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"Funds with Strong Track Records Help me Sleep at Night"

Investor Views: Retired investor David McEwan has used his tax-efficient investments to help his children on to the housing ladder  

Emma Simon 21 August, 2019 | 11:03AM
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David McEwan, 59, may have retired from full-time work, but he continues to invest his money actively, in order to maximise his wealth. This includes investing both directly in shares and in funds, making the most of the various tax-wrappers available.

Now semi-retired with a number of voluntary roles, David has been investing for more than 30 years, says: “I tend to limit my investments to the UK, with the occasional investment in the US and Europe. I started investing as I found it fascinating to watch a dynamic market and be part of it.”

David, who is married, says his investments help cover the couple's financial needs in retirement — but have also enabled him to help pay towards his children’s weddings and help them onto the property ladder. A Fidelity Wealth customer, he invests in both Sipps and Isas. 

“The Isa tax wrapper gives me the certainty that the money I’ve invested belongs to me in its entirety and is not subject to the whims of future government tax policies," David explains. “It also allows me to crystallise gains in shares I hold directly [in a general investment account] and buy back the identical holding in the Isa. This way I can generate tax free gains by using my capital gains tax personal allowance.”

 David, who previously worked in financial services, says his Sipp is now in drawdown, but when he was accumulating money into this savings plan, the tax relief offered was very beneficial and enabled this pot to grow largely tax-free: “I now monitor the withdrawals I make from this account to ensure I avoid higher rate tax charges.”

When it comes to investing David has two sacrosanct rules: “Never put your main residential property at risk and if you are fortunate to have a defined benefit pension, think very, very carefully before you change it.”

Among his individual investments, the Silver-rated Royal London UK Equity Income fund has been a good performer and remains his largest fund holding. He says: “This income fund, run by Martin Cholwill and Richard Marwood has performed very well. They run a properly risk-adjusted portfolio and as seasoned fund managers know what can derail a portfolio.”

This fund also has a five-star rating from Morningstar and Morningstar analysts point out that Cholwill is a “highly experienced manager” with more than 35 years’ investment experience and is consistently deploying a proven approach.

Morningstar analyst Samuel Meakin says: “The manager builds a high-conviction portfolio of 40 to 60 stocks, and it will typically feature a number of the higher-yielding FTSE 100 incumbents.

“His focus on finding companies with strong business models that have the potential to deliver sustainable dividend growth also leads him down into the mid-cap realm, but only where the valuation is attractive.”

Aside from these investments, David also holds cash, some NS&I savings certificates and has a buy-to-let flat that is currently rented out. “Having some cash is for peace of mind. I currently hold it within various instant-access accounts. The near meltdown of the financial system 10 years ago showed me the importance of having some liquidity as an insurance policy.” 

He also has holdings in a number of investment trusts, including City of London (CTY), the Silver-rated equity income trust run by Job Curtis. David says: “This seems to me to be a good example of a strong well balanced fund, that has consistently increased its dividend year on year.  

“For me, the advantage is that the fund manager can stay awake worrying about the investment performance, while I will sleep better at night knowing that he will be doing so.”

Morningstar analysts say this trusts remains “a compelling core option for investors.” However, analyst David Holder points out that it’s worth noting that the trust takes relatively small bets away from the index. 

He adds: “Our ongoing conviction in City of London is primarily built upon our regard for Job Curtis, who has been at the helm for 27 years, a length of tenure that's exceptionally rare to see.” 

David says some of his individual share holdings have not performed so well of late. including BT (Bt.A),Vodafone (VOD), ITV (ITV), Saga (SAGA) and AA (AA.). “Broking analysts had ‘buy’ recommendations on these stocks when I purchased them. It is interesting to note that after the event many are sellers or gone neutral. Hindsight is a wonderful thing but is of no use to the investor,” laments David.  

But he has learned a few lessons from some of these investment decisions: “I now try to avoid companies that have lots of debt but are not growing rapidly. I also try to limit the investment I make into a single company. I am also wary of profit warnings.

"I’ve learned the hard way that if a company issues a profit warning out of the blue, then its best to sell immediately. Experience suggests that profit warnings are like buses and once one appears there will be more in quick succession.” 

However not all his direct shareholders have performed so poorly. Engineering company Spirax-Sarco Engineering (SPX) has proved to be an “excellent investment”. The stock has delivered total annualised returns of more than 22% over both three and five years (and 23% over 10 years), according to Morningstar data.

Now that he is largely retired, David only invests when he has funds available to do so, whereas when he started investing he did so on a monthly basis, a discipline he is keen to pass on to his now grown-up children. 

He says: “I tell them to miss out on a restaurant dinner and two cocktails and put the money into a fund every month. They hardly notice these sums disappearing, but it should all add up to a healthy pot after 20 years.”

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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About Author

Emma Simon

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