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Investor Views: "Should I Consolidate My ISA Holdings?"

Private investor Luca Trentino is investing for the long term, blending a mix of actively-run funds with low-cost trackers

Emma Simon 6 July, 2017 | 10:05AM

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Since getting on the housing ladder five years ago, Luca Trentino is now concentrating on saving for the future.

Trentino, who is in his late 30s, says most of his spare cash in the past was earmarked for saving for a property deposit. “When you are young and working in London it is not easy to save money. We were fortunate, my parents and my wife’s parents were able to help, and I have a good job as a risk assessor for an insurance company meaning I could also contribute lumpsums.”

Now that the financial goal of buying a property has been achieved, Trentino is looking further into the future; he has increased payments into his company pension, and has also started to invest in an ISA.

He says: “We don’t have children yet, so I want to maximise savings while I can. We don’t have anything specific in mind, just some funds for the future. I have a work pension, but it would be nice to have a nest egg we can rely on.”

Top Rated Passive Funds Form Portfolio Core

He says: “We did have some ISA savings prior to this. I had an L&G ISA, invested in their FTSE All-Share tracker. But I stopped putting money in when values started to fall after the financial crash. We knew we needed the money for a deposit, so concentrated on a cash ISA instead.”

But he says the money invested has done quite well since; “It’s worth a lot more now, even though I haven’t added to it for eight years.”

This Silver Rated index fund has a four-star rating from Morningstar. It has earned this favourable rating after performing well against both active and passive peers in recent years, and has delivered consistent above-average returns over the longer term.

Trentino says that at the time he took out this ISA direct with L&G. He’s subsequently opened an investment ISA account with Charles Stanley, but isn’t sure whether or not to consolidate his holdings.

“I opened the account with Charles Stanley because they seemed to offer one of the most competitive platform charges, and a wide-range of funds.”

He says: “L&G seem to say that the charges on this tracker fund are 0.5%. I could buy this fund through a platform like Charles Stanley for less, but then would have to add on their platform fee as well, so I’m not sure I would be better off. For now I’ve left it where it is.”

Diversifying Geographically

Alongside this UK tracker, Trentino wanted lower cost funds that tracked different geographical regions. He added L&G European Index Trust and Vanguard Emerging Markets Index, both Bronze Rated by Morningstar fund analysts, and HSBC American Index, which has a coveted Gold Rating, to his portfolio.

Talking about the HSBC American Index fund, Morningstar analyst Monika Dutt says: “It is difficult for active managers to outperform US large-cap benchmarks, so taking a passive investment approach to this asset class makes a lot of sense.

“Consistent with this view, this fund’s risk adjusted returns have ranked in the top quartile of its Morningstar Category, which includes both passive and active funds during the trailing three-, five-, and 10-year periods.”

Trentino makes monthly payments into his Charles Stanley account which is split equally between these three index funds.

He adds: “I’ve also been making odd one-off payment too, usually when I have a clearer idea what my bonus might be. I’ve tried to be a bit more adventurous with these investments.”

Adding Active Funds to the Mix

Last year he made an investment into Schroder Recovery, which has a Silver Rating from Morningstar. The fund, which is managed by Kevin Murphy and Nick Kirrage targets out of favour and under-valued companies that still have strong fundamentals.

Morningstar’s Peter Brunt says: “2016 marked a successful 10-year anniversary for managers Kevin Murphy and Nick Kirrage on this fund. It remains one of our higher-conviction ideas within the deep value UK equities space.

“Kirrage and Murphy have demonstrated a strong working relationship and shared a sound investment philosophy since taking over the management of this fund in July 2006. … Our conviction remains high in the managers ability to continue to add value on this strategy over the long term.”

Elsewhere, Trentino says he has made investment in Fundsmith Equity, which has a Gold Rating and five stars, reflecting its outstanding performance in recent years.

This is a global fund, but unlike the index funds he invests in, this fund takes a far more focused and unconstrained approach to investing. The manager, Terry Smith’s aims to buy and hold, ideally forever, high-quality businesses that will continually compound in value. This can lead to significant biases within the fund, but in performance terms it has been in sweet spot for the last few years.

Brunt says: “Investors should be aware that this is a very high-conviction and long-term approach. There are elements of sector concentration and valuation risk in the portfolio, and returns may look at odds with the broad MSCI World Index over the short term. We believe Smith has a good handle on the risks, however, and over the long term will serve investors well.”

 

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

Securities Mentioned in Article
Security NamePriceChange (%)Morningstar
Rating
Fundsmith Equity I Acc3.56 GBP-1.07
HSBC American Index C Acc5.04 GBP-0.55
L&G European Index I Acc420.41 GBP-0.56
L&G UK Index I Acc297.60 GBP-0.17
Schroder Recovery A Acc21,030.04 GBP0.14
Vanguard Emerging Mrkts Stk Idx GBP Acc224.03 GBP1.23
About Author Emma Simon

Emma Simon  is a financial journalist, specialising in investment and consumer issues, writing for Morningstar.co.uk