Investor Views: "3 Funds to Get Me on the Property Ladder"

Private investor Ben Evans started saving into pensions and ISAs from a young age and is now investing to buy his first house

Emma Simon 3 May, 2018 | 9:20AM

Housing market property ladder

Ben Evans may only be in his early 30s, but he is already an avid investor. Evans says this is down to the savings mentality he inherited from his father.

“Even when we were younger he encouraged us to save some of our pocket money, or later the money we earned from Saturday jobs. Often, he would offer to pay us a bonus if we managed to save a fixed amount. It was a good way of encouraging us to get into the savings habit,” he explains.

His father also encouraged him to start a pension once he left university and started full-time work. “At the time I thought this a bit excessive. But Dad is an accountant, so he is very switched on when it comes to money,” Evans says.

“I nearly didn’t take his advice, but I’m glad I did. A few years later the company automatically enrolled all the employees in a pension anyway, but I have had a few years’ head start.”

At the moment his main savings priority is putting together a deposit for his first home: “I used to invest more into my work pension, but at the moment my girlfriend and I are saving into an ISA and hope to buy a property this year.”

Evans, who works for an advertising agency in Manchester, took out a Help to Buy ISA with Nationwide. This is a cash savings account which the Government tops up by an additional 25%. Savers put in a maximum of £200 a month – and can deposit a lump sum of £1,000 when they first open the account.

Evans says: “This money is ring-fenced for our first home. I have also been saving into an investment ISA and will hopefully use some of these savings too as part of the deposit.”

Evans noticed he had much better returns on his annual pension statement than on his cash savings, which encouraged him to start an ISA.

He adds: “I know investment is a bit of a gamble, but it doesn’t seem like a huge one given the relatively low returns on our cash savings.”

Funds for an ISA Portfolio

Evans opened an ISA through the online platform offered by stock broker Charles Stanley. He currently splits his monthly payment into three funds, but says he hopes to further diversify as he builds up these savings.

The three funds he invests in at present are Fundsmith Equity, BlackRock UK Absolute Alpha and Vanguard US Equity Index.

He says: “I’ve tried to hedge my bets a bit. I did a bit of research, and opted for the absolute return fund as a more defensive holding. Hopefully this won’t fall in value too much.

“I’ve then split my money between a highly active fund, where the manager has a good track record, and a lower cost tracker fund.”

Evans says in future he’s also like to add another global or emerging market fund. But he says: “This all seems a bit more risky, so for now I’m sticking with these funds.”

3 Top Rated Choices

All three of these funds are highly rated by Morningstar. Fundsmith Equity has a highly-coveted five-star performance and Gold Rating. Morningstar analyst Peter Brunt says: “This is one of the strongest options for investors seeking exposure to high-quality global equities.”

The fund is managed by Terry Smith who launched the company in 2010. He has a long and successful track record of working in the investment industry.

Over the past five years investors in the fund have received annualised returns of 18.3%, according to Morningstar data.

Brunt says: “Smith's investment philosophy is to buy and hold, ideally forever, high-quality businesses that will continually compound in value. Investors should be aware that this is a very high-conviction and long-term approach.”

BlackRock Absolute Alpha has a Bronze Rating. As the name suggests this fund aims to deliver positive returns, regardless of underlying market performance, on an annual basis. Evans says he appreciates such returns aren’t guaranteed but he hopes that this will offer some protection for his savings if markets do take a tumble from here.  

Manager Nigel Ridge uses both long and short strategies to help meet the fund’s objectives. Despite its more cautious outlook it has delivered annualised returns of 4.98% over the past five years.

Keeping Investing Costs Down

Vanguard US Equity is another highly rated fund that has both a five star performance rating and Gold Analyst Rating.

Morningstar analyst Monika Dutt says: “This is a very cheap one-stop solution for access to the whole US equity market. 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.”

Dutt points out that the fund’s ongoing charge of just 0.1% is highly competitive when compared with both active and index funds in this sector.

However, Evans points out that while the low cost was an attractive feature, he does in effect pay more as he has additional platform charges to pay.

He says: “Ideally I am trying to keep the costs of investing down. But it can be quite confusing when looking at costs of different funds through various platforms.”

Evans invests on a monthly basis. “It isn’t a huge amount, but it is quite striking how the value of this ISA has increased significantly over the past couple of years. It’s certainly been more impressive than my cash savings.”

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
BlackRock UK Absolute Alpha D151.50 GBP-0.13
Fundsmith Equity I Acc4.85 GBP0.17
Vanguard US Equity Index Acc512.73 GBP-0.72

About Author

Emma Simon

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

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