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WHAT IT
The
ME ANS FOR
INVESTORS
playbook
How to apply the
same strategies as
Warren Buffett and
other famous investors
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BENEFITS
Investment Trusts, managed
exists to help by Janus Henderson
you achieve
your long-term Every farmer knows one of the keys to a
good crop is finding the right soil.
financial goals. At Janus Henderson we believe in the same
principle; that to reap the benefits of a
successful investment, you must carefully
consider where you invest.
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EDITOR’S VIEW
R
ecent analysis by investment which illustrates this point in his 2011
bank Liberum on ITV’s (ITV) title Cotter on Investing.
boost from England’s better- ‘I came in from work and found my
than-expected World Cup performance three young teenage daughters gathered
included some interesting words around a laptop. I asked what was so
of wisdom. interesting and they replied “ASOS”. I
Analyst Ian Whittaker observes the asked them a few questions about the
huge audiences for the Three Lions’ company more out of politeness than
exploits are a reminder of the resilience real interest.
of live TV as a medium and therefore its ‘I thought no more about this until the
attraction to advertisers. next morning when I was waiting to do
‘ITV’s (share price) rating has been a training presentation in Glasgow to a
dented by what we would call the largely young female audience of new
“London bubble effect”; i.e. opinion formers recruits. While waiting for a few latecomers, and
extrapolating their own media habits onto the rest more to break the awkward silence than for any
of the population when, in fact, they are wildly other reason, I asked if anyone had heard of ASOS.
different. For example Coronation Street and ‘The majority of girls put their hands up and
Emmerdale generate total audiences of 7m to 8m, spoke in positive terms, as my daughters had
five or six nights a week,’ Whittaker says. before, about the company’s website, the style of
In the same way someone who buys everything clothes and the prices.’
online may question budget shop brand B&M Cotter subsequently bought the shares at 51p
European Value Retail’s (BME) decision to after looking at the financial metrics. He noted that
materially boost its high street footprint at a without taking on board what he heard from his
time when lots of bricks and mortar retailers daughters and learned in Glasgow, the company
are struggling. would not have been on his radar until the shares
However, in the words of chief executive Simon were at least eight times higher than the level he
Arora, in the value and convenience areas of bought at.
retailing ‘physical stores are winning’.
We are often told, and with good reason, to ALL IN THE GAME
only invest in things we understand. However, In a similar way you might be tempted, based
it is important to not take a blinkered approach on your own experience, to dismiss computer
to investment and to look beyond your own games as a niche interest and therefore a space
experience when examining the prospects for which could never deliver serious returns
a business. for shareholders.
However, this would ignore the increasing
KEEPING YOUR EYES OPEN centrality of gaming to the modern world,
The late John Cotter, who provided invaluable something which informed the decision to add
support to investors as vice president of Barclays games developer Team17 (TM17:AIM) to our
Stockbrokers, recounted a tale from April 2005 Great Ideas portfolio on 5 July. (TS)
E DITOR’ S VIE W BI G N E WS
03 Why keeping an 08 Stocks super
open mind can make charged by electric
you a better investor vehicle plans
B I G NE WS BI G N E WS
06 What the latest 08 Echostar walks away
Brexit news means but Inmarsat still in
for markets and play, say analysts
investors
STORY I N NUMB ER S
B I G NE WS 10 Greene King and other
07 TalkTalk buyout
rumours emerge as
story in numbers
16
chairman ups stake
close to 30% GR EAT IDE AS
11 World Cup boost
B I G NE WS for retail winner
07 Sunny weather and JD Sports
England’s top World
Cup performance hits
10
GR EAT IDEAS
holiday bookings 12 Buy Anglo American
for cheap shares,
good dividend and
08 break-up potential
GR EAT IDEAS UP DATES
13 We update on Miton,
Rolls, Alpha Financial
and Volution
MAIN FEATUR E
16 The guru playbook
WHO WE ARE
EDITOR: DEPUTY NEWS BROKER RATINGS EXPLAINED:
Daniel EDITOR: EDITOR:
Coatsworth Tom Sieber Steven Frazer We use traffic light symbols in the magazine to illustrate
@SharesMagDan @SharesMagTom @SharesMagSteve broker views on stocks.
FUNDS AND REPORTER: CONTRIBUTORS Green means buy, Orange means hold, Red means sell.
INVESTMENT TRUSTS David Stevenson Holly Black
EDITOR: @SharesMagDavid Russ Mould
James Crux Tom Selby The numbers refer to how many different brokers have
REPORTER:
@SharesMagJames
Lisa-Marie Janes Laura Suter that rating.
@SharesMagLisaMJ
Eg: 4 2 1 means four brokers have buy ratings,
MANAGING DIRECTOR PRODUCTION ADVERTISING
Mike Boydell Head of Design Senior Sales Executive two brokers have hold ratings and one broker has a sell
Rebecca Bodi Nick Frankland rating.
020 7378 4592
CONTACT US: Designer nick.frankland@sharesmagazine.co.uk
support@sharesmagazine.co.uk Darren Rapley The traffic light system gives an illustration of market views
but isn’t always a fully comprehensive list of ratings as some
Shares magazine is published weekly every Thursday (50 times per year) by AJ Bell Media Limited,
49 Southwark Bridge Road, London, SE1 9HH. Company Registration No: 3733852.
banks/stockbrokers don’t publicly release this information.
All Shares material is copyright. Reproduction in whole or part is not permitted without written
permission from the editor. All charts provided by Thomson Reuters Datastream.
HAS THE TAKEOVER battle walked away. come in for Inmarsat from
for UK satellites operator European peer Eutelsat pulled another US firm called Dish,
Inmarsat (ISAT) ended almost out of making an offer in June. interestingly the sister company
before it begun? Under takeover panel ‘put of Echostar.
US peer Echostar had up or shut up’ rules Echostar ‘The put up or shut up rules
proposed a 532p per share is now barred from making a do not apply to Dish,’ say
deal that was dismissed as further approach to Inmarsat analysts at broker Exane.
undervaluing Inmarsat. On for six months. Inmarsat shares have slipped
6 July the US firm, run by However, in a unique twist, to 517.5p having reached 632p
entrepreneur Charles Ergen, analysts believe offers to still on 25 June. (SF)
youinvest.co.uk/future
MITON ROLLS-ROYCE
VOLUTION GROUP
(MGR:AIM) 66p (RR.)
225
220
215
994p
FTSE ALL SHARE
210
Gain to date: 58% Gain
205
200
to date: 18.8%
Original entry point: 195
Original entry point:
190
Buy at 41.75p, 5 April 2018 185
Buy at 836.6p, 10 May 2018
180
175 Rebased to first
OUR CONFIDENCE in asset management minnow 170
ROLLS-ROYCE (RR.) has sealed the deal on the
2017 2018
Miton (MGR:AIM) continues to pay off as the anticipated sale of its commercial marine business.
company pleases with its latest update on assets The operation, which includes deck machinery,
ANGLO AMERICAN
under management (AUM). automation,
2000 FTSE ALL SHAREalongside propulsion on
controls
1900
On 9 July the company revealed that its AUM more
1800 than 1,000 vessels to date, has been sold to
had increased by 35% in a year to £4.5bn. Kongsberg,
1700 a Norwegian technology engineering
1600
Investors are pouring money into Miton’s business,
1500 at a £500m enterprise value.
products, £616m in the first half to 30 June. This 1400That will equate to approximately £350m to
1300
represents seven consecutive quarters of positive £400m
1200 of proceeds to Rolls after various pension
Rebased to first
+ 50 8 + 90k ha
years Terminals Lands
METALS LOGISTICS
AGRIBUSINESS
& MINERALS & TECHNOLOGY
DIVISION
DIVISION DIVISION
We own a diversified portfolio of We provide logistics and technological We grow, process and deliver essential
production and processing assets, solutions, including port and terminal agricultural and food products to
which has been combined with global management, bulk handling operations local consumer markets in Africa and
marketing and trading activities. and transportation, as well as international suppliers across the globe.
maintenance and procurement.
M
any investors are fascinated by the aforementioned famous investors or
how certain investors got to be their approach has many similarities with
so famous, searching for the how one of the famous four would scour
special formula that made the the markets for ideas.
likes of Warren Buffett and Philip Fisher It is important to consider these
so rich. Well now’s your chance to mimic approaches aren’t guaranteed to result
their approach and apply their proven in portfolio success. Indeed, even famous
methodology to today’s market. investors have made mistakes in their
We show you two ways to deploy their career. Yet these defined strategies do
process. The first uses stock screeners built provide a good starting point for you to
using Stockopedia’s interpretation of how do further research and should certainly
four famous investors like to pick stocks. be better than a random approach
The second features investment funds that many people follow when playing
that either use the same process as one of the markets.
Persimmon
Rank
Taylor Wimpey
Wizz Air
*As interpreted by Stockopedia and based on its Buffett Hagstrom screen
FUND IDEA
CFP SDL UK Buffettology (GB00B3QQFJ66) Ashworth-Lord’s mantra.
Those seeking to mirror the approach of His most successful investment to date is
arguably the world’s greatest investor, Warren fantasy miniatures maker Game Workshop
Buffett, can put money to work with the CFP (GAW), first bought at 373p in April 2011,
SDL UK Buffettology Fund (GB00B3QQFJ66) never sold since and now priced at a
managed by Keith Ashworth-Lord. princely £29.95.
The highly selective fund manager applies Other winners in the 30-odd stock portfolio
the methodology of ‘Business Perspective include automotive testing specialist
Investing’ championed by Buffett and his AB Dynamics (ABDP:AIM), antibodies
teacher Benjamin Graham. Buffett himself is developer Bioventix (BVXP:AIM) and
famous for discipline, patience and value – a Dechra Pharmaceuticals (DPH), names
style that has outperformed the market on that may well have passed muster with the
many occasions down the years. masterful Buffett.
The Buffettology fund contains UK equities Launched in March 2011, CFP SDL UK
with strong operating franchises and free cash Buffettology has delivered stellar annualised
flow, high returns on capital employed and three and five year returns of 19.13% and
experienced management teams. 18.03% respectively according to Morningstar,
‘Only an excellent business bought at an while Trustnet data reveals a five-year
excellent price makes an excellent investment. cumulative return of 126.3% versus 53% from
One without the other just won’t do,’ is the IA UK All Companies sector. (JC)
THE APPROACH
Dreman’s approach was formed by his additional filters. These include company size,
experience of investors piling into popular financial strength and growth.
companies whose strong performance often His focus on a strong balance sheet tells him
belied their modest earnings. He grew to that the company has the potential to generate
resent over valued stocks, instead turning his future growth in the profit column of its future
attention to those stocks which despite strong annual reports. Dreman very much relied on his
fundamentals were largely ignored by the own analysis of a company rather than rely on
wider market. reports by brokerage firms.
The fundamentals which are hallmarks of His approach can be summed up by his
Dreman’s style include companies with low price comment ‘if we take two companies with similar
to earnings ratios, low price to book values that outlooks, markets, products, and management
can achieve high yields at a reasonable price. talent, the one with the higher cashflow
His signature ‘low price to cashflow’ uses a will usually be the more rewarding stock. In
basic value filter selecting the cheapest 40% investing, as in your personal finances, cash
of the market by price to cashflow and adding is king’.
Persimmon
Plus500
XLMedia
*As interpreted by Stockopedia and based on its Dreman low price to cash
flow screen
FUND IDEAS
Liontrust Asset Management – Funds ‘A great US money manager once described
managed under the Cashflow Solution choosing an individual stock without having
process by James Inglis-Jones and Samantha much idea what you’re looking for as akin to
Gleave; manage Liontrust European Growth running through a dynamite factory with a
(GB00B7T92B14) and Liontrust Global burning match – you might live to tell the tale
Income (GB00B815XD35). but you’re still an idiot!
Famed US investor David Dreman favours ‘Having a clear idea on what you’re
cashflow over earnings and the low price looking for is all about having a well-
to cashflow contrarian value strategy he defined investment process,’ say Gleave and
developed filters the cheapest 40% of the Inglis-Jones.
market by price to cashflow, then screens ‘At the heart of our Cashflow Solution
further for quality according to company size, investment process is the idea that cash flow
financial strength and growth. is the single most important determinant of
While not a precise match, there is some shareholder return.
meaningful crossover here with Liontrust’s ‘The basic idea is that companies run by
Cashflow Solution process, described in detail conservative managers who are focused on
below by Samantha Gleave and James cash flow delivery should perform significantly
Inglis-Jones, Liontrust’s Cashflow Solution team better than companies run by aggressive
who co-manage Liontrust European Growth company managers making large cash
(GB00B7T92B14) and Liontrust Global Income investments today to secure forecast growth in
(GB00B815XD35) among other funds. the future.’ (JC)
FUND IDEA
Aurora Investment Trust (ARR) high-quality names run by ‘honest and
Investors seeking to profit from a bargain- competent management purchased at prices
hunting style of investing might look to the that, even with low expectations, will deliver
Aurora Investment Trust (ARR), a closed-ended excellent returns.’ Aurora looks for great
fund that homes in on high-quality businesses businesses when they are cheap, usually
with potential to scorch to the upside. because they are having short term issues; if
Growing in size, liquidity and marketability, its research is correct these companies should
the trust more than merits its modest recover and deliver high returns.
premium to net asset value (NAV). Phoenix Phoenix’s contrarian value approach is
Asset Management Partners, which assumed reflected in the fact the manager will only
management of Aurora in January 2016, seeks invest when there is at least 100% upside to its
to achieve long term returns by investing in UK- intrinsic value estimate.
listed shares using a value-based philosophy. Leading portfolio positions span
This is inspired by the teachings of Warren supermarkets Tesco (TSCO) and Wm Morrison
Buffett, Charlie Munger, Benjamin Graham (MRW) – part of the rationale being food
and interestingly, Phillip Fisher, the author of retailing should prove resilient in a downturn
Common Stocks and Uncommon Profits who – as well as cut-price sporting goods purveyor
popularised ‘scuttlebutt’, or primary research Sports Direct International (SPD), bowed-but-
using a range of sources. unbeaten funerals specialist Dignity (DTY) and
This approach leads Aurora to invest in low-cost carrier EasyJet (EZJ). (JC)
THE APPROACH
Slater adopted what has come to be known as a for six months she would have become a leading
Growth at a Reasonable Price or GARP strategy. expert in the world.
As the name implies this approach combines The point was that if you become an expert
both growth and value. in a very narrow field you can give yourself an
The eponymous Zulu Principle was drawn investment advantage.
from his observation of his wife reading a short Employing the price-to-earnings to growth
article on Zulus. ratio, which divides the price-to-earnings metric
He noted she already knew more than he did by the level of annual earnings per share growth,
within a few minutes and that if she borrowed all Slater looked to find smaller, growth companies
the books on Zulus in the local library she would which were undervalued relative to their growth
have been a leading expert in the country. potential. He also looked for a track record of
If she had actually visited a Zulu kraal and read growth and strong cash generation alongside
about their history at Johannesburg University other factors.
Iomart
Morses Club
S&U
Ten Entertainmnet
*As interpreted by Stockopedia and based on its Slater Zulu Principle screen
FUND IDEA
Slater Growth Fund (GB00B0706C66) of safety into the process – while there is also
The late, legendary private investor Jim a focus on cash flow.
Slater’s son Mark Slater uses Zulu Principle- Slater hunts for companies with competitive
inspired rules at his Slater Growth Fund advantage that operate in niche markets with
(GB00B0706C66), a portfolio of dynamic a dominant share.
growth companies trading at sensible prices He likes to see identifiable drivers of profits
that has delivered spectacular ten year growth to ensure profits progress is reliable
annualised returns of 17.72% according and therefore sustainable.
to Morningstar. Top ten portfolio positions in the unit
Seeking to generate long-term capital trust include pharma firm Hutchison China
growth, the fund’s primary valuation Meditech (HCM:AIM), big data analytics
measure is the PEG – star stock picker play First Derivatives (FDP:AIM), as well as
Mark Slater wants to combine the best Alliance Pharma (APH:AIM) and document
of growth and value and build a margin management group Restore (RST:AIM). (JC)
SAMPLE
Ian Postlethwaite, CFO & Company VIDEOS Laurence Read, Executive
Secretary - NetScientific (NSCI) Director - Europa Metals (EUZ)
CLICK TO
PLAY
www.sharesmagazine.co.uk/videos
UNDER THE BONNET We explain what this company does
JULY 2018
$135.36
JAN 2018
$112.13
JULY 2017
$86.09
JAN 2017
$58.94
JULY 2016
$41.48
JAN 2016
$43.11
UFJ Financial, China Construction Bank, Natixis facility (the ability to borrow money). We have
and Nordea, while Dutch banking conglomerate the ability to add up to 25% and we have been
ING Groep is the largest bank holding in the up to 16% before. We tend to be counter cyclical
portfolio at 1.81%. to the market with the gearing, so by that I
The oil sector’s dividend-paying ability mean investing in companies whose attractions
suffered after a pretty hefty shock between 2014 are underappreciated and using the gearing
and 2015 when the price of crude oil dropped when people are worried about markets. At
more than 50%. Following that shock, many the moment people are worried about lots of
companies were failing to cover their dividends things but the actual level of the market has
even when oil was $100 per barrel a day. appreciated a lot over the last couple of years, so
Now they are very focused on generating we’ve allowed the gearing to run down.
cash and for the first time in years they are Looking ahead, the global dividends prognosis
covering their dividends with cash. We have is good. Dividends tend to lag earnings, which
been increasing exposure to them gradually are strong, and the tax changes in the US are
over the past 18 months with the additions generating much higher earnings with some
to the portfolio US companies Occidental of that expected to come back in dividends.
Petroleum and Chevron. Commodity prices are higher, which in part will
generate much more sustainable dividends and
PRIORITISING PRUDENCY on top of that interest rates are still low, so I
The purpose of HINT is to provide global think we could see good dividend growth over
diversification and that means maintaining a the next 12 months.
diversified portfolio both geographically and
on a sector basis. The US is our biggest country
weighting (36%), with China (9.3%), France
(8.7%), Germany (8.3%) and Switzerland (8.1%)
completing the top five country exposures.
As well as maintaining sufficient
diversification, it is also important to consider
value. Valuations are important to total return,
income is one part of it, and the value at the
point of investment also has a significant impact
on your longer term capital returns.
The Trust is currently not using the gearing
Before investing in an investment trust referred to in this article, you should satisfy yourself as to its suitability and the risks involved, you
may wish to consult a financial adviser. Past performance is not a guide to future performance. The value of an investment and the income
from it can fall as well as rise and you may not get back the amount originally invested. Nothing in this document is intended to or should
be construed as advice. This document is not a recommendation to sell or purchase any investment. It does not form part of any contract
for the sale or purchase of any investment. Stocks are intended for illustrative purposes only. Janus Henderson Investors, one of its affiliated
advisors, or its employees, may have a position mentioned in the securities mentioned in the article. References made to individual
securities should not constitute or form part of any offer or solicitation to
issue, sell, subscribe or purchase the security.
Issued in the UK by Janus Henderson Investors. Janus Henderson Investors is the name under which Janus Capital International Limited (reg
no. 3594615), Henderson Global Investors Limited (reg. no. 906355), Henderson Investment Funds Limited (reg. no. 2678531), AlphaGen
Capital Limited (reg. no. 962757), Henderson Equity Partners Limited (reg. no.2606646), (each incorporated and registered in England and
Wales with registered office at 201 Bishopsgate, London EC2M 3AE) are authorised and regulated by the Financial Conduct Authority to
provide investment products and services.
© 2018, Janus Henderson Investors. The name Janus Henderson Investors includes HGI Group Limited, Henderson Global Investors (Brand
Management) Sarl and Janus International Holding LLC.
INVESTMENT TRUSTS
£12-14m
New Palace Place
£12-14m
Hollywood Green
£12-14m
Charter Court
£12-14m
Howard Town Retail Park
£12-14m
Timbmet Distribution
£12-14m
Unit 1 March Way
Denby Hall – A regional distibution centre, warehouse or industrial unit. ( Computer generated image) Source: Standard Life Investments website
KEEPING IT SIMPLE
Baggaley says he likes the
SECTOR ALLOCATION
simplicity of this asset type Diversified by asset and location
relative to retail where you need
a good understanding of industry Portfolio % allocation by sector (including cash)
trends and dynamics.
The company recently
completed three acquisitions
for a combined £32.5m (5 Jul). 8%
This included a data centre office Cash
in Birmingham, an industrial
building in Kettering and, 28%
showing that Baggaley is not Office
too dogmatic about his cautious
retail stance, an office and retail
unit in the City of London close
to Bank and Moorgate stations. 50%
‘The purchase of the City Industrial 14%
office reflects an opportunity Retail
to re-enter that market at an
attractive price point, especially
as 20% of the income is secured
against two small retail units
that trade very well and we
look forward to marketing the
two vacant floors to increase Source: Aberdeen Standard Investments, 31 March 2018
the yield on the property,’
Baggaley says.
These deals helped Baggaley Portfolio % allocation by region
recycle some of the cash banked
from asset sales. He sets store
by having the discipline to sell
at the right time – particularly 8%
if there is a risk of a property 8%
sitting vacant or if a building
is likely to require significant
investment in the near future.
Researchers at Edison note 16% 45%
the current 6.5% premium to
net asset value (NAV) is just
below average premiums over South east
one, three and five years with 3% Scotland
the trust issuing shares to limit South west
the premium. 12% North west
Its NAV total return has come
4% 4% London West End
in ahead of the IPD Monthly
Index Funds benchmark on a East Midlands
one, three, five and 10-year view North east
and Baggaley remains ‘cautiously West Midlands
Source: Aberdeen Standard Investments, 31 March 2018
optimistic’ on UK property. (TS)
How diversified do
funds really need to be?
Focusing purely on how concentrated funds are in certain sectors is not always helpful
sectors may be misleading. one basket, especially if the has put his money.
His fund, for example, has fund manager has already For those who are
around a quarter of its assets put all of his eggs in just one concerned about being
in financial firms but these or two baskets.’ over-exposed, using a so-called
include banks, insurers ‘core and satellite’ approach to
and a litigation THE BENEFITS OF investing may be a good choice.
company. He says: CAREFUL RESEARCH This mean picking a wider-
‘These all come under He says investors should be reaching, diversified fund as your
the banner of financials sure to do their research when main holding and then picking
but they’re quite different picking funds to ensure they are out some specialist investments,
businesses, so we may look more not over- or under-exposed to which focus on a particular area
concentrated than we really are.’ any particular sectors. If all of such as healthcare or technology,
His fund takes the best ideas your funds have a bias towards or where the manager has a
from the various other UK funds financial firms, for example, and specific style.
at Jupiter, but there is a cap on there’s another financial Curling adds: ‘Managers
how far overweight it can go on crisis, the value of your need to be very clear about
sector exposure compared to the investments could all fall what their biases and style are
index in case managers have ideas at once. and what risks that exposes
within the same industries. Investors can find out where them to. Investors might think
Becket adds: ‘While managers their money is invested by they are getting generalist all-
should do what they do best, I checking a fund’s fact sheet, which round exposure to the market
also believe in diversification. You will typically show a breakdown and sometimes that is not the
shouldn’t put all of your eggs in of the sectors where the manager case.’ (HB)
The A to Z of fund
share classes
We look at some popular funds to explain what different letters mean for
retail investors
FLOOD OF FIGURES
But that also means growth
forecasts must be met and
margins maintained or increased
to keep stocks going ever-higher.
No-one is expecting a 2008-09
style margin collapse but with
US stocks having done so well
Source: Standard & Poor's
global economy.
Chip-makers’ and chip- 1. US TRANSPORT STOCKS SEEM TO BE LOSING A BIT OF STEAM
equipment makers’ shares are
generally seen as momentum
plays, where earnings growth is
highly prized and valuation less
of a consideration. As such they
can be a good guide to broader
market appetite for risk.
The whole index has sagged a
little and Intel’s numbers on 26
July – and the market’s reaction
to them – could be a key test.
3. Banks
Source: Thomson Reuters Datastream
I
n the past, before
extraordinary monetary
policy became a mainstay
of central bank decisions across
the world, holding bonds in
your portfolio was a popular
way of investing.
Some government bond yields
across Europe have moved into
negative territory due to asset
purchases by the European
Central Bank as prices (which
move inversely to yields) hit
record highs.
And investors looking for
material income from this asset
class in the UK will be sorely
disappointed. David Roberts,
global head of fixed income at
Liontrust, says ‘would I lend
money to the UK government Jackson says. ‘The weakening of portfolio manager at Janus
for 10 years for 1.25%? not a the economy would bring down Henderson, makes the point that
chance’. gilt yields, therefore I don’t see diversification is very valuable
UK government bonds or gilts much interest because in real but only applies to government
are the most easily accessible terms looking at the inflation bonds and to some investment
government debt instrument linked index you’re getting a grade. He adds that riskier bonds
available to UK investors. sizeable negative yield’. act more like equities.
However, there are a plethora He adds that if he was 25 For yield starved investors
of reasons why they might not be years old he would stay away looking for income they offer the
the best type of bonds to hold in from gilts due to the lack of prospect of higher yields but at
this part of the economic cycle. returns, although as someone the cost of going significantly up
Paul Jackson, head of multi-asset gets older the asset class’ use for the risk spectrum.
research at Invesco says there diversification becomes more Although bondholders are
was a time when he was saying interesting. ahead of shareholders in the
that the UK looked the most queue if a company goes bust,
interesting government bond A DIVERSIFICATION TOOL it could still default on its bond
because he thought yields Holding high grade bonds, either payments or coupon.
would go up in line with rising highly rated sovereign bonds or He adds retail investors should
interest rates. triple A investment grade bonds stick to sovereign bonds with the
‘My concern is that Brexit issued by companies can be a main risk to understand being
limits how much the Bank of means of diversifying a portfolio. the direction of interest rates.
England can tighten if at all,’ James de Bunsen, a Once used to these assets, they
“
link between the lowest type of BONDS AROUND THE WORLD
investment grade and the highest With many managers bemoaning
part of high yield or ‘junk’ bonds. the state of the UK gilts at
For Edwards, these People aren’t the moment, where is a good
classifications are ‘arbitrary’. going to lose place for an investor looking for
If I looked at the double B space a lot of money government bonds to go hunting?
in sterling most people would The US is highlighted by a couple
not be worried about these
holding bonds of managers as US Treasuries
companies, the Tescos, the but aren’t going yields have picked up of late.
Sainsburys, the Jaguar Land to make a great John Stopford, a multi-asset
”
Rover of this world. These aren’t deal either manager at Investec, thinks
in investment grade indices.’ Australian state bonds offer
However, Edwards adds that attractive yields at decent prices
the bond market valuations although concedes these are
have been quite rich recently so difficult for UK retail investors
he has moved into government to access.
bonds waiting for corporate His conclusion seems apt,
bonds to become cheaper. It’s ‘people aren’t going to lose a
similar to managers moving lot of money holding bonds but
into cash when equities have aren’t going to make a great deal
become expensive as both either’. (DS)
Understanding Vanguard
LifeStrategy funds and
how they work
We take a look at the competition for this popular series of funds and how
recent criticisms of them stack up
M
any people will have
heard of (and be
invested in) Vanguard’s
LifeStrategy range of funds. The
funds are intended to be a
one-stop-shop for investors,
giving access to different asset
classes at a cheap price.
They have proved popular
with investors, with the amount ‘passive’ funds to get exposure automatically rebalance the
invested in them doubling to to the markets. These funds portfolios every day.
£10bn since February. track a market or index, such as However, a committee of
However, recent action by the FTSE 100, and mimic their people decides whether the
the City watchdog, the Financial performance. allocations should change every
Conduct Authority, that forced The funds are marketed as three months – for example they
asset managers to reveal the costing just 0.22% a year, a low may decide that more money
true cost of funds has shown figure for a ready-made portfolio. should be invested in emerging
the funds to be more expensive However, figures released this markets and less money be
than thought. The funds have year show that the extra costs allocated to the US.
also come under criticism as on the funds, not included in this Because this committee
the investments do not change figure, are higher than many in only meets four times a year, it
according to current market the industry thought. means the funds will not react
conditions quickly enough. These transaction costs, to day-to-day changes in politics,
which include the cost of economies etc. For example,
WHAT IS ON OFFER? buying and selling different the fund allocations would not
There are five funds in the investments, range from change based on the recent
LifeStrategy range, which invest 0.08% for LifeStrategy trade tariff moves between the
in stock markets and bonds. Each 100% (GB00B41XG308) up US and China, or on the latest
fund has a different allocation to 0.13% for LifeStrategy missive on Brexit.
to stock markets, ranging from 80% (GB00B4PQW151) A spokesperson for Vanguard
100% to 20%. The remainder of and LifeStrategy 20% said: ‘We believe that a strategic,
the allocation is to bonds. One (GB00B4NXY349). as opposed to tactical, approach
shortcoming is that the funds do to asset allocation gives investors
not invest in any other assets, WHO DECIDES WHERE the best chance of investment
such as property, commodities THE FUNDS INVEST? success. Market timing is
or infrastructure. Many of the Vanguard funds extremely difficult, even for
The funds invest in low-cost are run by computers, which professional investors.’
“
The funds are built on a years. This compares to 7.5% per
market capitalisation-weighted year over the same time period
basis – the largest companies for its peer group.
in the indices carry a higher During the same period the
weighting than the smallest LifeStrategy 80% fund, which While Vanguard
companies. This means the has 80% invested in global stock LifeStrategy is the
funds have a higher allocation markets, has returned 10.4%
to large companies – which over a year for the past five years,
fastest growing
time may not deliver as high compared to 7.5% per year fund range, there
returns as small or medium-sized over the same five years for its are competitors
companies. peer group. out there.
The funds also have a UK bias.
While the UK makes up around WHAT IS THE COMPETITION? BlackRock,
6% of global stock markets, 25% While Vanguard LifeStrategy is AJ Bell,
of the stock market portions of the fastest growing fund range, L&G and
the Vanguard funds are allocated there are competitors out there.
to the UK. However, Vanguard Asset management giant Standard Life
plans to reduce that over time. BlackRock has a similar set of also have a range
A spokesperson for Vanguard funds, called Consensus. They of funds
”
said: ‘Investors often prefer to have a more flexible allocation
hold more in their home market. to stock markets, for example
Over the past few years we have the BlackRock Consensus 85
been gradually reducing this tilt (GB00B8D7RH96) fund can be
in the fund range.’ between 40% and 85% invested
in shares. The funds typically
HOW HAVE THE FUNDS cost 0.23%.
PERFORMED AJ Bell also has a range fund is mainly invested in shares
Taking a look at the of funds, with annual costs and high-yield bonds. There is
performance the LifeStrategy capped at 0.5%, running from currently no custody charge and
60% (GB00B3TYHH97) fund, Cautious (GB00BYW8RV97) to no charge to buy the funds on
which is the most popular Adventurous (GB00BYW8VG25). the YouInvest platform.
with investors, who have put The Cautious fund invests mainly L&G also has a range of eight
£3.7bn of money into the fund, in bonds and cash-like assets, funds, called the ‘Multi-Index’
it delivered 8.8% performance with a small allocation to stock funds – five target growth while
each year over the past five markets, while the Adventurous three target income. Ongoing
charges range from 0.31% to
“
0.39%.
Standard Life offers the
MyFolio range, which is pricier
Investors often prefer to hold more at between 0.45% and 0.52%
in their home market. Over the past annual costs. The range
runs from MyFolio Market
few years we have been gradually I (GB00B7KSN259), which
”
reducing this tilt in the fund range invests more in cash and
bonds, to MyFolio Market V
(GB00B3T5XZ20), which has
around 90% invested in shares.
Laura Suter,
personal finance analyst, AJ Bell
The retirement
investing mistakes
that could cost
you dear
Some common errors people make when planning for post-work life
S
avers now have almost money from your fund in the TAKING TOO MUCH RISK
limitless options when it near future (and so want to WHEN MAKING BIG
comes to spending and avoid any stockmarket WITHDRAWALS
investing their retirement pot. fluctuations), it is unlikely to be a While taking too little risk in
Flexible rules mean from sensible long-term strategy. retirement could cost you dear
age 55 you can keep your fund In fact, the FCA says over a (see ‘Investing all your fund
invested, take a regular income, 20 year period someone could in cash’), taking too much at
access ad hoc lump sums or increase their annual income by the same time as making big
secure a guaranteed income by a third if they invested in a mix withdrawals could spell disaster
purchasing an annuity from an of assets rather than just cash. for your long-term plans.
insurance company. For many, a You should also remember that, Take someone who invested
combination of these will be the with inflation currently running a £100,000 fund in the FTSE All
most suitable approach. at 2.4%, any money sitting in Share, paying 1% in pension and
Staying invested in retirement cash is losing value in real terms. administration charges. They
gives you the opportunity to withdraw £10,000 a year in
grow your fund and, if you want OVERPAYING IN CHARGES income from their pot.
to, pass it on tax efficiently Small differences in the costs If they started taking an
to loved ones when you and charges you pay for investing income in 2007 – just before the
die. However, there are also your pension pot can make a big financial crisis hit – they would
numerous pitfalls to navigate difference over the long-term. have withdrawn £100,000 by
as you look to make the most When it comes to taking an December 2017 but would only
of the freedom on offer. income, the FCA says the charges have £16,400 left in their fund.
Here are just a few of the levied by providers range from If the same person started
common retirement mistakes 0.4% to 1.6%. taking an income at the end of
you should avoid. By switching from a higher 2008 – at the beginning of the
cost provider to a lower cost bull run – they would have taken
INVESTING ALL YOUR provider, the regulator says £90,000 of income and still have
FUND IN CASH you could increase your a fund worth over £113,000.
According to the Financial annual income by 13%. For While clearly circumstances
Conduct Authority (FCA), the an individual with a pot of can dictate retirement outcomes,
City regulator, around a third of £100,000 this would be an it is important you take these
retirement investors who don’t extra £650 per year. into account when setting and
have an adviser are entirely This is one of the reasons reviewing your investment and
invested in cash. why it’s critical you shop around withdrawal strategy.
While this might be sensible before choosing both a provider
if you are planning to withdraw and pension product. Tom Selby, senior analyst, AJ Bell
FACTS. financial
subscribers benefit
from an investment
toolkit that gives them
the edge and helps
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