McDermott calls his first investment “quite boring”, but given the track record of both the fund and manager, holding the portfolio over the last two decades has certainly paid off.However, following FE Alpha Manager Neil Woodford's departure from his two giant Invesco Perpetual funds a few weeks earlier than planned, McDermott admits he has left his long-time holding.
“I sold my holding in Woodford,” he said. “Neil is one of the most well-known, if not the most well-known, and best-performing managers over my 19 years in financial services. In this instance, I want Woodford.”
In the two decades up to 6 March, when Woodford handed the reins over to FE Alpha Manager Mark Barnett eight weeks ahead of schedule, the fund performed well ahead of both the sector and index.
The fund has made 762.67 per cent over the past 20 years, compared with 363.85 per cent and 332.90 per cent from the IMA UK Equity Income sector and FTSE All Share, respectively.
Performance of fund vs sector and index over 20yrs
Source: FE Analytics
McDermott says he will likely buy into Woodford’s new strategy when it becomes available. In the meantime he says he has topped up other holdings in his portfolio such as those in the UK smaller companies and Japan sectors.
“The first thing I ever bought was Invesco Perpetual High Income,” he said. “The second thing I bought was what ended up being the Legg Mason Japan Equity fund.”
“Clearly there was a bit of a barbell approach going on in my head,” he laughed.
Like Woodford’s flagship fund, the Legg Mason Japan Equity portfolio has turned out well for McDermott, particularly in the last couple of years when Japan has rallied strongly.
It is one he still holds in his portfolio, although he admits it is far more cyclical than the core UK equity income holding.
Legg Mason Japan Equity is a strong performer over the medium-term, but investors would have had to have sat through some painful times, especially in the mid to late 2000s when the fund lost money in four consecutive calendar years.
However, the fund is up 301.68 per cent since it launched close to 18 years ago.
Although it has seen some terrifying falls along with soaring highs, it is well ahead of the IMA Japan sector over this time, which made 65.71 per cent, and the TOPIX index, which is up 61.59 per cent, according to FE Analytics.
Performance of fund vs sector and index since June 1998
Source: FE Analytics
Manager Hideo Shiozumi has been at the helm of the portfolio since it launched in 1996.
However, it hasn’t all come up roses in McDermott’s investing career.
After he bought the UK and Japan portfolios, he says he tried his hand at equity investing, which ended up being one of his more painful learning experiences.
“I bought two single-company tech stocks and within eight working days they were up 80 per cent,” he said.
McDermott said he called his broker to sell the stocks at this point and ended up being talked out of selling, convinced there was more upside to be had.
“That’s when I learned about greed,” he said. “I got nothing back, not even one penny I put in. They both went bust.”
McDermott says the experience taught him a valuable lesson, namely that it is OK to take profits, even if you miss out on some of the upside.
The alternative, he says, is far worse.
While McDermott says the majority of his investments are now in funds, he does have a small equity portfolio he uses to top up exposure to individual companies, although he hopes he won’t make the same mistake again.
Instead, he prefers to leave the speculative investing to the professionals.
McDermott told FE Trustnet earlier this year he was buying Jeremy Gleeson’s AXA Framlington Global Technology fund for his ISA because he thinks there are some strong medium-term opportunities in the sector.
McDermott is also bullish on the prospects for Japan. He has added to his Japan exposure over the years, buying Neptune Japan Opportunities and GLG Japan Core Alpha to sit alongside his holding in Legg Mason Japan Equity.
In December last year, he said Chris Taylor’s Neptune Japan Opportunities fund had been the fund of 2013, owing to its bold call on the yen.
The fund has had a tough time since the start of this year, however, shedding 14.27 per cent.
The Tokyo Topix index and IMA Japan sector are both down nearly 9 per cent since the start of 2014.
Year-to-date performance of fund vs sector and index
Source: FE Analytics
In a previous article this week, FE Trustnet asked a selection of star fund managers what their first ever investments were and what they learned from their experience.
