By Chris Dillow , 01 March 2012
- Name Richard Silvey
- Age 68 years old
- Objectives To reduce risk
Our reader, Richard Silvey, is 68 years old and has been investing since his teens – "for me investing is not a chore, it is a hobby". He manages four self-select Isa portfolios: for himself, his wife, his 22-year-old daughter and 19-year-old son. He also has an Aim portfolio of non-qualifying Isa investments which he dubs "his fun portfolio".
His wife's portfolio is designed to be a source of income with some growth while his portfolio is designed to be a growth portfolio although he admits he should probably be more conservative given his age. His children's portfolios both have the long-term aim of growth although he has consciously included household names to stimulate some interest from them. All four Isa portfolios contain few funds as "I do not trust professional managers and am well aware of the expenses that fund managers take out..." Mr Silvey gets his ideas from the media, mainly Investors Chronicle and his broker and sits on these until the time seems right.
Chris Dillow, Investors Chronicle's economist, says:
These portfolios raise four questions. First, in your children's portfolios are you making the common mistake of having investments that differ from your intentions? You say these have the "long-term aim of growth". But they hold mature large defensive stocks such as Tesco, National Grid and Vodafone. These yield more than the market, suggesting that investors don't expect much long-term growth from them.
However, I'm not sure this is a huge problem. Long-term corporate growth is, to a large extent, random and unpredictable. Gibrat's law – which is more of a statistical tendency – tells us that large companies are about as likely to grow as small ones. And history shows that defensives often do better than they should. Perhaps, then, it's not so absurd to have big mature stocks in a growth portfolio.
Secondly, is it right for your wife's portfolio to have a bias towards high yielders because you want a source of income?
Theory implies not. A high yield comes at a price. It signals either low expected growth or higher than average risk, or a mix of both. By all means, hold such stocks if you think such risks are worth taking or if you believe the market is wrong to be so pessimistic about their growth prospects. But you should not hold high yielders simply because they seem to offer income. Remember – you can create your own dividends simply by selling some stocks. What matters is total return.
Thirdly, are these portfolios under-diversified? Your own Isa portfolio is especially worrying here as it has a high beta tilt; I'd expect it to do well in a bull market but badly in a bear one.
What matters in this context is your other assets. If your pension fund is more conservatively invested, or if you have cash elsewhere, then you can afford to take more stock-specific equity risk.
I suspect you recognise this concern when you say that you "should probably be more conservative at my age".
However, it's not at all clear that age is a decisive factor in asset allocation; some older folk are well able to take equity risk. It's not your age that matters so much as your appetite for risk, which is a matter of taste.
Even if you do want to reduce your equity risk, however, you shouldn't do so by rearranging your shareholdings. Instead, you should raise the ratio of cash to equities. The question: how much risk should I take? is a separate one from: which shares are most underpriced?
The fourth issue is how to think about your fun portfolio. I would look at this as venture capitalists regard their investments. Even good ones expect a fair proportion to lose money, a few to break even and only one or two to do really well. Think of your Aim stocks in a similar way. They're like lottery tickets – except (we hope) with better odds.
Richard Silvey's Isa portfolio
|Name of share or fund||Number of shares/units held||Price (p)||Value (£)|
|Imagination Technologies Group||2,000||602||12,040.00|
Notes: *Autonomy was taken over by Hewlett-Packard Vision BV and was delisted in October 2011 when the price was £25.49.
His wife's Isa portfolio
|Name of share or fund||Number of shares/units held||Price (P)||Value|
|Bovis Homes Group||1,200||484.00||5,808.00|
|BlackRock Gold & General A Acc||579.71||1,494.00||8,660.87|
|Lazard Emerging Markets Retl Acc||2,500||261.50||6,537.50|
|Veritas Global Eq Income Retail GBP||53||14,185.00||7,518.05|
His daughter's Isa portfolio
|Name of share or fund||Number of shares/units held||Price||Value|
|City Natural Resources High Yield Trust||1,000||289.00||2,890.00|
|Templeton Emerging Markets IT||350||615.50||2,154.25|
|Guiness Global Energy 'B' (USD)||558||625.10||3,488.06|
His son's Isa portfolio
|Name of share or fund||Number of shares/units held||Price||Value|
|City Natural Resources High Yield Trust||800||289.00||2,312.00|
|Utillico Emerging Markets||1,500||162.00||2,430.00|
|Findlay Park Latin American USD||200||1,193.09||2,386.18|
Keith Bowman, equity analyst at Hargreaves Lansdown stockbrokers, says:
As usual, a number of assumptions have been made. We assume that no significant debt exists and that broader issues such as inheritance tax planning and the making of a will have already been considered.
As for the portfolio, a number of cyclical or economically sensitive sectors currently feature on the reader's watch list.
The mining sector remains something of a barometer for global economic health. Demand for materials, particularly from developing nations such as China and India, continues to underwrite progress. Merger and acquisition activity also provide interest, buoyed by the news of Glencore's proposed merger with Xstrata. All three stocks highlighted by the reader are currently favoured (buy) by analysts on a consensus basis.
Of the engineering stocks highlighted, both IMI and Weir are favoured (buy), with Rotork currently rated as a strong hold. IMI's exposure to favourable trends such the use of clean fuels, energy efficiency, environmental control and healthcare expenditure all support the current positive rating. Geographical diversity and a progressive dividend policy are also playing their part. At Weir, the group's exposure to material or resources, mining and oil companies representing major customers provide key attractions. A progressive dividend policy and growing less cyclical aftersales also support positive opinion. Both IMI and Weir are soon to report full year results.
In the retail arena, both Dixons and Home Retail, through its ownership of Argos, provide exposure to the cyclical electrical goods market. However, analyst opinion here is currently split. Dixons, which is wholly focused on the electrical goods market and enjoys international diversification via exposure to Europe along with the UK, is currently rated as a strong hold. For Home Retail, which also owns Homebase, and where management attention is more divided, analyst opinion currently denotes a sell.
Turning to the existing portfolio, a good selection and diversity of generally blue-chip shares are currently held. Both cyclical and defensive companies populate the portfolio, while a number of managed funds have been utilised in order to gain exposure to more specialist areas such as emerging markets and gold.
In all, the portfolio raises no major concerns. The reader's own caution with regards to risk and age is worth underlining, while the number of different holdings held across portfolios and managed at around 40 is maybe somewhere near a maximum. Nonetheless, the reader's clear enjoyment in investing is likely to flag a broadly successful track record, an important trait in any endeavour.
|Shares on his watch list|
|Miners||Xstrata, Rio Tinto, BHP Billiton|
|Engineers||IMI, Rotork, Weir|
|Director Dealings||Home Retail Group, Dixons|