Investor Views: "I Want Terry Smith Running My Pension"

Private investor Richard Marsh has concentrated his pension savings to a handful of star fund managers

Emma Simon 12 February, 2018 | 11:22AM

Richard Marsh says his investment philosophy is not too different from his strategy for winning Monopoly. “The trick is to buy what you can and, if necessary, borrow to do so. It seems to me that those who don’t take opportunities when they arise rarely have the most at the end of the game.”

To this end he has always tried to maximise his borrowings when it comes to property, and has invested what he can in the stock market.

Marsh has dabbled in investments for quite some time: “It started when I was a student. At the time I didn’t have much money but I wanted to get more of it. I started reading the Financial Times and looking at shares and funds. I enjoyed it. I qualified as a lawyer but have since worked in financial services as it’s an area that interests me.”

Marsh says: “I am retiring in the next few years, but I will probably still keep my mortgage. Borrowing, provided it’s done sensibly, seems a good way to boost your net worth.”

He has seen “huge gains” in the value of his family home over this years. This has enabled him to invest more substantial amounts into his ISA and pensions.

He says: “I am lucky as I also have a final salary pension. But I’ve also invested any surplus cash into the stock market to generate additional savings.”

Leaving the Stock Picking to the Professionals

Marsh has learnt to leave the asset selection to the professionals. “I started off investing in smaller company shares and other direct shareholdings. But in recent years I have switched to funds. They are simpler to administer, less risky and there are fewer compliance issues, given my line of work.”

Initially Marsh tried to build a balanced portfolio, with 60% exposure to equities, and 40% in bond markets. To do this he invested in both multi-asset funds as well as absolute return funds offered by the likes of Aviva and Invesco.

But Marsh was unimpressed: “The returns weren’t particularly attractive. Some would make modest gains, others modest falls. I got a bit bored of watching these funds do nothing at all.”

He noticed one or two equity-only funds were performing much better.

“As a result, I’ve made the decision to concentrate my investments,” he says. “I now have around 80% of my portfolio with Fundsmith Equity, managed by Terry Smith, and a further 15% is invested with Lindsell Train.”

Marsh has split this 15% between Finsbury Growth & Income (FGT) the investment trust run by Nick Train, and Lindsell Train UK Equity, the open-ended fund run by the same managers.

Fundsmith Equity is a Gold rated fund with a five-star performance rating, reflecting not only the strong returns in recent years, but Morningstar’s confidence that the manager, and the process he follows, will continue to deliver strong returns for investors.

Analyst Peter Brunt says: “This is one of the strongest options for investors seeking exposure to high quality global equities. Terry Smith co-founded and launched this fund in 2010 on the back of the success he achieved as investment advisor to the Tullett Prebon pension fund.”

Brunt adds: “He is an original thinker and has often demonstrated his willingness to bet against the crowd. Smith's investment philosophy is to buy and hold, ideally forever, high-quality businesses that will continually compound in value.”

Smith’s style means there are elements of sector concentration, and this fund excludes large parts of the market. But Brunt adds: “We believe Smith has a good handle on the risks, however, and over the long term will serve investors well. While returns have benefited from style tailwinds since launch, we believe Smith has added significant value above and beyond the fund's style bias.”

Gold Rated Funds Make the Grade

Lindsell Train UK Equity Fund is another Gold rated fund, with a five-star performance rating. Morningstar analyst Simon Dorricott says: “We believe Lindsell Train UK Equity benefits from the stewardship of a seasoned and talented UK equity manager who has demonstrated a consistent approach.”

Dorricott adds: “Train's process is differentiated and has proved successful across a variety of market conditions. He looks for unique and high-quality companies that offer a high and sustainable return on equity, show low capital intensity, and are cash-generative. The result is a concentrated portfolio with clear biases relative to peers and the FTSE All-Share Index.”

Marsh says he chose both funds on the back of the managers’ long-term track records. He says: “I prefer to be backing a fund manager who has convictions and acts on them, seeking out the best ideas to deliver long-term outperformance.”

He says he likes the way that both have a ‘buy and hold’ approach, which means a relatively low turnover.

High Risk ETFs for Greater Gains

Alongside these core holdings Marsh says he also invests in some slightly “racier” investments, including a couple of geared ETFs, which aim to deliver two or three times the gains of the index they replicate. These he says are from Direction and Proshare, one of which offers geared exposure to a global healthcare index.

He says: “This is what I call the sex and violence bit of my portfolio. These have the potential to deliver high returns, but they are high risk, and could make significant losses too.”

He bought these, alongside his fund holdings through AJ Bell. He adds: “They offer a range of options, from these specialist ETFs to more general funds. Although I did try to buy some Japanese warrants and was unable to do so as these are not FCA-registered investments.”

Marsh says he may be approaching retirement, but he isn’t concerned about his relatively high-exposure to equities. “Bonds have traditionally been a safer haven, but they are looking very expensive at the moment.

“I’m confident that managers like Terry Smith will deliver good returns over the longer term. He has said in the past that he does he best work when markets are down, so I’m hoping that he will continue to deliver, relative to the market, even if gains are less buoyant from here.”

His portfolio has overweight exposure to healthcare, technology and consumer staple stocks: “I believe these are the areas of the market that will do well over the long term, I think this gives me more protection that exposure to the bond market.”

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
Finsbury Growth & Income Ord748.00 GBX-0.40
Fundsmith Equity I Acc3.75 GBP-0.26
LF Lindsell Train UK Equity Acc388.62 GBP1.05
About Author Emma Simon

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