Jon Batley, who is in his mid 40s, is building up a portfolio of stocks he hopes will help him retire before State Pension age.
“I can see that the government is going to keep pushing back the age at which people qualify for the State Pension,” he says. “By the time I get to my 60s, the retirement age may well be the wrong side of 70. This has encouraged me to invest. I try to put in what surplus savings I can, with a view to giving me a bit more flexibility.”
Batley has taken a twin-track approach; property and equities. A decade ago he invested in a two buy-to-let properties and he is building up a share portfolio.
He says: “Obviously investing in property means taking on additional debt. At the time I had the option of either moving into a bigger home myself, or investing in a separate buy-to-let, so I stayed in the smaller property.”
Property Delivers Income and Growth
Batley, who lives near Oxford, says that although he would like to expand his property investment at some point, the additional tax charges – which include the second property stamp duty surcharge – mean that this is now a less attractive option.
He adds: “Property has delivered a good rental yield and has not been difficult to let as a whole. We’ve seen prices head upwards as well over this period, after a relatively slow start.”
But Batley is aware the future is less certain: “At the moment mortgage rates remain low. But if interest rates go up and house prices soften it may look less attractive, particularly as these are less tax-efficient investments now.”
This uncertainty has led him to focus more on his investments portfolio. He says: “I prefer to buy shares directly, rather than investing in funds. I think in many cases charges are too high on funds.”
However, to increase diversification he holds a number of ETFs that track core stock markets.
Stock Picking Across the Market
When it comes to his individual shares Batley is mainly invested in UK-based companies. He tries to diversify across sectors and has exposure to both large and small cap companies.
This diversification has seen him invest in a range of companies including Rolls-Royce (RR.), oil giant Royal Dutch Shell (RDSB), property website Rightmove (RMV), biotech company Oxford BioMedica (OXB), and drinks manufacturer Fevertree (FEVR).
Engineering company Rolls-Royce Holdings has a four-star rating, meaning Morningstar equity analysts consider it to be trading below its fair value estimate of £11.40. This well-known company is organised into five customer-facing business: civil aerospace, defence aerospace, power systems, marine and nuclear.
Morningstar analyst Jeffrey Vonk says: “Rolls-Royce is one of only a few firms in the world that can successfully develop and manufacture civil and defence jet engines, which is a key reasons we believe it possesses a narrow moat.”
Vonk points out that the company has attempted to leverage its aero-derivative engine technology into other areas, with has structurally lower operating margins.
From an investor’s point of view returns have been volatile over the longer term. Over a three-year period, shareholders have seen annualised total returns of 9.1%, marginally more than the 8.5% delivered by the FTSE 100.
However, over a longer five year period investors have seen losses of 2.64% a year. This is significantly below the annualised total returns of 6.9% delivered by the FTSE 100.
While Rolls-Royce is a long-standing stock market name, Fevertree is a new kid on the block. This drinks manufacturer – which has just 50 employees – has delivered sparkling returns for investors.
Fevertree manufactures premium mixers for alcoholic drinks and supplies to hotels, restaurants, pubs and supermarkets. Over three years it has delivered total annualised returns of 118.46% for investors, according to Morningstar data.
The FTSE 100 delivered total annualised returns of 8.47% over this period.
Royal Dutch Shell is another FTSE giant. This is another company with a four-star rating, meaning it is undervalued at the current price. Morningstar analyst Allen Good gives a positive assessment of this share.
Good says: “With the restoration of its cash dividend, Shell has demonstrated that it has taken the necessary steps to remain competitive in a world of $60 barrel oil.”
Batley says: “I am trying to build a diversified portfolio of shares. Many pay decent dividends which I reinvest to boost overall returns.
“I have complemented this with ETFs, which track overseas markets, such as the US, Japan and an emerging markets index. I don’t feel I have the time, nor the expertise, to research individual companies in these markets.”
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