Investor Views: I Use Top Funds for My Retirement

Private investor Sean Bagguley is hoping two of the UK’s premier fund managers will help grow his retirement fund

Emma Simon 27 March, 2019 | 2:13PM

Retirement nest eggs

Sean Bagguley has been an investor for a number of years, but he has taken a keener interest in these investments after taking early retirement a couple of years ago, in his mid-50s.

Bagguley, who worked in sales for an investment firm, has a particular system when it comes organising his finances, which involves maximising returns on his cash savings, while investing for the longer term.

He explains: “I have cash savings that should be sufficient to see me, and my wife, through the next two years.

“I try to make the most of the various higher interest savings accounts available. A lot of these are regular savings accounts so you need to invest a fixed amount - say £1,000 a month - to get the best interest rate.

“It takes a bit of organisation to maximise these payments, but it is definitely worth it. There are some good rates out there, you just have to hunt them down and jump through a few hoops to get them.”

Both he and his wife have ISAs to ensure their savings are as tax efficient as possible.

Bagguley, who lives in Staffordshire, also has a SIPP and ISA with AJ Bell. He says: “Although I’m retired I am still looking for growth on these investments, so am prepared to take a bit of risk with my money.”

He is not a fan of fixed income and would rather stay invested in equities with his SIPP. He says: “I don’t think fixed income looks that low risk at present, and it certainly doesn’t offer the same potential to deliver real returns that equities offer.

“I have a reasonable amount of money in cash, and I also have a property, so I feel that they are the lower risk parts of my portfolio. With this in mind I think it makes sense to take a bit more risk with my investments.”

Switching From Shares to Funds

Bagguley says that over the past year though he has changed his strategy completely, when it comes to his investments.

“Previously I had built an extensive portfolio of direct shareholdings. To build this portfolio I analysed the different economic sectors and tried to buy the two or three best holdings in each sector. It was a very factor-based approach, but the returns were somewhat mixed.”

More recently Bagguley has switched the bulk of his portfolio into collective funds instead.

He says: “I appreciate that you pay a little more to have a manager running a fund, but I was coming to the conclusion that if you get the right people running your money, you will hopefully get a better overall return.”

This has also cut down on the amount of administration and research he has to do. It has also enabled him to have a more global portfolio: “My previous holdings were very UK-focused.”

When it comes to the individual funds, the bulk of his investments are split between three funds.

These include Fundsmith Equity, run by Terry Smith, as well as the new investment trust he has recently launched, called Smithson (SSON).

Fundsmith Equity has a coveted Gold Rating from Morningstar. It also have a five-star rating, reflecting its stellar performance versus peers in recent years.

Morningstar analyst Peter Brunt says: “This is one of the strongest options for investors seeking exposure to high-quality global equities.”

Terry Smith founded Fundsmith and launched this fund in 2010. Brunt says Smith’s investment philosophy is to buy and hold — ideally forever — high-quality businesses that will continually compound in value.

Brunt explains that in this case “high-quality companies” are defined as “having little need for leverage, an above-average cash return on operating capital employed, and an ability to sustainably grow at this rate of return.”

The fund has a large cap bias, and Brunt says investors should be aware that this is a high-conviction, long-term approach, so there is the potential for shorter term volatility or under-performance due to sector concentration.

However Brunt adds: “We believe Smith has a good handle on the risks. [Smith] has developed a very strong track record on this fund. We believe he has added significant value above and beyond the fund's style bias.”

Smithson Investment Trust follows the same process, but with a small and medium-cap bias. The trust only launched last year, so has yet to establish a one- or three-year track record. But Bagguley says he has been pleased with the returns to date.  The trust shares are currently trading on a 3.18% premium, according to Morningstar data.

Lindsell Train Highly Concentrated Portfolio

Bagguley’s other main investment is in Lindsell Train Global Equity. This is Silver-rated fund and like Fundsmith Equity, has a five-star Morningstar rating.

Bagguley says he decided to invest in this fund as he was also impressed with the managers’ track record. The fund is run by Nick Train and Michael Lindsell. Nick Train also runs the Lindsell Train Investment Trust (LTI) - but Bagguley was reluctant to invest in this at it is currently trading at a large premium.

According to Morningstar data, shares in this investment trust are currently trading at a premium of 68%.

When it comes to the Global Equity Fund, Brunt describes it as a “standout choice” for investors comfortable with a highly concentrated portfolio that can look markedly different from the MSCI World Index at regional and sector levels.

The investment philospohy is similar to Fundsmith. Brunt says: “The crux of [Lindsell Train’s]’ investment philosophy lies in the belief that a highly concentrated portfolio of high-quality, cash-generative, strong, and easily understood business franchises will outperform the market and reduce volatility over the long term.”

Over the past five years this fund has produced annualised returns of 19.12%, while the Fundsmith Equity fund has produced annualised returns of 20.61% over the same five year period.

Bagguley says that while he intends to stay largely invested in funds, he will invest in the odd direct shareholding, if he thinks it offers the opportunity for reasonable gains.

For example he recently bought shares in AJ Bell (AJB) itself when the company listed on the stock market. He says: “I made a 82% return on my money in a relatively short space of time, but decided that I shouldn’t get greedy and should cash in these gains.”

Bagguley concedes that his fund holdings are higher risk. But he says: “I am probably a compliance nightmare, but I am comfortable taking this level of risk for now.

“When I need to start taking an income from his SIPP I will probably move to slightly lower risk holdings but hopefully that won’t be for a few years yet.”

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
AJ Bell PLC424.00 GBX0.00
Fundsmith Equity I Acc4.81 GBP0.06
Lindsell Train Global Equity B GBP Inc3.99 GBP-0.18
Lindsell Train Ord1,510.00 GBP-0.49
Smithson Investment Trust Ord1,248.00 GBX-0.16

About Author

Emma Simon

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

Audience Confirmation


By clicking 'accept' I acknowledge that this website uses cookies and other technologies to tailor my experience and understand how I and other visitors use our site. See 'Cookie Consent' for more detail.

  • Other Morningstar Websites