I recently opened my SIPP as a home for some smaller pots that I accrued from previous roles. These were not only difficult to manage, but were being hit with higher costs because I wasn’t actively contributing to them.
While I’m happy with how I have my workplace pension set up, I wanted to follow a different strategy for my SIPP but was immediately hit with the realisation that I don’t see anything as super attractive.
Bonds clearly offer very little value over the long term while many equity markets are looking expensive at the moment. Others look cheap but have considerable risks hanging over them.
Right now, I have no clue if the US will grind upwards or be hit by profit-taking; at the other end of the valuation spectrum, Europe could rally on the back of full QE from the central bank or continue to be hated as it hovers on the brink of a deflationary spiral.
The UK is heading into a potentially game-changing general election, I can’t call the outlook for global emerging markets and I already have lots of exposure to the one area I do like - Japan - through my workplace pension and ISA.
I’m happy navigating this in my more established workplace pension. The bulk of this pot is split between equity trackers and a fettered Invesco Perpetual fund of funds, with smaller holdings in actively managed commercial property and Japanese funds.
This seems like a nice ‘broad brush’ construction that should serve me well over the long term. It’s all equities, aside from the diversifying holding in property. The extra Japanese fund, managed by Baillie Gifford’s team, is the only really tactical play in there and accounts for just 5 per cent of assets.
Source: FE Analytics
My SIPP, meanwhile, has been started with a lump sum but I’ll be making a small monthly contribution with the occasional larger top up. As I’ll be paying less into this at the moment than my workplace pot I want to it be a bit more adventurous, allowing me to go into more niche areas than my core retirement savings are heading to.
A recent note from Bank of America Merrill Lynch (BofA ML) analysts looked at seven investment themes that will dominate over the coming years and it’s this kind of approach I want at least part of my SIPP allocated to – multi-decade investments in growth areas such as robotics and environmental technology.
However, these are relatively off-the-radar and require a lot of research, and I’m not yet comfortable taking the plunge.
As well as thematic investing, I want to use this portfolio to hold true contrarian managers and alternative assets that my workplace pension doesn’t allow me access to; however, as we move into 2015 the only thing that jumps out at me is uncertainty.
Now, I know that time in the market is better than timing the market. I’m keen to get my higher growth investments into this portfolio but would rather wait another few weeks or months to find an investment I’m happy with. I don’t want to just dive in and get things started then later kick myself when I realise I missed the thing I really wanted.
This has led to me into something of a ‘holding pattern’ until compelling opportunities emerge and my research into more niche areas of the market is complete. For this, I’ve chosen the Invesco Perpetual Global Targeted Returns fund, managed by David Millar, Dave Jubb and Richard Batty.
The fund launched to great fanfare in September 2013. The managers had joined Invesco Perpetual earlier in the year from Standard Life Investments, where they had been instrumental in the success of the hugely popular Global Absolute Return Strategies fund.
Invesco Perpetual Global Targeted Returns aims to generate a positive total return in all market conditions over a rolling three-year periods, seeking a gross annual return of 5 per cent above UK three-month Libor with less than half of volatility of global equities.
Since launch, the fund has performed well from both a return and volatility point of view. It has gained 11.84 per cent since 9 September 2013, compared with a 5.28 per cent average return in the IA Targeted Absolute Return sector and a 16.05 per cent rise in the MSCI AC World.
It’s done this with an annualised volatility of 3.58 per cent, against global equities’ 11.73 per cent.
Performance of fund vs sector and index since launch
Source: FE Analytics
Admittedly, this is a short time frame to judge a fund with rolling three-year targets and it must be remembered that past returns are no guide to future performance. However, given recent months have been turbulent for a whole host of asset classes, I’m very encouraged by the team’s start.
Invesco Perpetual Global Targeted Returns invest in baskets of “ideas”, using market neutral and directional pairings as well as selective long plays.
It currently has just under 30 ideas in the portfolio including one around the view that UK inflation expectations look high, particularly relative to eurozone equivalents, and selective Asian equity exposure.
The fund has is often used as the core part of a core-satellite strategy, making it ideal for my plan for this portfolio. I like the product so much I’m happy for it to sit as the SIPP’s only holding while my view of the market remains cloudy – even if this stretches well into 2015.
I have no plans to sell it and expect to hold it over the long term in my SIPP, although ideally at a much lower weighting than 100 per cent.
Its role over the longer-term will be to run stability through the portfolio, offsetting the higher volatility and maximum drawdown that will come when niche thematic funds, contrarian managers and alternatives are added later.
Adrian Lowcock (pictured), head of investing at AXA Wealth, agrees that choosing an absolute return fund can be a good option at the start of a portfolio, especially when the investor is unsure about where to put their money but wants some quick diversification.
“There’s a good argument not to over-engineer things and contribute to too many funds in the early days. Things like Invesco Perpetual Global Targeted Returns are quite diversified strategies by nature as they use a whole range of market strategies to deliver returns that should be uncorrelated to equities and bonds. It’s a good solid, core investment,” he said.
“Investing is very much a personal decision. When you’re looking for investment opportunities some people might see them but others might not. If you don’t have high conviction… it can be an idea to build a defensive core portfolio then over time add some complementary funds.”
Over the longer term Lowcock recommends adding equity income fund as further core strategies, noting that their ability to make money in flat markers through dividend payouts makes them an attractive option for the defensive part of a portfolio. More aggressive, specialist funds can be added to boost long-term returns, he says.
In the coming weeks I’ll be taking a look at the three main satellite buckets I’m considering for my SIPP, asking leading fund pickers from their opinions on truly active equity managers, thematic investments such as tech and ecology, and alternatives that could be used for the aggressive part of my long-term investment plan.
