I’ve decided to start with a regular savings plan of £100 a month. I was interested to read Mark Dampier’s comments earlier this week, which highlighted the advantages of such a scheme.
A sizeable lump sum isn’t an option for me at the moment, but I was more interested to read his comments on buying into market dips.
With hindsight, it always seems obvious that you should buy into falling markets, but I for one don’t have the nerve at this stage to add to my portfolio when its real value is in decline.
This way, it’s essentially out of my hands, which I’d hope would benefit me in the long-run.
Although Rob Gleeson, head of FE Research, recently highlighted the over-reliance on the UK market, I like the idea of holding a portfolio of companies that is familiar, and in some cases relevant to my everyday life.
Many UK companies generate their exposure from overseas anyway, and I’ve got plenty of global exposure in my pension.
Given my long-term time horizon, I want at least some exposure to small and mid cap companies, which have greater growth potential than large caps.
Now that I know what I want, it is time to find a fund. I’m pretty new to this game, so naturally I decided to use FE ratings to help me make my choice.
I’ve gone for Liontrust Special Situations – a pretty punchy choice given that it’s a pure UK equity fund and this is my first ever investment excluding my pension.
However, a monthly savings plan needs volatility for compounding to work effectively, which this fund has, given its multi-cap equity focus.
It has 25 per cent in the FTSE 250, 16 per cent in the FTSE AIM and 4 per cent in the FTSE Small Cap, which means it is significantly underweight large caps.
This suits me fine, since I plan to hold on to this fund for many, many years. The biggest holdings include GlaxoSmithKline, manufacturing company Rotork and engineering firm Renishaw.
The main point that stands out about Liontrust Special Sits is that it is run by two FE Alpha Managers.
Anthony Cross (pictured) has headed up the fund since its launch in 2005 and Julian Fosh joined the team in 2008.
The £550.1m fund has five FE Crowns, a below-average FE risk score of 72, and appears in all three of the AFI portfolios, which are put together by leading industry experts in the field of investment. As the FSA regularly tells us, past performance is not a guide to future performance, but I want a fund that has already proven itself in challenging market conditions.
Using FE Analytics you can see that Liontrust Special Situations has registered top-quartile performance over one, three and five years.
In fact, it is the best-performing portfolio in the sector over five years and the second best over three, just dropping behind MFM Slater Growth.
Performance of fund vs sector and index since Nov 2005
Source: FE Analytics
Over the longer term, it is encouraging to see that the fund has massively outperformed both its sector and benchmark. It has returned 149.25 per cent since its launch in late 2005, while the FTSE All Share and the IMA UK All Companies sector have returned 46.52 per cent and 39.66 per cent, respectively.
Although Liontrust Special Situations has an extremely good long-term track record, it is pleasing to see that its success has not been down to one or two years of high capital returns.
Out of the whole IMA UK All Companies sector, which comprises 290 funds, only two have been able to achieve top-quartile performance in each of the last five calendar years. These are CF Lindsell Train UK and, of course, Liontrust Special Situations.
Year-on-year performance of fund vs sector
| Name | 2012 | 2011 | 2010 | 2009 | 2008 |
|---|---|---|---|---|---|
| Liontrust Special Situations | 23.54 | 7.54 | 36.14 | 41.20 | -25.90 |
| IMA UK All Companies | 14.81 | -7.04 | 17.53 | 30.40 | -31.96 |
Source: FE Analytics
I am in my 20s so I have a very long time frame for my investments, which means I can afford to take some risks.
However, finding a fund that has a proven track record in both up and down markets is, in my eyes, a bonus.
The small and mid cap overweight means it has plenty of room for growth, but the managers' effective stockpicking has seen its companies deliver growth even in times of turmoil.
In an interview with Cross last month, the manager told FE Trustnet that he and Fosh take a bottom-up view of the markets and don’t get bogged down in the macro.
The one draw-back is the fund’s total expense ratio, which, at 1.92 per cent, is well above average for the sector.
I for one don’t mind paying for quality. In most walks of life, you tend to get what you pay for, and in this instance I have no problem paying an above-average fee for a top-rated fund.
Director of SG Wealth Management Neil Shillito says he personally would have gone for a more established option, but is nonetheless a big fan of Cross and Fosh.
"For a first-time investor, I would probably go for M&G Recovery or Neil Woodford’s Invesco Perpetual Income fund, just because they are more representative of mainstay equity funds," he said.
"Another way to go would be Nigel Thomas’ AXA Framlington UK Select Opportunities, which is not a million miles away from Liontrust Special Situations."
"This is not because I think the Liontrust fund is a bad choice, but with a special situations fund there is more chance that individual stocks can go wrong."
"However, I must not detract away from the fact that it has performed strongly over the years and is led by an extremely experienced management team."