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Introducing Phil Oakley's fantasy Sipp

Phil Oakley reveals his fantasy portfolio of UK and US shares
February 18, 2019

When it comes to individual stock-picking and building a portfolio for long-term investment in a self-invested personal pension (Sipp) or an individual savings account (Isa), I favour a quality shares approach. Identifying them is the topic of my book How to Pick Quality Shares.

Put simply, quality shares have the following qualitative and quantitative characteristics:

 

1. The companies provide goods or services that are difficult for competitors to copy or they are the lowest cost operators in their field.

2. Have high profit margins – typically more than 10 per cent

3. Have high returns on capital employed – typically more than 15 per cent.

4. Turn most of their profits into cash.

5. Do not have lots of debt

6. Are not expensively valued. You have to pay up for quality, but a one-year forward rolling PE of more than 30 times is too much for me.

7. Most importantly, are capable of further sales, profit and cash flow growth.

 

By investing in quality businesses and not paying too much for them, it is hoped that a portfolio of shares will produce satisfactory returns over time, with the aim of doing better than investing in a cheap tracker fund. The last bit is not easy.

Below is a portfolio of quality UK and US shares that I have been running for just over a year. I believe most of the shares meet all of the criteria mentioned above.

I must make two things very clear. First, the shares in this portfolio are not recommendations to buy them, but to be used as an illustration of my preferred stock-picking approach. I set up this portfolio just over a year ago to run my Sipp.

Second, as writers for the Investors Chronicle are not allowed to own shares that they write on, I no longer own this portfolio. However, I have kept on managing it as a fantasy Sipp portfolio as if it was still my real Sipp. Since I joined the IC in August 2018, I have added Avon Rubber and McDonald’s to the portfolio.

This is a portfolio of UK and US shares. I believe it is very difficult to put together a diversified portfolio of UK quality shares. The US is home to many of the world’s best companies and many UK brokers make it relatively easy to buy and sell US shares.

The portfolio was initially equally weighted in 20 different shares. It currently has 21 shares weighted as follows:

The aim is to compare this portfolio’s performance against the following quality investment funds, the FTSE All-Share index and a S&P 500 tracker fund:

 

  • Fundsmith Equity
  • Finsbury Growth & Income Trust
  • Lindsell Train Global Funds
  • Castlefield UK Buffettology
  • Scottish Mortgage Trust

 

These funds are run by very talented people with very good long-term track records. Over one year and year to date, my model portfolio has done quite well, but sticking your money in a S&P 500 tracker fund without having to go through all the research and stock-picking has been a very good home for your money and shows you how difficult it is to beat the markets.

This model portfolio is aimed at practicing inactivity and is not intended to change much. I will provide an update in every week’s newsletter with comments as necessary. I hope you find it interesting.

 

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