The portfolio I have put together is designed for someone with at least 20 years to go until retirement.
This is crucial because the nearer you are to retirement and to actually drawing money from the fund, the less you should put into highly volatile investments. The longer the timescale, the more you can afford to put into such investments, which can and often do produce high returns – but with rollercoaster dips along the way.
This is a balanced portfolio of actively managed funds. This means rejecting the ‘death or glory’ approach of putting 100% into one emerging market fund, a strategy which is inappropriate for someone planning to use the fund for retirement income eventually.
I could have gone to the extreme of getting the balance by using global managed funds, such as Jupiter Global Managed or Skandia Global Best Ideas - these are both funds that I have used in the real world. For investors who don’t want to get involved at a sector level, I think that these funds do present an effective solution, but in keeping with the spirit of this exercise, I have rejected these in favour of buying regional, sector and specialist funds, which I also believe are capable of securing higher returns.
I have tried to spread risk across the global markets, weighting the portfolio somewhat in favour of those markets that I think will outperform.
Bottom line though, is that I am not nearly clever enough to predict what will happen next around the world – indeed, the uncertainties seem more uncertain than at any time since the last recession – so this portfolio is more about the funds and the fund managers than it is about the macro decisions.
The £30,000 Actively Managed SIPP portfolio
| Asset class | Fund | Amount | Percentage |
| UK equities (45%) | Schroder UK Alpha Plus | £3,000 | 10% |
| BlackRock UK Absolute Alpha | £4,500 | 15% |
| Invesco Perpetual Income | £3,000 | 10% |
| Artemis Special Situations | £3,000 | 10% |
| International equities (25%) | Martin Currie North American | £1,500 | 5% |
| Resolution Argonaut European Income | £1,500 | 5% |
| Neptune European Opportunities | £1,500 | 5% |
| Aberdeen Asia Pacific | £1,500 | 5% |
| Melchior Asian Opportunities | £1,500 | 5% |
| Specialist (20%) | Alliance BRIC | £1,500 | 5% |
| JPM Natural Resources | £1,500 | 5% |
| Sarasin AgriSar | £1,500 | 5% |
| Jupiter Ecology | £1,500 | 5% |
| Fixed interest (10%) | Artemis Strategic Bond | £3,000 | 10% |
I have gone for a core of UK funds which I hope will provide a solid foundation to the portfolio. The BlackRock Absolute Alpha is designed to produce positive returns even in a falling market, which I think provides a good hedge in current conditions. Similarly the Invesco Perpetual Income fund, managed by one of the few real stars of the fund management industry Neil Woodford, is a fairly defensive choice. Neil has produced market-beating returns over the long term, and the fund is weighted towards fairly defensive high yielding stocks in sectors such as Tobacco, Utilities and Pharmaceuticals.
By contrast, Schroder UK Alpha has a relatively concentrated portfolio of around 35 stocks which are predominantly larger companies, including around 13% in banks. Finally, the Artemis Special Situations fund has a wider portfolio, comprising around 90 stocks which includes some large cap, but the manager Derek Stuart has also been using recent market volatility to buy up value in small and medium sized companies. I’m hoping that this combination of funds will deliver outperformance through a range of market conditions.
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Small US allocation
I have allocated only a relatively modest 5% of the portfolio to the US, and this is driven more by a desire to achieve a good global diversification rather than through any strong belief that the US is poised to deliver outstanding returns. I have gone for the Martin Currie North America fund managed by Tom Walker.
For Europe, I have picked the Resolution Argonaut European Income; this is all about income, with a yield of almost 5.0%, and stock selection focused on strong cash flow. The Neptune European Opportunities fund, by contrast has a much lower yield – around 0.75% - but is also focused on stocks with strong balance sheets and superior growth prospects.
Moving into the more speculative sectors, for the Far East we have Melchior Asian Opportunities and Aberdeen Asia Pacific. These two funds should complement each other. The Melchior fund, managed by Henrietta Luk, is pretty volatile, with a concentrated portfolio, which is why I have balanced it off with Hugh Young’s more conservatively managed fund. Both should deliver strong long-term returns, but with very different characteristics.
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Expisure to South America, Russia
For the Emerging Markets and specialists sectors I have gone for the Allianz RCM BRIC Stars; it has some overlap with the Asian funds, but also gives me exposure to South America and Russia. The JP Morgan Natural Resources fund is another one that is not for the faint-hearted, but the fund manager Ian Henderson has an outstanding track record.
Notwithstanding the current oil price frenzy, and the fact that something is going to have to give, I believe that the long-term theme of natural resources should continue to offer opportunities for strong returns. For the same reasons, I have gone for the Sarasin AgriSar fund; this fund is focused on soft commodities, and the increasing global pressures on food supplies. The manager Henry Boucher can invest right across the agriculture supply chain, from seeds and irrigation to fertiliser and distribution.
Staying with the theme of global resources, I have also included the Jupiter Ecology fund. It is another fund that I already hold myself, and one that I believe will benefit from long-term global trends, as well as the current pressure on the oil price.
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Mixed feeling about fixed interest
I have mixed feelings about the Fixed Interest sector, and ordinarily I probably wouldn’t encourage an investor with a 20-year timescale to commit any funds to this asset class. Looking at the Barclays Equity Gilt study for example, established wisdom says that over this kind of time span equities should out-perform (though past performance is no guide to the future). We live in unusual times, though, and one consequence of the credit crunch is that there is some real value to be had in the Fixed Interest sector. So I’m throwing into the mix the Artemis Strategic Bond fund.
This is not a portfolio that I would look to tinker with too frequently – I have deliberately tried to take a reasonably long view, in recognition of the fact that most people have better things to do with their time than obsess about their pension investments. All of the funds listed here are on the Hargreaves Lansdown Wealth 150 list, which we deliberately compile with a view to which funds will stand the test of time.
In terms of reviewing therefore, I would suggest once a year, though every six months would be better; think of it perhaps at the same level as getting your car serviced (though your pension will probably be worth a lot more). I wouldn’t expect to see more than occasional adjustments to the fund choices or sector allocations, with rebalancing from time to time.
The only caveat I have is that we do live in uncertain times, so if the worst case scenarios of the credit crunch / oil shock / inflation do all come to pass, then it might pay to take a closer interest.
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Important Notice and Risk Warning
The EveryInvestor Model Portfolios are for general guidance only and do not constitute a recommendation for any investor. EveryInvestor does not provide individual investment advice. Your own personal circumstances and tax position must be taken into account in selecting investments. We recommend that you obtain advice from an independent financial adviser before making investment decisions.
