), Pollution Control (10%) and Renewables (9%).

Results

The trust has this week released results for the full year to end December 2018. (link via company website)

Whilst returns for NAV fell by 10%, the discount narrowed considerably over the year due to strong demand from retail investors. The share price total return was -0.4%.

Dividend

Net revenue for the year increased to £5.7m (2017 £5.1m) which equates to 3.2p per share. The company pays out most of the income and they have declared a 20% increase in the final dividend from 2.5p last year to 3.0p which is payable end May. This gives a yield of just over 1.0% based on the current share price of 292p.

Performance

The trust has turned in a decent performance over the past 5 years with a total return of 97%. This compares favourably with some of my other holdings - Finsbury Growth & Income 79% and Mid Wynd 98%. Vanguard Lifestrategy 100 has returned 67% over the past 5 years.

 

5 Yr Comparison v VLS 100 (red line)
(click to enlarge)

My purchase price last October was 265p and currently around 292p so going in the right direction after a sharp sell-off at the end of last year. The return since the start of 2019 is 16%.

Commenting on Climate change

"2018 started with a severe drought in Cape Town and ended with Californian wildfires, highlighting the need for innovation and investment in environmental markets. Evidence linking extreme weather events and climate change appears to grow stronger every year. Morgan Stanley recently estimated that global damage caused by climate-related disasters for the last three years alone stood at around $650 billion. In October, the latest Intergovernmental Panel on Climate Change (IPCC) report suggested that if annual global emissions were maintained at current levels, then damage costs by 2040 could reach $54 trillion. It is hard to digest the size of such figures, nevertheless the implications are clear".

"Opportunities for businesses to deliver emission reductions, for example via energy efficiency and renewable energy solutions, and to adapt to changing climate, for example via grid resilience and water infrastructure, are growing.

The global drivers for companies providing environmental solutions remains very compelling, especially in China and the rest of Asia. The behaviour and preferences of consumers, and policy developments, are supportive and evidence of this is already visible in companies' order books. And we are seeing an increasing number of disruptive events, such as electric vehicles and the war on plastic, that point to an accelerating growth trend".

Conclusion

In the past week we have a report from Blackrock assessing the climate-related risks to the US economy with a focus on municipal bonds, mortgage-backed securities and electricity utilities. Clearly this is an important issue and the 'big boys' of the investing world are starting to take it very seriously.

IEM was the first 'green' fund to join my portfolio last year at the point when I decided to make some changes to align my investments with my beliefs and lifestyle. Since this time I have made several more changes to divest away from fossil fuels such as big oil/gas - Shell and BP for example - which have been responsible for greenhouse gas emissions and climate change. I really do not want to invest my money in and profit from these companies.

As more people become aware of the implications of climate change, and the enormous threats posed to our way of life if not addressed, I hope the businesses such as the ones supported by Impax Environmental will benefit and grow stronger.

In the words of economist Prof. Nicholas Stern in a report for the World Economic Forum (worth a read)

"The global economy will probably double in the next 20 years and that helps us understand how fast we have to move and what we have to do. Because at the same time as that global economy doubles, we're going to have to cut our overall emissions absolutely by 30 - 40% or more. That means that we have to be doing things differently within the next 20 years, which means that we have to be investing in a very different way, starting from now".

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!

TRIG Share Offer Completed - Update

Just a brief update to my post relating to this clean energy addition to my portfolio last month following the release of full year results.

The trust has raised £302 million in a heavily over-subscribed share offer. They issued an additional 265m new shares at 114p, with half allocated to existing shareholders. This is a 3% discount to the current share price of 118p and of course there are no dealing charges or stamp duty. Unfortunately, due to the heavy demand for the shares, my application was scaled back and I received around 60% of the additional shares I applied for.

This will now make TRIG the largest trust in the sector with a market value of £1.8bn compared to Greencoat UK Wind at £1.7bn.

The bulk of this money - £247m, will be used to repay credit for the two recent acquisitions in Sweden.

Helen Mahy CBE, Chairwoman of TRIG, said: 

"The Board would like to thank TRIG's existing shareholders and new investors for their support in the Company's fundraising. Such significant oversubscription for this initial issue under the share issuance programme is testament not only to TRIG's demonstrable track record in delivering long-term, sustainable income but also to TRIG's commitment to de-carbonisation. This equity issue enables us to capitalise on our exciting near-term investment pipeline and continue to deliver sustainable value to our shareholders."

The trust pays a quarterly dividend and has a full year target for 2019 of 6.64p which represents a yield of 5.8% of the new issue price.

Last Friday, the company also announced a deal to acquire a new 40MW onshore wind project in Burgundy, France and which should be operational by early 2020.

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!