By continuing to use this site you consent to the use of cookies on your device. Find out more about our cookie policy and the types of cookies we use by clicking here

Investor Views: "Risky Trusts are Funding my Retirement"

Private investor Martin Seach uses a range of investment trusts to access global stock markets

Emma Simon 11 January, 2018 | 7:41AM

Private investor Martin Seach invests in Russia

Martin Seach has been putting money into investment trusts for the past twenty years. He began investing in his 30s, when having a family made him consider his financial future.

He says: “At the time I had an endowment policy, which I’d taken out with my first mortgage, but it was showing a pretty average return. I wanted to invest for the future. We had a young family, so I started to look at what other options there were.”

Seach, who works in marketing and communications, says: “I did a bit of research and liked the idea of investment trusts. At the time at least, charges were lower than open-end funds, and they didn’t seem to waste money on marketing or paying financial advisers.”

He also likes the fact that investment trust shares can move to a premium or discount – although he points out this hasn’t always worked in his favour.

“I’ve bought quite a few of my current holdings when the shares have been trading at significant discounts,” he says. “But I’ve learned you shouldn’t expect these discounts to disappear completely. In some cases they have widened. But these are long term holdings so I try not to worry about that too much.”

Looking for a Long Track Record

Over the years Seach has built up a portfolio of 15 to 20 funds, mostly investment trusts. He has tried to buy into investment trusts that have good long-term track records.

“When you look at the dividend records of some trusts it’s staggering,” he says. “Of course, since the financial crash many of these trusts have been highly sought after and have moved to trade on a premium. But I invested in a few good income-paying trusts prior to this, and they have delivered reliable returns.”

One of his favourite income trusts in recent years has been Scottish Mortgage (SMT). Run by Baillie Gifford, this trust has a five-star rating, reflecting its strong performance against peers in recent years. It also has a coveted Gold Rating, showing Morningstar fund analysts remain confident that the trust’s managers will continue to outperform in future.

Morningstar analyst David Holder points out that “this isn’t a trust for widows and orphans”, meaning the returns can be volatile. It has a relatively large exposure to unquoted companies, the trust can invest up to 25% of its assets in these unlisted stocks.

Holder says: “The investment approach followed here focuses on identifying high growth companies, and holding them for the very long term to gain the benefit of compounded growth. These companies will often have been new entrants or disruptors into a region or industry.”

He adds: “This fund is exceptionally competitive among its category peers for very active management and is, in our view, a unique approach to investment in today’s world.”

Using the Professionals to Access New Frontiers

Seach, who lives in Hampshire, uses investment trusts to access overseas markets. He says: “I wouldn’t know how buy Japanese or Russian shares directly. But many specialist and global investment trusts give you exposure to these markets.”

For example, he holds Baillie Gifford Shin Nipon Trust (BGS), JPMorgan Global Emerging Markets Income Trust (JEMI) and BlackRock Emerging Europe Trust (BEEP).

The Shin Nipon Trust, which invests in Japanese smaller companies, also has a five-star performance rating from Morningstar analysts. Over the past five years, its share price has risen by an average of 35% a year, every year.

JPMorgan Global Emerging Markets has a Bronze Rating. Morningstar analyst Simon Dorricott says: “Despite changes to management responsibilities over recent years, JPMorgan Global Emerging Markets Income remains attractive.”

The fund is now managed by Omar Negyal, who took over as lead manager in 2015. Dorricott adds: “The strength of resources, robust process, and the performance success of the strategy continue to make this an attractive offering.”

The BlackRock Emerging Europe Trust is another Bronze-rated trust. As the name suggest this invests in companies that are based, or do business in Russia, Eastern Europe, Turkey and Central Asia. Again, the trust has outperformed its benchmark in recent years. Its shares have returned 23% annualised over three years.

Trusts to Provide a Retirement Income Boost

For now, Seach is content to take on risk with his investments, as he has a back-up retirement income. He says: “I have an older final salary pension. It won’t pay out a huge amount when I get to 65, but it will provide a reasonable level of income, when combined with the State Pension.”

As such, he plans to keep his portfolio invested after retirement and draw an income from it as and when he needs these funds, rather than cash it all in.

“I’m planning to stick with some of these higher risk trusts,” he says. “I have a few more ‘safe and steady’ global funds in there, and ones that pay good dividends. At the moment I reinvest these dividends, but I’m am hoping this will supplement my pension income later in life.”

Seach keeps most of his investment trusts within an ISA portfolio, but also has a separate investment account:“I use a couple of online investment and stock broking services, including Hargreaves Lansdown and Charles Stanley.”

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
Baillie Gifford Shin Nippon Ord916.00 GBX0.88
BlackRock Emerging Europe plc381.50 GBX0.79
JPMorgan Global Emerg Mkts Inc Ord133.50 GBX2.30
Scottish Mortgage Ord458.40 GBX1.78
About Author Emma Simon

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