Long-term Investment Portfolio - Part 2

In this second part of my investment portfolio blog, I will give you details about my investments in Active mutual funds. Over the last few years, I've been adding and removing a few mutual funds in my portfolio as I wasn't finding the right balance of enough diversification and at the same time, concentrated portfolio because I didn't want to stretch my time to look after 10s of mutual funds regularly. I think I have now completed the construction of my core holdings and will share my ideas here.

My investment philosophy is to buy and hold. And, hence, naturally, I'm drawn to mutual funds where investment managers have a similar style in their investments, either in stocks or in bonds, with a very low turnover rate. Currently, I'm holding good position sizes in each of the below-mentioned funds.

As with any investment decision, it is very likely that I may change my view on these funds in the future and increase or decrease my holdings. It is also possible that these funds may get a new investment manager or a different stratergy that may change my original thesis. And, hence, you should need to do your own research before you decide if any of these funds are a right choice. I have given a percentage allocation recommendation for each of these funds where I have assumed that I have only these assets in my portfolio.

1. Fundsmith Equity Fund
Terry Smith, chief investment manager, and his colleague, Julian Robins, run this fund with 20 to 30 share holdings. Their Annualized Rate of Return since 2010 has been +19.8%, which is exceptional when you compare it to Index funds or return by other active managers in the similar asset class. Of course, there is no guarantee that the return will be repeated for the next 5 or 10 years, however, the investment team is sticking with their investment philosophy and I'm very optimistic that the fund will generate a good rate of return in the future. I would allocate 25% of my investment assets in this fund.

2. Lindsell Train Global Equity
This fund is similar to Fundsmith and investment managers hold 20-35 companies in this mutual fund. The mutual fund company, Lindsell Train, has a few funds in their portfolios, however, this Global Equity Fund combines the best ideas from their other funds and bring US, Japanese, UK and European companies in one fund. The company publishes very detailed monthly reports and annual report is very educational as well. I would allocate 20% of my savings to this fund.

3. Stewart Investors Asia Pacific Leaders
The above two funds invest in the developed market only. For those who are looking to invest their savings in China, India, etc 'emerging market' companies, I found this fund is the best in class. Similar to Fundsmith and Lindsell Train, this fund has very few holdings and invests in large and mid capitalization equities in the Asia Pacific region (excluding Japan). I would allocate 20% to this fund.

4. Marlborough Global Bond
Marlborough Fund Managers' founder Geoff Hitchin launched this award-winning Marlborough Global Bond Fund in 1987 and remains at its helm today. The fund invests in bonds issued by governments and companies around the world. Portfolio turnover rate is 20.52% and the fund is unconstrained in its allocations to countries and regions. I would allocate 20% of savings to this fund.

5. MandG Emerging Market Bond

At least 70% of this fund's asset is invested in bonds issued by the governments, government agencies or companies of emerging market nations. The fund is currently offering more than 5% of underlying yield. Compared to the above 4 funds, however, this fund may have wider price fluctuations in a short period but this shouldn't concern a long-term investor. I would allocate the remaining 15% of my asset to this fund.

Important Information:  This is not an investment advice and hence you will need to decide if an investment is suitable for you. If you are unsure whether to invest, you should contact a financial adviser.

Long-term Investment Portfolio - Part 1

In this blogpost, I will go through my Investment Portfolio, focusing on Index Funds. As a long-term investor, my aim is to preserve and grow the real value of my assets. World's most renowned investors, including Howard Marks & Warren Buffett, suggest low-cost tracker (Index) funds as a best for retail investors to invest their money in. These funds should be used for a long-term investment (5-10 years) and not advised to do short term trade in and out.

Most of the below funds are available as an either income or accumulation share class for the UK investors. Furthermore, most of the funds are also available with another layer of discounts as some of the investment platforms have negotiated further discounts on already low-cost ongoing charges (OCF).

1. BlackRock Corporate Bond Tracker Fund

This is a low cost tracker fund which tracks the performance of the Markit iBoxx GBP Non-Gilts Overall TR Index. The OCF for the fund for a retail investor is 0.16%. The fund is currently yielding just above 3% and gives a good exposure to world's corporate bond market.

2. Legal and General European Index

Legal and General Investment Management has done a great job of providing very low cost index funds across the major investment sectors. This is an Equity index fund tracking the performance of the FTSE World Europe (excluding UK) Index. The Index consists of a broad spectrum of European companies and currently advertised at OCF of 0.12%.

3. Legal and General UK 100 Index Trust

It is a well known fact that most of the investors have a home bias when it comes to investing their savings. Being aware of that and also knowing that a few of my individual stock investments are within FTSE 100 companies, I have a minor portfolio holding in this fund.

4. HSBC FTSE 250 Index

Again, this is one of my smaller portfolio holding. This fund provides tracking of FTSE 250 Index and has OCF of 0.18%.

5. Legal and General US Index

This fund replicates the performance of FTSE USA Index. This index has a few more companies compared to SP 500 index. For the UK retail investor, I found that this fund provides the lowest OCF compared to an SP 500 index fund and hence I have selected this fund over an SP fund.

I do not have any emerging market index tracker funds. There are few reasons behind this as I think most of the emerging market indices do not correctly represent emerging or developing markets. The second reason is that I do not believe that those markets are efficient or free from inside trading.

I hope the above list will give you a good starting point to start constructing a balanced portfolio and than add an active investment funds. It is possible to reduce the number of Equity Index funds from four to a single fund by investing in an International Index Trust if you do not want to allocate your funds to these individual funds.

I will write a separate blog featuring my investments in Active Mutual Funds.

Important Information: I do not give investment advice so you need to decide if an investment is suitable for you. If you are unsure whether to invest, you should contact a financial adviser.

Value Investing

Few years ago, while reading an article about various investing methods, I came across the value investment approach, which was first introduced by Benjamin Graham, and made popular by Warren Buffett. Those who are not familiar with either of them, I would recommend these books: 'The Intelligent Investor' by Benjamin Graham, and either 'The Snowball' by Alice Schroeder or 'Buffett' by Roger Lowenstein.

At the heart of the Value Investing, there is a simple concept of buying a share in the company where its shares are selling at considerably less price than company’s total net asset (generally, value of its tangible asset) value and sell the share when it reaches near to that value. Of course, there is a lot more investigation required by an investor to find out a company's valuation and where the other part of the value investment principle, of 'margin of safety', becomes invaluable.

If you would like to start investing in the UK and EU based companies or want to start your research, I found below websites are very useful:

https://www.fidelity.co.uk [Mainly mutual funds]

http://www.hl.co.uk [Mutual funds and shares]

https://www.halifaxmarketwatch.co.uk [Mainly stock markets]

It has never been easier and cheaper to start investing, especially true for the UK residents. One can start investing in the stock market (or in bonds, gold, etc. for that matter) with as little as £25 per month with low management fees.

Some of the UK based Mutual fund managers I follow are:

http://www.lindselltrain.com [Fact sheets & insights]

https://www.fundsmith.co.uk [Annual reports and videos]

http://www.sanford-deland.com [Fund based upon Buffett's investment methods]

https://woodfordfunds.com [Diverse investment although not a value investment]

and US based websites:

http://www.berkshirehathaway.com [Annual reports and letters]

https://www.oaktreecapital.com [Memos from Howard Marks]

http://www.theinvestorspodcast.com [Books reviews, interviews & Podcasts]

I leave you with the below quote which caution a potential investor before buying shares in a 'turnaround' company:

"When a management with a reputation for brilliance tackles a business with a reputation for poor fundamental economics, it is the reputation of the business that remains intact."

- Warren Buffett

Important Information: I do not give investment advice so you need to decide if an investment is suitable for you. If you are unsure whether to invest, you should contact a financial adviser.

Passion for Career, Hobby or for Life

We often see most of our friends are being passionate about their careers. Not all career opportunities give hefty financial returns. Still, most people are very ambitious about their careers. Almost everyone wants to reach to the "highest" position in their career ladder.

Some of us divert this passion to achieve something totally different. Many artists love their skills and sometimes go beyond anyone's imagination to achieve their dreams. They create astonishing art even their career doesn't bring financial or social stability. While others, devote their entire life for the service to others.

I have a passion for day-to-day life. It's certainly not a struggle for me to survive a day. However, I like to make the most out of everyday. For some unknown reason, I "don't" have any dream which I want to achieve in my life. For me, living a life is an ultimate satisfaction. That doesn't mean that I don't think about short term goals. I do. And I'll try my best to fulfil them. My passion is knowledge, I like to know more, want to understand everything there is in the nature to understand, want to live in the present time and enjoy the most out of it. 

As Gautama Buddha has said,

"Do not dwell in the past, do not dream of the future, concentrate the mind on the present moment."

We can't change what has already happened in the past. In the present moment, we can't do anything to influence our faraway future. Hence, I think the best way to enjoy the life is to be passionate about the life and enjoy the current moment.

Most people have few goals in their life, they may want a managerial post at some point in their career, earn thousands if not millions of pounds, have a luxurious life style, own the costliest technology products, have a big and a beautiful house, etc etc. For me, I have none of these things as goals. I believe that if I can be here, without thinking about the future and planning ahead for 2-5 years, I think I can be a good position with just living a life without targeting any of these so called "goals". Money does bring happiness. More money also brings more happiness and more ownerships of the objects. However, there is no end to this acquisitiveness.

One should feel satisfied with what he or she owns. We should be thankful for the food and shelter. We should be more focussed towards helping family and community. We should share knowledge and have a desire to learn more. By living a simple life, we can achieve more.