Neil Evans, who is in his late 40s, has been an active investor for the past 15 years.
Evans, who lives with his wife and two young children, says his first investment was via a workplace share save scheme. “I was only in my late 20s, and really just put some money in each month as a way to build some savings. But the returns were excellent. It really opened my eyes to the benefits of equity investments,” he shares.
At the time Evans was working for an insurance company and he says the money he made from a three-year and five-year scheme provided “a nice sum” which helped pay for his wedding.
e-save schemes offer some downside protection, it encouraged him to start investing through an ISA.
Evans, who lives in High Wycombe, Buckinghamshire, says: “It’s become a bit of a hobby. Over the years I’ve built up a fairly extensive portfolio of direct shareholdings, alongside some funds.
“Primarily these are longer term holdings – although on occasion, if returns have been particularly good, I have taken some of this money to help pay towards holidays.
“Hopefully there will be some funds to go towards the children’s higher education if they decide to go down that route. I have a reasonable pension, but my wife has more limited pension savings. So I am hoping, ultimately, that these will help ensure a decent standard of living as and when we retire – although this still seems a long way off.”
Blue Chip Stocks Paying Decent Dividends
Evans’ longer-term holdings have been in UK blue chip shares. These include the insurance company Prudential (PRU), mining giant Rio Tinto (RIO) and Boeing (BOE).
He says: “These seem to be solid holdings that pay decent dividends. Markets have certainly had their ups and downs in the last 10 years or so, but these have all been steady performers within my portfolio.”
Henry Heathfield, equity analyst at Morningstar points out that Prudential the company “is one of the best-run life insurance we have come across”.
He adds: “Prudential carved out a niche for itself in the difficult to run business of variable annuities and proved itself to be the best operator in the business line time and time again. And when opportunities presented themselves, Prudential has taken market share from competitors that have run into financial underwriting problems. This has mainly been seen in the United States.”
However, while this is clearly a positive sign for investors, Heathfield does sound a warning about current valuations. He adds: “We have long been a bit concerned with the valuation of this business, thinking the market tended to price a premium for the quality of the business.”
Heathfield also points out that Prudential has been hit hard by the concerns around the global slowdown but concludes that shares are still slightly below its fair value estimate of £16.90.
Rio Tinto is one of the world’s biggest miners, and according to Morningstar analysts, was one of the few miners that was profitable throughout the commodity cycle.
Most of Rio Tinto’s revenue comes from the relatively safe havens of Australia, North America, and Europe, though the company has operations spanning six continents.
Analyst Mathew Hodge adds that Rio Tinto has a large portfolio of long-lived assets with low operating costs. However, the invested capital base was inflated by substantial investment during the height of the China boom. Hodge says as a result returns are likely to remain below the cost of capital for the foreseeable future.
Hodge points out that shares are currently trading above Morningstar’s fair value estimate and this share has a high uncertainty and no economic moat.
Data shows that the company has delivered total annualised returns of 34.43% to investors over the past three years, this compares to just 10.47% from the FTSE 100. Over five and 10 years, total returns have outperformed that of the FTSE 100.
Boeing has another company that has delivered decent returns to shareholders over the longer term. The aerospace and defence company, designs and manufactures products and services for commercial airlines, military aircrafts and space flight launch systems.
According to Morningstar data is has delivered total annualised returns of 45.04% to investors over the past three years. Over both five and 10 years, these annualised returns have been in excess of 20%.
Evans says he hopes these will continue to remain good core holdings within his portfolio. “I appreciate that share prices can go up and down over the short term, but these are good long-standing businesses. I am confident they will continue to pay decent dividends which should support their share price.”
Smaller Companies to Complement the Core
Elsewhere Evans says he has invested in some smaller companies which he hopes offer growth opportunities. For example, he has bought into the drinks manufacture FeverTree (FEVR). This has enjoyed phenomenal growth between 2014 and mid 2018 - although its share prices has tailed off more recently.
Over three years it has delivered total annualised returns to shareholders of 68.8%.
Evans says: “Sadly this is one where I didn’t get it at the optimum time. Annoyingly it was on my radar as a potential purchase, but I didn’t buy it back in 2014. This is a decision I regret. That said while I missed the boat to some extent I did invest in 2017 and have seen a positive return on my money since then.”
Not all of his shareholdings are in positive territory though. Evans says he recently sold out of a holding in Spire Healthcare Group at a considerable loss.
“There company’s share prices has been heading south since 2017. There comes a point when it seems to make sense to get out, even if this means crystallising a loss. The share price has fallen since I sold, so I feel this was the right decision.”
