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Investor Views: "My Best Returns Have Been from Emerging Markets"

Investment analyst Laith Khalaf tells Morningstar how he manages his own personal portfolio for long-term growth

Emma Simon 2 February, 2017 | 8:35AM
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As a senior analyst for investment platform Hargreaves Lansdown, Laith Khalaf is frequently quoted in the media with his views on stocks, funds and market trends.

This research is often focused on news-led events: from the Brexit vote, to a FTSE 100 company publishing their annual results or issuing a profits warning. But when it comes to investing his own money Khalaf says it pays to ignore the “noise” of day-to-day events and take a longer-term view.

He says: “It’s shouldn’t really come as any surprise the learn that the investments that have performed the best in my portfolio are the one I’ve held the longest.”

Khalaf, who is 38, has been investing for around 15 years.

“Working in the financial sector certainly helps. You soon understand that no-one else is going to save for you, so it makes sense to starting putting aside what you can, when you can,” he says.

Khalaf has tried to build up a decent investment portfolio from an early age, saying: “I’m partly saving for my retirement and partly building up rainy day savings, to tide me over any future financial shocks.”

Most of his investing is tax-efficient, using ISA and SIPP wrappers, and within these he invests largely in funds, but says he does also have some direct shareholdings.

“I’ve tried to build as big a pot as I can, as quickly as possible,” he says. “There’s the danger of course of saving too much for retirement at the expense of today, but I think this would be a nice problem to have.”

Emerging Markets Boost Returns

As Khalaf is still relatively young his portfolio has more of a growth focus. He has invested in some higher risk areas, such as emerging markets and smaller companies. But this doesn’t mean he ignored steadier investments completely, saying: “I’ve invested in an US tracker, and also have money in some equity income funds.”

Khalaf says over the past 15 years some of his best returns have been from emerging markets. “There are some good fund managers in this area that can really add value to a portfolio,” he says.

His investments in this area include First State Greater China Growth; Stewart Investors Global Emerging Market Leaders and Aberdeen Asia Pacific Equity.

This First State fund has a five-star performance rating and top Gold Rating from Morningstar analysts. Fund analyst Germaine Share describes its manager, Martin Lau as a “top notch portfolio manager” with over 21-years’ experience in this sector. She adds: “First State Greater China Growth remains one of our best ideas for equity exposure to the region.” The fund combines good long-term performance with relatively low charges and is one of the most “downside-resilient” funds in its sector.

The Stewart Global Emerging Market Leaders fund, which is now ‘soft-closed’ to new investors, also has a five-star performance rating from Morningstar, reflecting its strong recent performance. It has a Bronze Analyst Rating, showing analysts are confident it will continue to outperform, despite recent changes at the fund.

In 2015 the original First State Stewart fund split into two separate entities. More recently, the lead manager, Jonathan Asante, has stepped back from the fund, passing responsibility to Ashish Swarup.

The Aberdeen fund has delivered good returns over the period Khalaf has invested, but he points out that its performance has dipped more recently.

This is reflected in the fact that it has a three-star performance rating and Morningstar analysts have downgraded it from a Silver to a Bronze rating.

Mark Laidlaw, an analyst for Morningstar says: “Aberdeen Asia Pacific Equity remains an attractive choice, but no longer one of our top picks in this space. The peer group has been getting stronger, while our conviction in Aberdeen Asia has wavered.

“A potential criticism is that the team may not be critical enough when a business makes a mistake or begins to deteriorate. To its credit, Aberdeen has attempted to address this by reviewing long-term positions that have stumbled.”

He added: “This is still a quality outfit, with a large, well-resourced investment team led by Flavia Cheong. Aberdeen Asia Pacific remains a quality choice but a few missteps have enabled rivals to get a leg up.”

Khalaf is also invested in smaller companies. For example he holds Schroder UK Dynamic Smaller Companies, which has a four-star performance rating and Bronze Analyst Rating from Morningstar. It is run by the experienced manager Paul Marriage.

Morningstar analyst Samuel Meakin says: “We believe this fund is a strong choice for investors, more so now that its size has returned to more manageable levels.”

Khalaf also hold smaller company funds with more of a global remit, including Standard Life Global Smaller Companies, which has a two-star performance rating from Morningstar.

Commodities Deliver Mixed Performance

Khalaf says it is “inevitable” that some of his investments have not performed so well. He say: “I invested in BlackRock World Mining (BRWM) trust at probably the wrong time. The value of these shares dropped significantly shortly after I invested, and have still not recovered.

“But I see this as a super-long term holding so I am sticking with it for now. I’m sure a better time to sell will come along. There doesn’t seem to much point in selling at a loss now,” he says.

But while this commodity play has not performed so well, Khalaf says that he has seen better returns from more recent investments in oil and mining companies Rio Tinto (RIO) and Royal Dutch Shell (RDSB). Rio Tinto has a two-star rating from Morningstar, Morningstar equity analysts consider the share price to be trading below fair value. Royal Dutch Shell has a three-star rating, meaning both the stock is considered fair value at the current share price.

Khalaf adds: “The gains I’ve made from Rio Tinto have helped offset the losses from BlackRock Mining. Investment is often like that. You are investing at different times, in different assets and across different sectors. But by sticking to it – and not chopping and changing constantly – hope that overall the value of this portfolio will increase.”

Investing for the Long Term

This long-term approach meant that Khalaf did not change his investment, strategy or his underlying holdings in the wake of the Brexit vote, or the US presidential election.

“I don’t try and second-guess the outcome of political events, and haven’t felt the need to make significant changes since,” he says. “My investments look pretty much the same as they did a year ago.”

The only action he did take was to take advantage of market volatility and buy, or top-up, holdings of stocks he liked when prices fell.

“After the EU vote the stock market did drop in value. I used this as an opportunity to buy into stocks I liked – such as Barclays (BARC) and Persimmon (PSN) – at what looked like flash-sale prices.”

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
Rating
ASI Asia Pacific Equity I Acc387.09 GBP-1.19Rating
ASI Global Smaller Companies Inst S Acc166.12 GBP-2.57Rating
Barclays PLC187.06 GBP0.00Rating
BlackRock World Mining Trust Ord544.09 GBP1.32Rating
FSSA Greater China Growth I USD Acc151.41 USD-1.61Rating
Persimmon PLC2,771.00 GBP0.00
Rio Tinto PLC4,592.50 GBP0.00Rating
Royal Dutch Shell PLC B1,678.40 GBP0.00Rating
Schroder UK Dynamic Smaller Coms A Acc6.02 GBP0.17Rating

About Author

Emma Simon

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