The 12 days of Christmas for canny investors
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
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It might be tempting to splurge on Christmas gifts and treats, especially if this particularly bleak midwinter sees you far from loved ones or feeling lonely, and you have surplus funds sitting in the bank.
In a year when many people, unable to spend in shops and restaurants, have become “forced savers”, why not consider gifting money instead to your family and loved ones?
To make this more attractive than simply giving a cheque, why not give a carefully selected investment? It should last longer than an Xbox, could spur an interest in financial education and will at least give you the opportunity to talk about something other than Covid-19 and Brexit. Plus, the pandemic has also focused many people’s attention on the need for a long-term investment plan — this could be a helpful kick-starter.
Our 12 funds of Christmas, based on the traditional song, are not personal recommendations but ideas to explore. We recommend that you discuss them with loved ones — perhaps do a bit of research together each day of the festive period. This is not a joke — HM Revenue & Customs reports many tax returns are filled out during this period, so why not research investments?
On Christmas Day we suggest you find your partridge, a bird considered full of wisdom, being closely associated in Greek mythology with Athena, the goddess of wisdom. Clever investors know they cannot control performance, but they can control costs. So a smart choice would be a low-cost, highly diversified, global multi-asset fund, perhaps investing in trackers (index funds), which aim for growth in line with stock market performance, as opposed to active funds planning to beat the market (which may underperform).
With a tracker fund, you might catch any Santa rally — the seasonal upsurge in shares that traditionally occurs between Christmas and New Year — though there are no guarantees that we will see one in 2020.
Vanguard Life Strategy 80% Equity, BMO Sustainable Universal MAP Growth (a low-cost active fund), Fidelity Index UK.
After the largely housebound partridge, we turn to the next gift, two turtle doves — migratory birds that annually cover big distances. Investors too must look far and wide in search of opportunities, not least in the US, the largest global financial market and the most important overseas destination for British savers.
Two turtle doves to consider
Vanguard US Equity Index Fund, Premier Miton US Opportunities.
Next up are more airborne gifts — three French hens, followed by four calling birds, which together develop a European theme. The original calling bird, or “colly bird”, was the European blackbird as “colly” meant black as in “coaly”.
Europe is home to some amazing global brands, such as Ferrari, L’Oréal and LVMH, which might be expected to perform well as high-spending countries come out of recession. You should have such fancy fowl in your portfolio.
European birds to watch: MAN GLG Continental European Growth Fund, Liontrust Sustainable Future European Growth, TR European Growth Investment Trust.
On the fifth day of Christmas, buy five gold rings for the enjoyment of wearing them, but be aware that the price will far exceed the meltdown value due to the workmanship and the retail mark up.
Investors usually buy gold to diversify their risk, to hedge against a fall in the stock market, or as a store of wealth when the political or economic outlook is uncertain. You can buy gold coins or bullion if you have a secure place to store them. However, many investors prefer to buy the precious metal using a low-cost physical gold exchange-traded commodity, which holds bullion on your behalf and can be easily bought and sold. Others look to funds that invest in gold miners. But don’t be dazzled, even at Christmas — limit gold and gold mining to a small portion of your investments because it can be volatile.
Gold ring alternatives
iShares Physical Gold ETC, Merian Gold & Silver Fund, BlackRock Gold & General Fund.
Six geese a-laying makes me think of income funds, which are popular with retired investors and can also be used by investors growing their money, if they reinvest the income. And, for extra diversification, I am adding the next gift in the song — seven swans a-swimming, as these too produce plenty of eggs.
The UK has long been the goose that laid the golden income egg for many investors, but this year UK dividends — the regular income paid out by many stock market listed companies — have been scarce.
So I am suggesting you diversify your income sources which is easily done as geese and swans are plentiful elsewhere in the world.
Geese and swan egg-layers
Royal London UK Equity Income, City of London Trust, Morgan Stanley Global Brands Equity Income Fund, Guinness Asian Equity Income Fund.
Days eight and nine of the Christmas 12 bring women to the party — the milkmaids and the ladies. Even today you may struggle to find a female fund manager: last year Morningstar found that investors in UK funds are more likely to have their money managed by a man called David than a woman.
But some of the best managers are women: in August, Goldman Sachs found that US female fund managers had outperformed their male colleagues so far in 2020, beating them in the worst of the turmoil of the pandemic.
Milkmaids and ladies to follow
Karina Funk, head of sustainable investing at Brown Advisory, and manager of the US Sustainable Growth Fund, Catherine Stanley, manager of BMO Responsible UK Equity Income, and Laura Foll at Janus Henderson, who co-manages Lowland Investment Trust.
Ten lords a-leaping gives us time to pause and look up some advice from iconic investors from history.
Lords of investment
Benjamin Graham, John Templeton, Peter Lynch and John Maynard Keynes. They were, in order, the inventor of investment analysis, the pioneer of global mutual funds, the former head of Fidelity’s flagship Magellan Fund, and the father of Keynesian economics.
Their lordly investment wisdom includes: “The intelligent investor is a realist who sells to optimists and buys from pessimists” (Graham) and “Successful investing is anticipating the anticipations of others” (Keynes).
Next up are Eleven Pipers piping — a reminder that Edinburgh has a thriving financial centre including some major investment fund houses such as Baillie Gifford. It is worth checking out some of the funds managed north of the border. Some show their Scottish links in their names, while others are not so obvious.
Scottish Mortgage Investment Trust, managed by Baillie Gifford, was up 121 per cent over the year to December 11, driven by the performance of some of its technology holdings, while Murray International Investment Trust, run by Aberdeen Standard Investments, is a good option for income-seekers, having a dividend yield of 4.8 per cent.
On the 12th day, the last in our song, give yourself a well-earned break and contemplate this list of investment gifts — perhaps to the sound of two hits from the 1970s — Money, Money, Money from Abba and Money by Pink Floyd. Or you might prefer something a touch more modern — Independent Women, by Destiny’s Child (2001), with the great feminist, or perhaps post-feminist, line, “I buy my own diamonds and I buy my own rings”.
But whatever your musical taste, if you are thinking of finance don’t forget about tax — and give a listen to The Beatles’ classic, Taxman. It doesn’t give you twelve drummers drumming but we can do better and offer you Ringo Starr on drums, cowbell and tambourine.
Moira O’Neill is head of personal finance at Interactive Investor. She holds the investments in Vanguard LifeStrategy 80 and 100% equity funds, City of London Investment Trust and Scottish Mortgage