Summer holidays are ending, children are going back to school and students are returning to universities.
The back-to-life, back-to-reality mood is the ideal moment for some homework of the investment kind.
This involves checking the contents of your portfolio to make sure it contains the right building blocks.
These are the funds and trusts that aim to supply long-term appreciation potential, plus a measure of peace of mind. It is a mix that wins top marks for most. Investing should involve excitement – but only some of the time.
Investment professionals stress the importance of these core holdings, but they also emphasise the need to routinely reassess your choices.
Could you be relaxing back, unaware that fast-changing realities are making your portfolio look outdated today, let alone in 20 years’ time?
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Ideal time: After summer, the back-to-life, back-to-reality mood is the ideal moment for some homework of the investment kind
If a portfolio refresh or makeover should be your autumn assignment, here’s the action plan to follow…
Uncover the facts
Factsheets, updated monthly and available online, spell out the largest holdings of funds and trusts.
These details may shock those who assumed that the description ‘global’ would mean an assortment of shares in a whole host of markets.
Instead, the fund or trust in question may be almost exclusively focused on shares in the US Magnificent Seven of tech: Apple; Amazon; Microsoft; Nvidia; Tesla; Meta (the Whatsapp and Instagram group); and Google-owner Alphabet.
If you have opted for a tracker fund which mimics a stock market index, this risky level of concentration may be even greater, since, as Chris Rush, investment manager at asset manager IBOSS, says: ‘The US now makes up 72 per cent of global indices which will, of course, be reflected in the fund’s holdings.’
You may be sanguine about this. After all, Nvidia, the Silicon Valley colossus behind the microchips that power the Chat GPT artificial intelligence (AI) system), is the world’s most valuable company. It is also at the vanguard of seismic transformation.
But you probably require more variety on a long-term basis – and to assure unbroken slumber – given the concern over the potential over-valuation of the Magnificent Seven and other tech names.
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Follow the pack leader
There are some 4,700 funds, including exchange-traded funds (ETFs) and another 350-or-so investment trusts.
Each player in this absurdly over-supplied market promises to be a winner, but this is obviously impossible.
It is worth checking whether those in which you are placing your faith appear on the best-buy lists compiled by the investor platforms AJ Bell, Bestinvest, Hargreaves Lansdown and Interactive Investor.
If your holdings do not appear, this is not a message to sell, but it is worth comparing the return you are receiving with the gains being made on the best-buys.
Bestinvest draws up a list of ‘dog’ or woefully underperforming funds and trusts, together with suggestions for superior replacements.
The edition, published earlier this year, revealed 137 dogs containing £67.4billion of the nation’s savings.
The main offenders included ESG (environmental, social and governance) funds and others including Lindsell Train UK Equity, once seen as the bulwark of a portfolio.
The new, more vibrant mood in the UK markets may reverse this trend, but holders of the fund will need to monitor its progress and take action if improvement does not materialise.
Take a cautious approach
The Troy Trojan Fund holds a mix of bonds, gold and shares – a combination that should provide comfort and reassurance.
Dan Boardman-Weston, boss of BRI Wealth Management, says Trojan’s managers have ‘proved adept at limiting downside in downturns’ which makes the fund an ‘all-weather choice’.
Ben Yearsley, of Fairview Consulting, is also a fan of the fund, which has a sister investment trust, Personal Assets, with an almost identical portfolio.
A specialist fund may seem a more hazardous proposition. But, occasionally, the opposite may be the case.
Yearsley says: ‘Polar Global Insurance may sound niche, with its investments in lesser-known US insurers, but it’s one of the best funds for delivering long-term, providing returns of 10 per cent a year since its launch 20 years ago.
Darius McDermott, of Fundcalibre, has two ‘solid, low-stress’ multi-asset recommendations: BNY Mellon Multi-Asset Balanced; and Orbis Global Balanced. He says: ‘Orbis Global Balanced has been one of the most consistent performers.’
Go global
McDermott picks Brunner, a global investment trust that does not focus solely on the Magnificent Seven.
AutoTrader, Shell and Visa are among the trust’s bets, as well as M7 member Microsoft.
McDermott says: ‘The trust’s 53-year record of growing dividends speaks for itself.’
Brunner is one of building blocks of my portfolio. I like to have fun with my investments, but constantly walking on the wild side is not my thing.
The mantra of the management team at the Morgan Stanley Global Brands fund is: ‘Don’t lose money.’
As McDermott says, this is reassuring, as household names are among the fund’s largest positions.
On the list of brands are Aon, the professional services conglomerate, L’Oreal, the French beauty business, and Relx, the British analytics specialist.
Microsoft also features, but you do not need to avoid M7 members – perhaps just limit your dependence on them.
Back Britain and Europe
Wall Street’s conviction that British companies offer unbeatable value at present suggests that UK funds should establish a firm place in your portfolio.
Dan Boardman-Weston likes Artemis UK Select, whose holdings include Barclays, NatWest and Rolls-Royce.
He also highlights WS Gresham House UK Smaller Companies whose holdings include construction group Costain and wealth manager Brooks Macdonald.
Chris Rush’s UK selection is Fidelity Special Situations which owns FTSE 100 members such as Aviva.
Just Group, the retirement specialist, is another holding, although it is about to be taken over by the Canadian private equity group Brookfield.
US investors are also excited about the prospects for Europe. Rush’s pick is Henderson European Smaller Companies that invests in companies of which you’ve probably never heard.
Andritz, the Austrian hydropower equipment maker, is an example.
Embrace technology
Your scrutiny of your portfolio may reveal that the Magnificent Seven and the other titans of tech barely make an appearance.
But if you wish to venture into this sector, where share prices have soared amid the hype over AI, Boardman-Weston warns that ‘current valuations look highly stretched and shares may even be poised for a fall’.
He argues it may be wise to look into funds and trusts with a diverse range of holdings, such as Polar Capital Global Technology or the Liontrust Global Dividend fund. This fund has stakes in Meta and Walmart, too – the US discount retailer which is adeptly deploying AI to cut costs.
There is also a stake in Eli Lilly, the American pharma giant that makes Mounjaro and Zepbound, two of the most successful weight-loss drugs.
US broker Morgan Stanley is forecasting that by 2030, the market for these products is set to increase to $150billion, up from its earlier estimate of $105billion.
Morgan Stanley likens the potential growth of the fat jab and fat pill market to the adoption of smartphones. If you are looking long-term, this is the kind of transformation you should be seeking out.
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