Investor Views: 'I'm Sticking With Scottish Mortgage'

Retired investor Richard Hemming's holdings in some popular investment trusts have been disappointing in recent months

Emma Simon 9 February, 2022 | 10:32AM
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Richard Hemming is currently cautious about market valuations and is keeping money in cash, rather than topping up his investment portfolio.

Richard, who is now retired after a career in the Royal Air Force and aviation industry, only started investing for himself about about 10 years ago. He says he was fortunate to have decent pensions from his time working in the military and in industry but more recently has looked to supplement these with some additional investments.

“I started to become more interested in DIY investing around 10 years ago,” he says. This has led him to invest in a range of funds through an ISA. He also holds cash savings account alongside this.

Richard, who lives with his wife in the Cotswolds, spends a great deal of time researching potential investments. There are a lot of funds out there so he wants to make sure he picks those that will deliver on his objectives, and have the potential to be long-term holdings.

“I research funds carefully, using a variety of online resources, including those on AJ Bell’s platform, where I have my ISA. I also look at investment articles in newspapers and online.

“When deciding where to invest I look at a range of factors including performance, fees and the popularity of a fund. I tend not to focus so much on ethical or environmental considerations.”

Long-Term Track Records

Richard is concerned that the performance of a fund can dip if it becomes too big and unwieldy, or too popular. For example he has previously invested in Scottish Mortgage Trust (SMT) and Lindsell Train Investment Trust (LTI) – both popular investments – but says returns on both have been disappointing recently.

Scottish Mortgage has a Morningstar Analyst Rating of Gold, and has delivered strong returns over the past decade. However, while investors have seen total annualised returns of 23.94% over a 10 year period (based on share price) the trust has suffered a setback in recent months, with investors seeing a total loss of 31.16% over the past three months. Richard says he hopes this is a short-term blip.

However Morningstar analysts remain confident in the trust’s ability to continue to deliver on its “unique hyper-growth mandate”. They do note though that this trust invests in a high-growth, leveraged portfolio – which a relatively high number of unlisted equities – and so is likely to volatile. Risk-averse investors should factor this into their considerations, it says. But Morningstar points out such unlisted holdings are often more suitable to closed-end vehicles like investment trusts.

Lindsell Train has a 5-star rating from Morningstar. Again the trust has a good long-term record, delivering total annualised returns of 20.34% over a 10-year period. But the recent performance has been more patchy, with investors seeing a total loss of 4.72% over the past year (again based on share price), and 0.55% over the past three years. Despite these recent falls though the trust continues to trade at a 11% premium to NAV – no doubt reflecting the calibre of the management team.

Active Funds

Richard has mainly opted for actively invested funds and invests across a range of different assets, with holdings in a couple of bond funds to balance out his higher risk equity holdings.

For example, he currently holds Jupiter Strategic Bond. He also has a holding in Liontrust Special Situations, an equity fund which adopts a value style by investing in out-of favour companies.

Jupiter Strategic Bond is another Gold-rated fund, with a 4-star rating from Morningstar, who say the fund benefits from the experience of its lead portfolio manager. The fund has a flexible approach to investment and has delivered strong absolute- and risk-adjusted returns since inception, according to Morningstar.

Liontrust Special Situations is another fund with a 5-star rating, reflect strong performance versus peers in recent years. Morningstar describes this fund as being run by a “stable experienced team, who apply a consistent proven approach”. It says this means the value-oriented fund offers investors a “strong proposition” in the UK equities space.

Alongside these funds Richard also has a holding in the Gold-rated Vanguard Lifestrategy 80% Equity. This mixed asset portfolio invests in a range of low-cost ETFs. Richard says this offers good diversification and he likes the fact that it’s not fully invested in equities, so is slightly lower risk for a retired person like himself. He adds that Vanguard funds are very competitive on price.

He currently has a reasonable large cash holding, and is waiting for more positive signs before committing this into the market. He says that over the past 10 years he’s learned to be more patient when it comes to his investments.

“Patience is certainly key. It’s important not to trade instantly when markets react negatively and prices fall. I believe that doing thorough research and choosing funds carefully for the long term is the best approach.”

 

 

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