Top fund and investment experts such as Hargreaves Lansdown’s Mark Dampier are clear on how you should invest while at the growth stage of your pension. Buy, hold and forget about it – at least for a while - is the paraphrased version.
However, not accepting this conventional wisdom I made the unconscious decision to try and be a little more ‘active’ in 2015.
At the beginning of the year I took the overdue decision to sell out of my allotted pension portfolio in my company’s scheme - the snappily named Pension Portfolio One - and pick my own funds and do my own asset allocation in a bid to add some extra growth to my long term investment pot.
I wanted a punchy start and, once again against more conventional wisdom, I made a single bet of 50 per cent of my pot into two funds both investing in Japanese equities: the £940m Baillie Gifford Japanese and £2.1bn Schroder Tokyo funds.
At this stage I should just clarify that it was not vast sums of money and I was still using my company’s pension service which is administered by UK’s top providers and, naturally, it doesn’t have every single manager I would wish to invest with but it has some decent funds and I was happy to invest in these two.
As you can see from the graph, by March I was sitting on a hefty 25 per cent return for these two funds and considering buying some red braces and a chalk stripe suit but while my investment has risen pleasingly overall, considering the weakness of global markets, it has been falling from its high for most of the year.
Performance of funds, sector and index
Source: FE Analytics
I also bought more of the Baillie Gifford Japanese, as well as Blackrock Gold & General on Black Monday as by this time, my Japan tranche had been diluted by buying other funds for the first time such as Alex Wright’s Fidelity Special Situations as well as adding to existing holdings.
According to FE Analytics, Schroder Tokyo has been the better of the two funds in 2015, but performance has been pretty similar. A portfolio equally weighted of the two funds meant my Japan tranche has delivered a decent 12.84 per cent year to date on my original investment, a few percentage points behind the Topix index and has been marginally more volatile than it.
Performance of portfolio and index in 2015
Source: FE Analytics
Today my holdings in Japan are closer to a third of my portfolio but the return is about the same for the total stake I put in at just under 13 per cent.
I consider this a not too bad outcome, especially considering the other 50 per cent was made up of Blackrock Smaller UK Smaller Companies, Henderson UK Property, Schroder European Alpha Plus and the SSGA Asia Pacific ex Japan index, which have done pretty well too apart from the latter.
Performance of funds and index in 2015
Source: FE Analytics
Martin Bamford, chartered financial planner and managing director at Informed Choice thinks I should perhaps sell down some exposure in the name of diversification.
“From a risk perspective, this is certainly high risk. Investing such a large percentage of your pension fund in a single IA sector and with such a short-term view dramatically increases the risk of capital loss,” he said.
“The IA Japan sector has grown by nearly 15 per cent over the past year, with the top performing funds in this sector up by 31 per cent during this time. But this bet could quite easily have gone in the other direction.”
“Investing should be long-term and well diversified. Taking bets like this moves it from investing to speculation, which can either go very well or very wrong.”
However, he says as someone with 30-40 years left before I plan to be using this pot, I could keep a decent chunk in Japan funds.
“Assuming you have the appetite for this level of risk and the ability to absorb the losses when they occur, then there is nothing fundamentally wrong with making big bets with your pension or investment funds.”
“You do have to be prepared for the times it goes horribly wrong and accept that, over the long-term, you are just as likely to back the worst performing sectors as the best performing sectors.”
Now I know a lot of people have had their fingers burnt by Japan funds over the years as there have been plenty of false dawns, but I do think the future is positive. I have been increasingly drawn to the outlook for Japanese companies which to me has seemed less tenuous than the performance between May and September suggested.
Of course, Japan is feeling headwinds from its close economic links with the Chinese economy but the domestic economy appears to showing many signs of strength, and benefiting from the low oil price.
On top of that, I believe the structural change in equity investing in Japan by their government pension fund and the introduction of ‘NISAs’ should provide the market with a significant boost over the longer term.
Nonetheless, one big question market that seems to hang over the market’s sentiment is whether the Bank of Japan is set to unleash more quantitative easing which seems a heightened risk rather than opportunity.
David Absolon, investment director at Heartwood Investment Management, says the Japanese macro picture is “lacklustre” but he does not think the BoJ are keen to extend the programme.
“How far can banks keep administering the medicine without the desired outcomes?,” he said.
However, he thinks that there are other reasons to be optimistic.
“The spring wage negotiations will be important for Japan’s near-term inflation outlook, and recent activity data is pointing towards broad-based improvements across the economy. Moreover, as Chinese growth trends stabilise, as we expect and are starting to see, this should also relieve the external pressure on Asian economies more generally.”
“Furthermore, the People’s Bank of China has the room to ease policy further to support China’s transition to a more domestic demand orientated economy.”
I have not made a decision yet so please feel free to give your advice, comment on Japan funds or share your own punchy bets.