Investors Chronicle's recent Ideal Portfolio - Growth event was attended by 100 delegates, who were treated to an evening of entertaining insights into what makes a good growth portfolio. Comments were provided by speakers from J.P. Morgan Asset Management European Equity Group, Charles Stanley Pan Asset and Kingsfleet Wealth, in addition to Investors Chronicle journalists and columnists.
William Meadon, managing director at JPMorgan Asset Management European Equity Group started by analysing what makes a growth investor, focusing on the perils of focusing on the wrong type of growth. "It is really painful when a growth stock goes wrong," he said. Royal Bank of Scotland (RBS) wanted to become the biggest bank in the world but had to be rescued by the British government in 2008. "Getting big for big's sake was a vanity trip by the board," said Mr Meadon. "The strategy was exposed for the folly it was."
He then compared the fortunes of Tesco (TSCO) and Next (NXT), two cash generative companies with contrasting strategies. Tesco squandered its cash on expansion projects, while Next has been prudent in contracting the number of high-street outlets to concentrate on online, enabling it to give cash back to share holders in the form of dividends. "Good growth is growth in cash," he said.
Mr Meadon is responsible for managing the JP Morgan Claverhouse Investment Trust (JCH), which is able to hold back dividend income in good years in order to maintain dividend payments in lean years.
Christopher Aldous, the managing director of Charles Stanley Pan Asset then spoke about how to put a growth portfolio together using exchange traded funds (ETFs). He confessed to being a Great British Bake Off widower, but explained that baking a cake is a great analogy for putting a growth portfolio together.
He explained that asset allocation is the key determinant of long-term returns but investors must first examine how much risk they are prepared to take.
He also talked about how to avoid correlation in your portfolio so your different holdings don't go up and down at the same time. "You do need to have emerging markets to generate long-term returns in a growth portfolio," he said. He advised investors to incorporate dividend ETFs into their portfolio, because dividends make up a large part of returns.
He also warned investors to think about currency risk. "The dollar weakened against sterling this year which will have affected investors' returns. "Don't think you can trade currencies and make money out of it," he said. "Just have broad ranges for the currency at which point you start hedging. Apply commonsense. There are more and more currency hedged ETFs available and this is the way to do it."
John Baron runs two portfolios of investment trusts for Investors Chronicle and gave a talk on his strategy for the growth portfolio, explaining why there are lots of income-producing assets in the mix. "Income is a major component of total return going forward," he said. "Over a decent period of time the rolling-up of dividends has a significant effect on total returns. So provided you are willing and able to take a long-term view, you have to remain in the market to collect the dividends. My growth portfolio that I run for the IC has a yield of 2.6 per cent, a little higher than you would expect for a growth portfolio. I reinvest the dividends."
Moira O'Neill, personal finance editor at Investors Chronicle gave a presentation about the common mistakes that DIY investors make when they are investing for growth. "Searching for company and fund buy tips is one of the most enjoyable parts of investing," she said. "However, if you act too often on the buy tips that you see in Investors Chronicle, then you'll end up with too many holdings."
She also illustrated investor mistakes by giving a few examples of real life reader growth portfolios. She also showed a good example of a core and satellite portfolio that we featured in Portfolio clinic a couple of years ago. The reader was aged 60 and has a portfolio worth £200,000. He was combining nine meaningful stock picks alongside a core holding in tracker funds.
The event concluded with a lively Q&A panel discussion. Colin Low, a chartered financial planner with Kingsfleet Wealth and an expert on the IC's Portfolio Clinic said: "I've been thinking a lot about Christopher's cake. The good thing about the cake analogy is that there's one additional thing you need when baking and that's time. You put it in for whatever it says on the recipe - half an hour, an hour. You don't get it out after 2-3 minutes and say it hasn't delivered. It's time in the market, not timing the market that will deliver the growth that we're looking for.
"Mathematically it is possible to double your portfolio in seven years. Realistically, it's quite a stretch to do it year in, year out. People do have to have realistic expectations."
MORE ONLINE:
You can view the videos and presentation slides taken from our speakers at the seminar to see what was discussed on the day by following the link: investorschronicle.co.uk/ipgrowth
Please note that up until now our editorial presentations have been password protected so that our paying delegates have priority. However, all the videos and presentations will be made available for free to all from Monday 24 November.
