In the third chapter of our retirement series, in which financial journalists offer a personal perspective on their own pension portfolios, Faith Glasgow explains how heavy market falls earlier this year put retirement plans in jeopardy, but following the market recovery this is no longer the case.
As a longstanding freelance writer, my pension has been in a self-invested personal pension (SIPP) for well over 20 years.
I have to confess at this point my SIPP is not an elegantly structured portfolio. It has grown organically as I have come across interesting-sounding funds or investment trusts, and now extends to around 25 holdings – more than most financial advisers would recommend.
Nonetheless, with the prospect of a free bus pass and discounted rail travel looming large on the horizon at the back end of 2020, I was feeling quite pleased with the shape it was in at the start of this year.
My SIPP fell 20% during Covid-19 market turmoil
Smugness, needless to say, preceded painfully heavy falls in February and March, as the economic fallout of the coronavirus pandemic knocked markets worldwide for six. During that time, the FTSE 100 index lost around a third of its value, falling from over 7,500 points on 12 February to below 5,000 by 23 March.
Looking back at my SIPP statements as I write this, I remember how deeply depressing it was to sneak a peek at the state of my portfolio in the wake of the worst falls. My statement for the tax year end in early April (by which time the FTSE 100 had recovered a few hundred points but was behaving like a rollercoaster in overdrive) revealed the portfolio had lost around 20% of its value since the end of 2019.
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However, with hindsight, I realise my SIPP would have fared much worse if the portfolio had not been so diversified globally. At the start of April I had 12% in cash plus 26 holdings, the two biggest of which were global – Fundsmith Equity and Rathbone Global Opportunities. I also had regional funds covering Asia, Japan, Europe, North America and emerging markets, specialists such as Pictet-Water and TR Property investment trust (LSE:TRY) and multi-asset holdings such as Caledonia Investments (LSE:CLDN). Most of the equity investments were and still are growth focused.
I also held four UK holdings - two investment trusts with a smaller companies focus, plus Unicorn’s UK growth fund and Mastertrust fund of investment trusts – but they collectively accounted for only around 14% of the total portfolio.
How I responded to falling markets
So what happened then? While markets were in freefall I made just one sale, reducing my holding in Henderson Smaller Companies (LSE:HSL) investment trust. Its share price had plummeted in a truly stomach-churning fashion and lost well over half its value. I have long been an enthusiastic backer of small businesses, but at that point, quite apart from the immediate circumstances, I was increasingly worried that with Brexit lowering on the horizon they were likely to be vulnerable for a long while to come.
As a consequence of that sale and the brutal falls suffered by the other UK funds I held, my UK exposure at the start of April was just 8%.
Apart from that sale, which I kept in cash, I did nothing more for a couple of months – not least because I had no idea where else to move my money to, given that it was already broadly spread. I took comfort from the advice meted out by various commentators to sit tight and await recovery; and sure enough, the markets duly bounced in late March, although indices swung alarmingly from day to day for weeks following.
So far since then, my under-exposure to the UK seems to have paid off. Compared to other global markets, the FTSE 100 has underperformed in 2020 – particularly the tech-driven Nasdaq but also the broader S&P 500, China and other Asian markets.
How, then, has my portfolio done in the meantime? First, it is worth mentioning that in June and July, once the initial bout of extreme volatility seemed to have passed, I did make some changes – in particular to my emerging market holdings.
I sold BlackRock Frontiers (LSE:BRFI) and Utilico Emerging Markets (LSE:UEM) investment trusts, both of which had proved disappointing for years before Covid-19 and were also hard-hit in the market turbulence. I bought JPMorgan Emerging Markets (LSE:JMG) investment trust as a relatively steady mainstream alternative. I also sold a couple of underperforming US and Asian holdings in an attempt to streamline and reduce the number of investments a little. And I jumped on the New Covid World bandwagon by putting a chunk into Baillie Gifford Positive Change.
My SIPP has now gained 10% since the start of 2020
The other point to highlight is that certain holdings have done remarkably well in the intervening months. One obvious tech-driven example is Scottish Mortgage, which has risen roughly 28% since my last statement at the end of June; but perhaps more surprising rises come from other corners of the portfolio.
One particularly cheering recovery is that of Baillie Gifford Shin Nippon (LSE:BGS), which had been floundering for the previous year or so but has gained 32% since the end of June; my holding in Legg Mason IF Japan Equity also bounded upwards by more than 20% over that time. The new portfolio additions, especially Baillie Gifford Positive Change and JPM Emerging Markets trust, have also made meaningful gains since I bought them in July.
Of course there have been some disappointments - notably my nod to a defensive holding in the shape of RIT Capital Partners (LSE:RCP) investment trust, which took a 15% hit when markets collapsed and is still worth less than I bought it for several years ago. Unsurprisingly, the UK mid-cap trust Mercantile (LSE:MRC) has also made little progress since then.
But, overall, I am very pleased at the recovery of my SIPP. Not counting additional cash contributions, and despite the tumultuous ups and downs of the spring markets, it has gained 10% since the start of the year. Nonetheless, I am holding 15% in cash at the moment and don’t plan to invest more than a third of that for a while.
What does it all mean as far as plans to access my pension are concerned? In the eye of the market storm in late March, I assumed that the damage done would mean I’d be working perhaps years longer to try and rebuild lost capital. Now, though, I’m feeling pretty relaxed about the situation. As I’m still earning, and there’s not much point in splashing out on a senior railcard at the moment, I’m going to leave the portfolio to do its thing for a while yet.
These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.
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