As explained in a recent article I’ve just started a SIPP to sit alongside my workplace pension and am planning on using a core-satellite approach to hold some long-term stalwarts and some more thematic funds that I don’t have elsewhere.
My current workplace pension is built around trackers covering the UK and global trackers and a fettered fund of funds offering access to Invesco Perpetual’s range, as well as smaller allocations to Japanese equities and UK commercial property.
At the moment, 100 per cent of my SIPP in held in the Invesco Perpetual Global Targeted Returns fund, managed by David Millar, Dave Jubb and Richard Batty. There were a number of reasons for this: it’s performed well since launch in September 2013; it is designed to act as a core fund; and, mainly, I want to sit in somewhat of a ‘holding pattern’ while I decide what to invest in over the long-term term.
My next step, before looking for those thematic funds to drip-feed into, is to broaden the core of my SIPP with some good, long-term equity funds. While I really like Invesco Perpetual Global Targeted Returns - and have recently added it to my ISA as well - I’d like a UK and global fund to sit next to it.
Equity income strategies are often suggested as ideal candidates for core funds, thanks to the compounding effect of dividends over time.
When it comes to the UK equity income space, some great names spring to mind without even switching on FE Analytics to filter through the options: Trojan Income, Royal London UK Equity Income, CF Woodford Equity Income, Invesco Perpetual Income, Threadneedle UK Equity Income, JOHCM UK Equity Income… the list could go on.
Performance of funds vs index over 10yrs
Source: FE Analytics
Now, I’m not 100 per cent sold on the UK at the moment - in fact, in my ISA I’ve been trimming my UK exposure to add to European equities and absolute return as the upcoming general election means we have at least five months of uncertainty with the potential for a lot more to follow.
But I’m looking for a truly long-term manager so it shouldn’t matter too much in 20 or 30 years time if I started buying them now, in six months’ time or next year.
While all the names mentioned above have the potential to be solid core holdings, I’m looking outside the UK equity income space at a manager who is the very epitome of the long-term investor: Nick Train and his five FE Crown-rated CF Lindsell Train UK Equity fund.
FE Alpha Manager Train’s £1.2bn fund is built around just 25 or so names, with the manager preferring durable, cash-generative business franchises that the market frequently undervalues. His process is incredibly long-term, with a strict investment approach meaning the portfolio rarely changes.
The portfolio is mainly split into three buckets of global consumer brands, leisure and media companies and financial services, with top 10 holdings including Unilever, Diageo, London Stock Exchange, Burberry and Daily Mail & General.
CF Lindsell Train UK Equity’s long-term track record speaks for itself. Since launch in July 2006 its returned 162.57 per cent, compared with the 57.39 per cent rise in the FTSE All Share and an average gain of 56.55 per cent in the IA UK All Companies sector.
Impressively, the fund has achieved this with lower volatility and maximum drawdown - which shows how much an investor would have lost if they bought and sold at the worst possible times - than both the index and the peer group.
Performance of fund vs sector and index since launch
Source: FE Analytics
It is the consistency of those returns which is truly staggering, however. A recent FE Trustnet study highlighted that the fund is the only portfolio in the IA UK All Companies sector to have delivered top quartile returns – and beaten the FTSE All Share – in each of the last full seven calendar years.
In fact, it has outperformed the sector in every year since its launch and has only underperformed against its benchmark in one of those years – which was in 2007.
On top of that, since its launch it has outperformed the average IA UK Equity Income fund’s 56.29 per cent gain over that time, posting higher returns that the funds listed above as obvious contenders for inclusion in a SIPP.
The FE Research team, which has the fund on its Select 100 list, said: “Achieving this impressive performance track record with the low portfolio turnover highlights his stock picking skills.”
“We like the consistency of his strategy, which will not vary depending on the economic conditions. His very selective approach allows him to run a highly concentrated portfolio, which should boost the fund’s returns if his stock picking is successful.”
Of course, past returns are no guide to future performance and the fund may not outperform by such a wide margin in the years ahead. However, I'm confident that Train is an excellent manager to have at the core of my SIPP.
CF Lindsell Train UK Equity has a clean ongoing charges figure (OCF) of 0.77 per cent and has a yield of 2.01 per cent. I’m going to split some of my lump sum off into this fund and contribute to it on a regular basis.
That's my UK fund sorted, so now all I need is a global portfolio and my core is complete. This is likely to be a more of a challenge given the difficulty global managers seem to have in consistently beating the market.
FE Trustnet has written several studies in the past demonstrating how difficult it is to find long-term outperformers in the global space. One piece of our research last year showed that more than 80 per cent of funds in the IMA Global sector have failed to beat the MSCI World index over the past three years.
I’ll return to this topic in a future article but in the meantime if you have any ideas of global funds that are worth considering for the SIPP investors, please comment on them below and I’ll include them in the research.