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Investor Views: "Brexit Hit my Investment Portfolio"

Retired investor Peter Vickers has built up a sizable pension thanks to his clever stock selection, but has seen some investments falter thanks to Brexit

Emma Simon 14 February, 2018 | 2:38PM

Brussels Europe Brexit stock market fall UK FTSE 100

Despite losing the vast majority of his savings in the technology bubble, Peter Vickers has built up pension savings that he hopes will provide “an above average income” in retirement.

Vickers and his wife retired seven years ago and have been living off their investment portfolio since then.

Vickers, who is now 65, started receiving the State Pension last year, so his withdrawal requirements have reduced. His wife is due to get her State Pension in 2021.

He says that the couple aim to grow their investment portfolio by around 10% a year as this should help them preserve their capital, despite the income withdrawals.

Vickers, who worked in information management, says: “At current levels we are confident this will provide us with above average income for the rest of our lives.”

His investment portfolio is largely invested in direct shareholdings and ETFs. He typically has around 50 shareholdings in his portfolio, although at times this has been higher.  Vickers follows the share price movements of around 200 individual companies and indices.

He adds: “I am moving away from individual shares and preferring index trackers as appropriate. However, I am still find smaller company shares an attractive option because of their potential for substantial growth multiples.”

Large Cap Stocks Prove Rewarding

Despite this interest in smaller companies, some of Vickers’ most successful investments in recent years have been in larger company shareholdings. This includes advertising agency WPP (WPP), insurance giant Prudential (PRU), the housebuilder Persimmon (PSN), and online fashion retailer Boohoo.com (BOO).

All have delivered strong returns in recent years.

WPP has a four-star rating from Morningstar equity analysts, meaning they consider it undervalued.  Over the past five years this company has delivered an annualised return of 8.3% to shareholders.

Morningstar analyst Ali Mogharabi, says: “We are confident that narrow-moat WPP can leverage its valuable intangible assets around its brand equity and the strong reputations of its various ad agencies around the world to gain further traction in the emerging markets, while maintaining its market leadership in the developed ones.”

He adds: “With various account wins in 2017 we believe the firm can return to a more consistent organic growth trend this year. Our valuation of WPP remains at £16.40 per share, which represents a 23% upside from where the stock is currently trading.” 

Over the past five years, the insurance giant Prudential has delivered an average annual return of 16% shareholders, compared to an annualised return of 6.42% on the FTSE 100.

Morningstar analyst Henry Heathfield says: “Prudential is a strong operator in two of its three core markets. While Asia is its long-term growth focus, the United States is the largest producer of operating profit and provider the highest operating return on equity.”

Housebuilder Persimmon has benefited from the rise in house prices, as well as Government-subsidised schemes such as Help-to-Buy. Over the past five years shareholders have seen an annualised return of 25% according to Morningstar data.

Stock Picks that Haven’t Paid Off

However, Vickers freely admits that not all of his investments have proved to be so lucrative. He says: “I have tended to be inefficient in running my winners and getting rid of my losers, which is a key to wealth creation.”

His investments in BT Group (BT.A) and Barclays (BARC) have not netted him decent returns.

Morningstar analysts say BT’s shares are undervalued, despite noting that its recent third quarter results “were a bit light”. Morningstar analysts say they are maintaining its 370p per local share fair value estimate and narrow moat rating.

Meanwhile Barclays analyst Derya Guzel says that while the bank has made good progress in restructuring, litigation and conduct cost risk remains. Last year Morningstar lower its fair value estimate for the bank of 220p per share, down from 250p. Guzel prefers Lloyds over Barclays in the UK banking space.

Brexit Subdues Returns

Vickers says that while he has invested in some underperforming shares there has been “no major disasters” as the risk have been well spread over his portfolio.

But he does say returns have been more subdued over the last two years, mainly due to the unforeseen repercussions of Brexit. This has adversely impacted a number of domestic UK-focused companies, in favour of dollar-earning heavyweights.

He adds he wasn’t too dismayed to see the recent falls across a number of global stock markets. “Quite frankly I’ll be pleased when the current secular bull has run its course and I can start wearing my bear hat more tightly,” he said.

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
Barclays PLC200.05 GBX0.78
boohoo.com PLC188.25 GBX2.42-
BT Group PLC228.40 GBX1.22
Persimmon PLC2,423.00 GBX-0.08-
Prudential PLC1,839.00 GBX0.77
WPP PLC1,471.00 GBX4.18
About Author Emma Simon

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