Having made wholesale changes to my own portfolio earlier in the year, the end of 2023 will be one of very little movement in my ISA.
I am comfortable with my holdings, with some bonds, a couple of global funds (one active and one passive) and some exposure to the emerging markets. It feels like a solid, if unspectacular, mix.
But with a new conservatory roof to pay for (mine has sprung a leak), I don’t have the luxury of putting away cash for years. Indeed, I am already starting to draw some money out to pay for this unexpected cost.
I will not be the only one having to watch the pennies this Christmas, or indeed the only one that might need to dip into savings.
This week the Bank of England continued to pause interest rates, but at 5.25% they remain prohibitively high for most people with mortgages, debts and other bills. Add on that inflation remains well above the target 2% and it could be quite an expensive month.
One area I am interested in rethinking, however, is my daughter’s junior ISA. With some help from the grandparents, she has now accrued her first £1,000 in savings.
At present she is invested in the same global equity tracker that I am: the Vanguard LifeStrategy 100% Equity fund. I like this selection because it is overweight the UK, which seems like a good bet over the long term, particularly at present, given the rhetoric around the overvalued US market and how cheap UK valuations are.
Now could be a good time to diversify her JISA. I put £50 per month away into her account and think 2024 will be the year that I start to add something more racy into her portfolio.
Investment trusts are the logical choice – as there is a plethora of private equity and other areas that look appealing over the long term.
But Hargreaves Lansdown charges £11.95 per purchase – or 23.9% of the monthly amount I am able to put in. So as much as I would love to look at that space, economically it does not make sense.
As such, I am thinking of turning to smaller companies, which have underperformed over the past few years but seem a good place to invest over the long run. I am thinking of doubling down on the undervalued thinking and also picking a UK fund.
I have previously invested (and done well) with the abrdn UK Smaller Companies fund when it was run by Harry Nimmo. Since his retirement at the end of 2022 it has been helmed by FE fundinfo Alpha Manager Abby Glennie and Amanda Yeaman, who worked with Nimmo from 2019.
I am sure they are excellent managers, but having never met either in person means I am hesitant to go down this route. Additionally, the past two years have been particularly tough for the fund, which made a 34.9% loss in 2022 and a 7.8% loss year to date – both bottom-quartile returns in the IA UK Smaller Companies sector. Although there could be a lot of catch up, I do not know enough about how they run money to make an informed judgement.
If I am to make a change, I am minded to pick a fund manager I have interviewed in my career (and thought came across well), that has performed well and that offers something completely different.
If I decide to make the change, there are several choices I could make, but standing out is the WS Gresham House UK Micro Cap fund managed by Alpha Manager Ken Wotton. Top quartile over 10 years with a 105.4% return, the fund has also held up okay over the past year, eking out a 1.1% return over 12 months when most of the sector has fallen.
Wotton uses a private equity approach to small-cap investing and is able to leverage the firm’s private equity research team to get an inside track on new companies coming to market.
The fund also invests in the micro-cap space, perhaps the most volatile but also potentially richly rewarding end of the market, with few household names.
WS Gresham House UK Micro Cap is recommended by our in-house team at FE Investments, who noted that the fund has recently been running its winners longer than usual – something I am also keen on.
As we come towards the end of the year, I may decide not to take the plunge, but it is something I am considering.