Morgan (pictured), pensions and investment analyst at the group, says that he doesn’t necessarily want his ISA to “shoot the lights out” but to deliver him steady, inflation-beating growth as his investment horizon is likely to be shorter than his timeframe for his pension portfolio.
Therefore, he splits his ISA into two brackets. His four largest fund holdings make up his long-term core portfolios, while his two smallest holdings [Neptune European Opportunities and GLG Technology] are satellite positions which he will be looking to trade more actively.
Source: FE Analytics
As the table above demonstrates, Morgan’s largest fund holding is Artemis Strategic Assets, which is managed by William Littlewood and Giles Parkinson.
“It is a fund that I have held for ages and it really is a core holding,” Morgan said.
“All four of my largest holdings are very much long-term holdings and I’m not planning to change them, unless something drastic happens like the manager leaving. They are there to provide growth above inflation, not to shoot the lights out.”
“The goal of my ISA is different to my pension as my pension is there for my retirement, so I can be more high-risk. However, while my ISA will also contribute towards my retirement, I may need that cash much sooner than that.”
Morgan has held the £983m Artemis Strategic Assets fund for the last three years and he was drawn to the fund due to Littlewood’s market outlook.
“With this fund, I know exactly what I’m getting. He has a mix of assets and his outlook for markets is very similar to mine. He thinks that inflation is going to be a potential danger and that the threat of rising bond yields, given where interest rates are, is also a danger.”
“In my investment horizon, there is a significant chance of government bond yields rising substantially. He still has those government bond shorts and fair play to him. I like the manager, I agree with his views and I expect to hold it for the long term.”
Littlewood launched his Artemis Strategic Assets fund in May 2009, with Parkinson joining him as co-manager in September 2010.
According to FE Analytics, it has returned 61.35 per cent over that time, slightly outperforming the IMA Flexible Investment sector in the process.
Performance of fund vs sector since May 2009
Source: FE Analytics
However, as the graph above shows, its outperformance has come about more recently. One of the major reasons for that is because of the managers’ positioning, with Littlewood and Parkinson having a number of short positions in the government bond market.
While the fund has benefitted from the recent rising yields, the managers held the view that sovereign debt was too expensive a number of years before bond prices began to drop, which hurt its relative returns earlier in the fund’s life.
Littlewood and Parkinson currently have a large short position in government bonds. The rest of the portfolio is made up of equities and commodities with a 16 per cent weighting to cash.
His second largest holding is the five-crown rated Trojan Income fund, which is headed up by FE Alpha Manager Francis Brooke.
Morgan is invested in the £1.5bn fund’s accumulation share class as he wants to reinvest dividends to smooth out any possible volatility. He likes the fund due to the managers cautious approach and because it has defended his savings well in the past.
“Again, it is one I have held for a couple of years now. It’s towards the cautious end and it’s pretty boring to be honest, but I like that,” Morgan said.
“I wanted something that is going to be give me pretty solid returns, and this fund typifies that. If you want a core holding in your portfolio, you’ve got to go with equity income and this fund is a great one for that.”
“Over the last five years it has lagged against others in the sector, but that will always happen in strongly rising market. However, all I’m looking for from this fund is resilience and it to give me a smooth ride.”
Brooke launched his Trojan Income fund in September 2004.
According to FE Analytics, it has been a top quartile performer in the IMA UK Equity Income sector over that time with returns of 143.55 per cent, beating its benchmark – the FTSE All Share – by more than 20 percentage points.
Due to Brooke’s preference for large-cap, often defensive companies, Trojan Income has tended to underperform during rising markets; with the fund falling into the bottom quartile in 2009, 2012 and 2013.
However, it was the best performing fund in the sector in 2008, losing 12 per cent compared to the sector’s losses of 28 per cent. It was also top decile in 2011 and is currently top decile this year. It currently yields 3.7 per cent.
His two other largest holdings are First State Global Infrastructure and M&G Inflation Linked Corporate Bond which combined make up 43 per cent of his ISA.
The two funds fit well with his concerns about the treat of future inflation, as Peter Meany and Andrew Greenup’s First State Global Listed Infrastructure fund – due to nature of the assets it invests in – can pay out income in line with general price of goods and services.
Ben Lord’s M&G UK Inflation Linked Corporate Bond, on the other hand, is a more clear cut inflation play as its aim is to deliver a return greater than that of the Consumer Price Index; something which is has struggled to do over recent years.
FE Alpha Manager Rob Burnett’s Neptune European Opportunities fund is the only portfolio in Morgan’s ISA that doesn’t appear on Charles Stanley Direct’s “Foundation List”. He says it is likely to be a relatively short-term holding.
“The reason for buying this was on the back of a meeting I had with Rob Burnett,” Morgan explained.
“I’m buying into what he was saying about the European recovery and I have only held it for around 12 months. He is aggressively positioned and has a high weighting to banks and auto manufacturers, which has meant the fund has performed very well recently.”
“However, if there were to be a wobble in Europe then I would expect the fund to suffer. However, I agree with the manager as I think there is a bit more to go in the recovery and I think this fund is a very good way of playing that theme.”
Burnett took over his £700m Neptune European Opportunities fund in May 2005.
The fund has returned more than 350 per cent over that time, considerably outperforming the IMA Europe ex UK sector and its MSCI Europe ex UK benchmark in the process.
However, as Morgan points out, it has taken full advantage of the recent recovery in European stocks. According to FE Analytics, it has been the eighth best performing fund in the sector over 12 months with returns of 23.53 per cent.
Performance of fund vs sector and index over 1yr
Source: FE Analytics
Morgan’s smallest holding, making up just 4 per cent of his ISA, is the GLG Technology Equity fund; which also happens to be his most recent purchase.
He has been a long term fan of the fund and its manager, Philip Pearson, but he had never found a good entry point. However, his chance came in the substantial correction which hit the technology sector earlier this year.
“I’ve always liked the fund but I had never really had the opportunity to buy it. However, it while technology stocks in general were hit by the sell-off, this fund took one almighty hit. I just thought, this is my chance as it had underperformed more than everything else.”
Pearson took over his £178m GLG Technology Equity in June 2009, over which time it has returned 96.39 per cent, meaning it has underperformed against the average portfolio in the IMA Technology and Telecoms sector over that time.
However, that underperformance has been due its turbulent returns this year.
Our data shows that the fund has lost a hefty 15 per cent since the tech sell-off began in February, while the sector has lost just 3 per cent.
Performance of fund vs sector in 2014
Source: FE Analytics
Though Morgan is happy with his decision to buy the fund, he says it is very much a “tactical” investment and one he isn’t sure if he will hold onto for the long term.
Morgan added: “Like with Neptune fund, if the GLG Tech fund were to rebound sharply, I may see what other opportunities are out there.
