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Investor Views: "I'd Like to Reduce my Inheritance Tax Bill"

Private investor Kenneth Shaw has built a sizeable investment portfolio which he hopes to pass on to his grandchildren

Emma Simon 31 January, 2017 | 8:00AM
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Kenneth Shaw, 71, only started investing seriously in the last 10 years, after he reduced his working hours, and then retired from his job as a sales director for a large telecommunications company.

He explained: “I’d dabbled in investing in the past but have only really been taking a more serious interest in investments in the last six to eight years. During this time interest rates have fallen and the return I’d have got from keeping my money in the bank has plummeted. So all in all I’ve been very happy with my investments.”

Shaw his wife, who live in South London, invest in both funds and direct shareholdings, which are held in an ISA and ordinary investment account with Selftrade.

He says: “The ISAs are obviously more tax efficient, but some years we’ve invested more than the annual allowance so we have had to invest outside of this tax shelter.” Shaw does not invest in a SIPP as he has a generous workplace pension.

He adds: “I have a good company pension from my previous employment, where I worked for AT&T and IBM, so haven’t felt the need to invest in a separate pension arrangement.”

Long Term Stock Picks

Shaw picks stocks which he believes will provide a solid reliable return. He says: “I want to invest in companies that I can feel confident aren’t going to disappear in the short term.”

As a result he says he invests in a number of large blue chip companies that pay steady dividends. These include stalwarts such as National Grid (NG.) and GlaxoSmithKline (GSK)

National Grid has a three-star rating from Morningstar equity analysts: reflecting the fact that that they believe the company is trading at fair value. Recently this utility company distributed £4 billion to shareholders, following the sale of one of the gas distribution it owns. Morningstar said the decision to return capital to shareholders represented “good stewardship”.

Meanwhile GlaxoSmithKline has a four-star rating from Morningstar, indicating that the pharmaceutical giant is trading below fair value at its current price. Analysts point out that the company has an innovative and expansive list of patent-protected drugs. These have helped it create a wide economic moat, meaning its market share is well protected from competitors.

Fund Picks for Risky Markets

Outside of his ISA, Shaw says he’s prepared to take a bit more risk with his money, saying: “I wouldn’t say I have a tried and tested method for picking funds. Often I go with my gut feeling, but will spend time doing a bit of research to justify it.”

He says he tends to think first about what sectors he wants to invest in, then uses sites, such as Morningstar.co.uk, to get an idea of which funds within this sector look attractive.

“There’s no hard and fast rule, but I tend to prefer medium-sized funds, and often those that are investing more in mid-cap companies,” he says.

He fears that some very large funds can suffer because of their size. He says: “If they make a wrong call it can take quite a long time from them to correct this. They can feel a little unwieldy.”

Shaw invested some money in India shortly after the current prime minister, Narendra Modi, came to power, choosing Franklin India Fund and Fidelity India Focus.

The Franklin India fund has a four star performance rating from Morningstar, reflecting its strong performance in recent years. The fund has a Silver Rating, reflecting analysts confidence that it will continue to outperform its peers in the future.

Morningstar fund analysts say: “The Franklin India fund continues to be a strong choice for India-equity exposure. The fund benefits from a seasoned portfolio manager in Asian CIO Sukumar Rajah, who ultimately heads the Chennai-based India team. Rajah has spent his whole career covering Indian equities and has acquired very valuable experience and knowledge of the Indian market over this period.”

Fidelity India Focus is another Silver Rated fund. Morningstar says: “Amit Goel was appointed portfolio manager in April 2016, but portfolio advisor Sandeep Kothari is the key man behind our deep conviction.”

Morningstar describes Kothari’s ability and insight as “amongst the most impressive we have come across in this sector.” It added that decisions are based on “a bedrock of robust stock-level research”.

Investing in the Future of Europe

Shaw decided to move some of his money out of UK funds ahead of the European Union Referendum, explaining: “I didn’t think we would vote for Brexit, but I decided this was a sensible precautionary step in case the vote went that way. At the time, when the results came through I thought I’d made a shrewd move – but from seeing what has happened to the UK stock market since I’m not sure it was the right decision.”

When realigning his portfolio he invested in the Threadneedle Pan Europe Small Cap Opportunities, and Aberdeen Emerging Markets Equity– a top performing five-star fund, which also has a Silver Rating.

Shaw has not sold out of UK funds completely: he still has a holding in the three-star rated Baillie Gifford British Smaller Companies, which he has held since March 2014.

“This has certainly performed well for me. But it has been a very benign period to have been invested. Most funds have done pretty well over this time frame,” he said.

Investing for Growth in Retirement

Shaw is not interested in shifting his investments into less risky assets now he is retired.

“I have a good pension that is easily enough to live on. I’m not looking to generate an income particularly from these investments, hopefully some of them will be able to be passed on to my children and grandchildren. I don’t have any particular financial problems – apart from inheritance tax.”

He says: “In an ideal world I’d die poor, but have all the money I’d need up to that point. Obviously in the real world this isn’t possible. It’s a juggling act between minimising tax, but making sure there’s still enough funds to support myself and my wife as we age.”

To this end, he has set up a small trust for his grandchildren. “In the next few years start to look at more esoteric investments, like venture capital trusts which can be more tax efficient for IHT purposes. I quite like a bit of a gamble and these do look attractive.”

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.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Baillie Gifford British Smlr Coms A Acc900.41 GBP-0.32Rating
Fidelity India Focus A-EUR73.21 EUR-1.41Rating
Franklin India A(acc)USD52.10 USD-1.35Rating
GlaxoSmithKline PLC1,554.80 GBP0.00Rating
National Grid PLC1,024.80 GBP0.00Rating
Threadneedle (Lux) Pan Eurp SmCp Opps AE59.95 EUR-0.20Rating

About Author

Emma Simon

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