"I'm Balancing Top Funds With Trackers"

Investor Views: James Bryant mixes cheap tracker funds with actively managed options in the hope of achieving greater returns 

Emma Simon 15 April, 2020 | 11:12AM
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James Bryant has been investing in a pension for 20 years and into an Isa for a decade, but it’s his pot of cash savings that has come in handy in recent weeks.

A self-employed project manager, James lives in Leigh-on-Sea, Essex with his wife and two daughters, and says the current economic conditions are challenging. James, who is in his mid-40s, has dipped into his cash savings to help makeup for a shortfall in earnings.

“The current situation really shows how important it is to invest in a broad range of assets and not have all your money tied up in the stock market,” he says. “I’ve got friends who were hoping to retire soon and now might not be able to do so. My investments are probably not doing too well at present, but at least I don’t have to sell them at the bottom of the market to meet day-to-day expenses.”

James prefers to invest in funds rather than individual stocks, admitting he doesn’t have the time or knowledge to do the in-depth research required. His portfolio is largely made up of low-cost index-tracking funds including those which follow the S&P 500, the FTSE 250, and an S&P Technology index. 

“These are my core holdings; they are big, cheap building blocks that give me a diversified global portfolio and I see them as funds to buy and hold for the long-term,” says James.

Mixing Active and Passive Funds

To complement these, he also uses actively managed funds and one of his most successful investments has been Fundsmith Equity, which has a Gold Morningstar Analyst Rating as well as five-star rating. James likes fund manager Terry Smith’s “buy and hold” approach to investing and it is certainly a strategy that has delivered; the fund has produced annualised returns of 15.74% over the past five years. 

James also invests in the investment trust Smithson (SSON), which was launched by the same company with a similar investment style, although not managed by Terry Smith directly. The key difference between the two funds is that Smithson focuses on small- and mid-cap stocks rather than large-cap companies, but both have a global remit. While James generally avoids higher-risk emerging markets, he feels the Smithson trust gives him exposure to companies operating in these fast-growing economies without having a pure focus on the region.

Elsewhere, James invests in the Gold-Rated Scottish Mortgage investment trust (SMT), which has delivered annualised returns of 18.86% over the past decade. The trust, led by James Anderson of Baillie Gifford, is focused on larger companies and tends to favour technology firms. 

The investment approach here focuses on identifying high-growth companies and holding them for the very long term to gain the benefit of compounded growth. These companies will often have been new entrants or disruptors into a region or industry. Morningstar analysts point out, however, that the nature of this high-growth portfolio means it has a bias towards information technology, healthcare, and internet-related consumer cyclicals, so is likely to be volatile. 

Unlike his cheap tracker funds, James says some of his actively managed choices have relatively high annual management charges. But he adds: “I am happy to pay this additional cost as I can see I am getting a return on my money for these higher fees.” 

Markets May Fall Further

Given the current market environment, James isn’t planning to make any changes to his investment for now; he has avoided looking at any valuations over the past month as he thinks it is important to ride out the volatility. 

“We have had 10 years or so of a bull market so it was clear we were heading for a correction at some point, although I guess most people would not have expected it to be quite as severe as this,” says James.

“Investors are often optimists. I will see how it goes but if valuations are still down, I might see it as a buying opportunity, and dip a toe in the market, although I wouldn’t be surprised if stock markets fall further before things start to improve.”

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

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