Making monthly contributions of £1,000 over 30 years, which is forecast to add up to £360,000, 27-year-old Tom Sainsbury has some big decisions to make about his portfolio.
The engineer, from Plymouth, has moved from a workplace pension into a self-invested personal pension and has selected seven funds to invest regularly in. These include the £29bn Fundsmith Equity fund, which owns technology and consumer goods giants, as well as the £7.3bn Baillie Gifford American, which buys fast-growing US-listed shares, such as Tesla.
His funds concentrate on buying relatively expensive and highly regarded “growth” stocks rather than out of favour “value” shares.
“I have picked my investments by following the financial press, such as Telegraph Money stories, and by looking at fund portfolios and manager commentary to select strategies which align with how I want my money invested,” said Mr Sainsbury.
His biggest concern is that he does not own enough cheap shares, so his portfolio will be vulnerable if there is a change in which types of stocks perform well. The past decade has been brilliant for technology stocks, but the tide could be turning as inflation and interest rates rise.
“I know that I am taking a lot of risk in the portfolio, but as I am 27 and plan to invest for 30 years, I don’t see it being an issue at the moment,” he said.
“As I get closer to retirement I will reevaluate to lower risk.”
Darius McDermott, managing director at Chelsea Financial Services, said:
Mr Sainsbury has put together a good portfolio of funds with strong performance records that should grow his money successfully over his long investment period.
He has a good balance of tech-focused funds, including those centred on smaller companies, which is an area we like due to their higher growth rates than larger peers. However, he only has 10pc in Asia, via Baillie Gifford Pacific, and nothing invested in Japan. He should add money to the FSSA Japan Focus fund to correct that.
He is right when he says there are no “value” funds in the mix. For me this is an issue, and he would benefit from having one fund investing in this area to help increase returns and reduce volatility. One option is the Schroder Global Recovery fund. It invests in beaten-up shares from around the world, such as BT Group and Centrica in Britain, as well as a number of international banks and mining companies. It has around 25pc invested in Britain, which has lagged other global markets over the past decade.
High inflation and therefore higher interest rates would be good for a fund like this, but bad for the “growth” strategies he has selected.
Andrew Rees, investment manager at EQ Investors, said:
About a quarter of Mr Sainbury’s portfolios invested in British stocks, which is very high given their 4pc allocation in a global stocks tracker. In addition, it has 10pc in Marlborough Nano-cap Growth, a fund that invests in tiny companies, which is risky given how niche this investment area is.
There is also a lot invested in “growth” stocks via Baillie Gifford funds, which, as he highlighted, could be a risk if this style falls out of favour.
Nevertheless, Mr Sainsbury has chosen good fund managers and the total portfolio cost is about 0.8pc, which is not too expensive.
To improve the portfolio, he could switch from Fundsmith Equity to Fundsmith Sustainable Equity. We rate Terry Smith as a manager highly, but have recently made this switch as it removes tobacco stocks as well as Facebook, which we think is a better investment approach.
Mr Sainsbury’s portfolio is very much region-based and he could buy more global funds. Baillie Gifford Positive Change would be a good option. It is a concentrated global fund and each company’s activity in the portfolio is aligned to the UN Sustainable Development Goals.
Another one to look at is Sanlam Artificial Intelligence. It is more diversified by sector and region than the typical technology fund. While several fund managers are aware of artificial intelligence, they tend not to look for it beyond the heavyweight tech titans, unlike this strategy.