In last week’s “Closing Bell” Ken Taylor had some excellent tips for investors. In particular, he warned against overloading your investment portfolio with perceived low risk popular equities, such as UK banks.
It’s undeniable that investors who felt uneasy about equity markets last Summer, and who went largely into cash prior to September/October 2008, avoided much of the stockmarket collapses. However, if hadn’t been for the quick action of Ben Bernanke in the US, and other Central Bankers, deposit investors could have lost the lot.
But isn’t there a better way for ordinary investors to create real wealth over the long term than following a strategy based on trying to guess the best time to sell your favourite equities and sit in cash? You’ve to get both decisions right, when to sell and when to invest again and that’s not easy.
Our brains get in the way of making the right decision. And of course there’s tax bills incurred by active traditional portfolio investors, not to mention charges imposed when buying and selling.
You know, 1969 wasn’t a great time either for UK equity investors. A recession was looming and before long a favourite Blue Chip of the time, Rolls Royce, went belly up. Then came the horrendous stockmarket crash in October 1973.
Yet that was the year M&G Recovery Unit Trust was launched. Fund manager David Tucker took charge. He managed the fund until 1987 when he retired not long after the stockmarket crash that year.
So that wasn’t a good year for somebody to take over. But in stepped Richard Hughes to manage the Fund until he left the hot seat in 2000. What a relief that must have been for him as stockmarkets were plummeting thanks to the bursting of the dot.com bubble. Who would be daft enough to take over the fund at that point?
Well that’s when Tom Dobell stepped into the breach and he’s still there today. That’s only three managers in forty years. Each one took charge when it seemed the worst possible time. So what’s their record?
£1,000 invested at inception, by 1 November this year had grown to £360,000 after charges. That’s outperformed the UK Stockmarket Index six fold, and deposit investments by at least a factor of 30.
And each one of these managers believed in the same strategy. Buy shares down on their luck when nobody loves them and hold them for an average of four to five years. That’s a big difference from the average fund manager who holds for only six months and chops and changes. In my book that’s high cost speculation, not sensible investment.
David Tucker is still an investor in the fund. His investment success allowed him to retire early and he is 70 now. In a recent interview he said he envied the current fund manager because he couldn’t remember a time when there were so many opportunities for this fund to make serious returns for unit holders over the next four or five years.
It’s true Corporate Bonds have done okay in the last twelve months. Two of the leading funds are up on average about 24%, but that’s not far away from their total return over the last five years.
M&G Recovery in the last twelve months is up almost 54%, and over five years 75%. That looks okay to me.
But it’s not just about the UK. If you look at a comparison of World GDP, measuring income of world economies, at the end of 2008 compared to ten years ago, what’s striking is it shows the dramatic growth of developing countries. Their share of World GDP is up 300% in real terms over the period. And that growth will continue.
So is it more risky to invest in what’s obviously a long term trend? As always, investors should invest for the long haul with quality managers who invest in companies whose future prospects are correlated with global growth.
Written for The Scotsman
Friday, 20 November 2009
