Inspired

inspired ISSUE 1 I MARCH 2014

INTERACTIVE INVESTOR’S QUARTERLY INVESTMENT

AND LIFESTYLE COMPANION

SMART ISA STRATEGIES TOP FUNDS AND TRUSTS EXCLUSIVE ISLAND RETREATS

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inspired ISSUE 1 I MARCH 2014

PUBLISHER Jeremy King INVESTMENT EDITOR Andrew Pitts DESIGN Christopher Aldridge PRODUCTION, SUB EDITING David Grove CONTRIBUTORS Richard Beddard, Faith Glasgow, Julie Fisher, Jeff Salway, Helen Pridham, Fiona Hamilton SALES Iain Adams PUBLISHED BY Moneywise Publishing Limited 2014 Interactive Investor plc Registered number: 5034730

You should remember that the value of shares can fall as well as rise. The information contained in Inspired is not intended to be a personal recommendation and you should always speak to your financial adviser before investing

Welcome to Inspired I

T JUST MAY BE THAT WE CAN START to look at prospects for investment markets with greater optimism. The UK economy appears to be entering a more buoyant phase, with business investment and confidence returning.

Meanwhile, the interests of private investors are being advanced as companies such as Interactive Investor deliver trading and investing propositions that reduce charges which have eaten into investors’ returns.

Of course, economic challenges remain, not least the outcome of unorthodox measures to bolster the global economy. Here in the UK, however, stock market valuations indicate better times ahead. It’s in this environment that we are launching Inspired, to help you take advantage of opportunities to profit from stock market buoyancy.

Inspired is a new digital magazine that brings together the best thinking and analysis from the Interactive Investor team. It complements this – in its Connoisseur section – with suggestions about how you might enjoy the fruits of your investment success. We look at beautiful and inspirational travel destinations and review top-of-the-range luxury goods.

Inspired is available to everyone who is part of the Interactive Investor community of investors and traders.

In this first edition, we’ve focused on maximising investment opportunities before the end of the tax year. We consider the funds and investment trusts that might be profitably included in an Isa and examine how Aim stocks might now become part of your Isa portfolio. We also explore the behaviour of Interactive Investor’s customers by revealing the funds and investment trusts they have been buying. Richard Beddard, our companies specialist, outlines his approach to identifying investment opportunities and explains how you can follow his activities on the Share Sleuth blog.

This edition’s Connoisseur section takes you to some of the world’s most exclusive holiday islands, considers some of the most distinctive timepieces available to discerning buyers and reflects on the impressive qualities of the Argentinian wines now widely available in the UK. I hope you enjoy this first issue of Inspired. Issue two will propel itself through the ether to you in June.

Jeremy King, publisher

Inspired

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CONTENTS 41

FEATURES 5 | MARKETS IN MOOD TO ENDURE IN 2014 Stock markets should muddle through well enough this year, with equity values likely to withstand any economic headwinds

10 | FEBRUARY’S TOP TRUSTS AND FUNDS We reveal the month’s most in-demand investment vehicles on Interactive Investor and in the wider market

12 | SMART STRATEGIES FOR SAVVY ISA INVESTORS Our experts disclose their top tips for getting the maximum out of your Isa investments

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16 | AIM FOR THE BEST Risk tolerant Isa investors can now use Alternative Investment Market shareholdings to bag spectacular returns

20 | PERFECT YOUR TRUST AND FUND PORTFOLIO We round up a collection of investment funds and trusts our experts believe are likely to prosper in the year ahead

29 | SHARE SLEUTH The Share Sleuth portfolio is dedicated to showing investors how to track down good companies at bargain prices

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20

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CONNOISSEUR 40 | AN ODE TO JOY

53 | GEMS

Savour the fruits of your success with our guide to some of the finer things in life

Coloured diamonds make durable assets that, unlike shares, give lasting pleasure

41 | TRAVEL

54 | WINE

We explore some of the world’s most tantalising tropical islands

Make the most of Argentina’s deeply satisfying Malbec wines

50 | CARS

58 | WATCHES

BMW’s new M4 concept super coupe will soon be turning heads

Top-quality vintage watches have timeless charm and value

THE MARKETS IN 2014

MARKETS SET TO MUDDLE THROUGH IN

2014 Equity markets may experience mixed fortunes this year, but they are likely to prevail against any economic headwinds overall

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tocks bounced back after January jitters – to such an extent that Bank of America’s chief technical analyst changed his mind to assert that ‘the larger uptrend has resumed’.

But is this true for stocks generally?

Certainly, a look at the FTSE 100 confirms that the recent bull market trend remains intact, despite fear that the emerging markets crisis could fester.

The ousting of Viktor Yanukovych as president of Ukraine looks unlikely to become a wider eastwest conflict, despite the Russian military’s show of force in Crimea.

The now familiar theme of markets muddling through looks set to persist. Shares appear fairly valued while the fundamentals look to have improved during February. The G20 – the world’s 19 richest nations and the EU – have committed themselves to injecting $2 trillion (£1.19 trillion) into the global economy over the next five years to raise global growth by at least 2 per cent by 2018.

The group is shunning austerity to focus on private sector infrastructure spending, encouraged by tax breaks.

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THE MARKETS IN 2014

The crisis in Crimea is unlikely to derail or impede the slow but steady progress in global stock markets seen so far this year

Inevitably, there is scepticism that reassuring words will be translated into practical deeds, but they add to positive sentiment amid improving economic numbers in the US and the UK. The principal risk is that the US economy will stutter just as the US Federal Reserve commits to a monthly $10 billion winding down of its monetary stimulus and sustains this drawdown rate to show itself to be more consistent with guidance than it was last year.

Recent US data has been mixed, and analysts are unsure how much the harsh winter in the US should affect their calculations. Yet home sales jumped by 9.6 per cent in January, the fastest rise in more than five years. This suggests job numbers, incomes and all-round consumer confidence are improving, following years of worry that the US economy and house prices might falter again. While pent-up demand probably explains some of the improvement in house sales, the rise is especially notable given that higher mortgage rates since mid 2013 have limited mortgage affordability.

US corporate earnings have grown stronger than expected – by about 8.5 per cent in the fourth quarter of 2013. Some 72 per cent of S&P 500 firms beat expectations according to FactSet Research.

Sales have also improved, although overall revenue growth remains weak and needs watching, because a disparity between growth and profits is liable to puncture optimism just as company shares have soared amid loose monetary policy.

Keep in mind the fact that the US economy has yet to break a habit of allowing growth spurts to fade. GDP rose at an annualised rate of 3.2 per cent in the fourth quarter of 2013 and 1.9 per cent overall last year, while the consensus is for 2.8 per cent for 2014 and 2.9 per cent for 2015. Similarly, after the mid 2009 recession, GDP grew at an average annualised rate of 3.4 per cent in the second and third quarters of 2010, and then by 4.3 per cent in the fourth quarter of 2011 and first quarter of 2012. Yet the improvement was short-lived.

Last year, rapid inventory accumulation boosted GDP at a level that is unsustainable. However, private consumption growth is running at its fastest rate in three years.

Overall, the economic figures are mixed, and it remains to be seen where they will head next as the Fed’s stimulus expires.

The recovery in the UK appears to be strengthening. The economy officially grew by 0.7 per cent in the fourth quarter of 2013. A growth rate of 1.8 per cent was estimated for the year as a whole.

Significantly, business investment rose by 2.4 per cent in the third quarter of 2013 and

IN THE US JOB NUMBERS,

INCOMES AND ALL-ROUND CONSUMER CONFIDENCE ARE IMPROVING

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THE MARKETS IN 2014

Confidence in the economies of key Asian economic powerhouses such as mainland China, Singapore and Hong Kong (pictured) remains high

8.5 per cent in the fourth quarter of 2013. This has been the missing link in a recovery feared to be overly dependent on rising house prices and consumers resorting to raiding savings to fund spending.

There remains a lot to achieve on the export front and interest rates are expected to rise from 2015, although the Bank of England is adamant that this will be gradual.

A potential Labour general election victory by May 2015 does not seem to trouble investors at the moment.

The net balance at the end of February appears positive for shares because GDP and corporate profits are the factors that influence it most, and the situation in continental Europe (beyond youth unemployment) is not proving as dire as many feared.

It is frustrating for long-term investors with fresh money because equity valuations appear to broadly price in prospects, so they typically need to take a ‘momentum’ view, which is less comfortable for them than when value yardsticks are in their favour.

But unless company earnings stall, the downside looks limited for now.

The emerging markets crisis has not

spread like some predicted it would, and China’s debt problem could take a while to erupt, if it ever does. Even if it does, China’s communist government can deploy strong economic and social controls.

It is interesting that, in a recent television programme on risks in China, the BBC’s business editor, Robert Peston, initially sounded as if he was marking the country out for trouble. However, he softened his stance a little towards the end of the programme.

Oil prices have not capitulated – as was feared at the start of the year – and created revenue problems for Russia and Saudi Arabia, possibly showing that Saudi Arabia can still control prices to a large degree.

Complacency is a danger given the real risks associated with the Fed winding down its stimulus and doubts over whether corporate revenues can genuinely improve. However, figures in February have supported the trend towards muddling through big risks seen during the eurozone debt crisis two years ago, the bailouts for Greece and Cyprus, and the political posturing over the US debt ceiling. While interest rates remain low, shareholders can take heart that their risk/reward profiles look supportive overall, and traders can keep their fingers crossed for more volatility.

THE EMERGING MARKETS CRISIS HAS NOT SPREAD AND CHINA’S DEBT PROBLEM COULD TAKE TIME TO ERUPT, IF IT EVER DOES

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SCOTTISH MORTGAGE INVESTMENT TRUST

WE LIVE IN A PERIOD OF EXPONENTIAL CHANGE PROVIDING FANTASTIC OPPORTUNITIES FOR STOCK PICKERS LIKE US.

Freedom to roam.

We’re 100% committed to making sure our fund managers never have a restricted outlook.

That way, the long-term view is a clear one. So what’s the secret to their liberated attitude?

Well, our flagship fund, the Scottish Mortgage Investment Trust, is a global stock-picking fund that is completely free of asset allocation constraints, that ignores index weightings and that selects stocks purely on their merit. We feel that this freedom allows us to focus on the long term.

The Scottish Mortgage Investment Trust is managed by Baillie Gifford.

Please remember that changing stock market conditions and currency exchange rates will affect the value of your investment in the fund and any income from it. You may not get back the amount invested.

You can purchase Scottish Mortgage from Interactive Investor. Alternatively you can invest directly with Baillie Gifford through our ISA. Open an ISA with Baillie Gifford before 30 April and you can receive a £10 Amazon gift card*.

For more information contact Baillie Gifford on 0800 917 2112 or visit www.scottishmortgageit.com Baillie Gifford – long-term investment partners *For a limited period and new eligible ISA customers only. Terms & Conditions and minimum investment amounts apply. Please refer to our website or the application pack that we will send you for full details. Your call may be recorded for training or monitoring purposes. Baillie Gifford Savings Management Limited (BGSM) is the manager of the Baillie Gifford Investment Trust ISA and is wholly owned by Baillie Gifford & Co, which is the manager and secretary of the Scottish Mortgage Investment Trust PLC. Your personal data is held and used by BGSM in accordance with data protection legislation. We may use your information to send you information about Baillie Gifford products, funds or special offers and to contact you for business research purposes. We will only disclose your information to other companies within the Baillie Gifford group and to agents appointed by us for these purposes. You can withdraw your consent to receiving further marketing communications from us and to being contacted for business research purposes at any time. You also have the right to review and amend your data at any time.

TRADING

YOUR MONTH IN THE

MARKET Julie Fisher reveals February’s 10 most popular trusts

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losed-end fund investors stuck closely to income trusts in February but seemed more willing to accept risk than those purchasing openended funds, the latest data from Interactive Investor shows.

The three most popular trusts were regular investor favourites: Baillie Gifford’s Scottish Mortgage Investment Trust, Investec’s Temple Bar Investment Trust and Frostrow Capital’s Biotech Growth Trust.

While open-ended fund investors looked mainly to UK equities for income, two of these three top investment trusts have a worldwide focus. James Anderson and Tom Slater’s Scottish Mortgage Investment Trust, which posted a sector-beating 27 per cent return over one year and 56 per cent over three, invests in worldwide large-cap equities such as Google and Apple, while the Biotech Growth Trust taps the worldwide biotechnology industry through US equity investments.

This trust, managed by Geoffrey Hsu and Richard Klemm, also beat its sector, the biotechnology and healthcare sector, with returns of 49 per

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INVESTORS RETAINED AN INTEREST IN INCOME AND SMALLERCOMPANIES TRUSTS IN FEBRUARY

Bankers trust favours a mix of shares in UK and multinational companies

cent over one year and 229 per cent over three.

Alastair Mundy’s Temple Bar Investment Trust focuses on UK equities, including GlaxoSmithKline, Vodafone and Royal Dutch Shell.

It failed to outperform the UK equity income sector over one year, despite its popularity, posting a return of 18 per cent compared with the sector’s 21 per cent. However, it performed better over three years, returning 62 per cent against the sector’s 56 per cent.

INCOME AND SMALLER COMPANIES STILL IMPORTANT Investors retained an interest in income and smaller-companies investment trusts in February – extending the same purchasing trend in January. And they continued to flock to UK-focused trusts as a safe haven.

Although two of the 10 most-bought trusts, Murray International Trust and Bankers Investment Trust, invest in international equities, both counted UK equities among their top holdings, with the Bankers trust favouring BP, GlaxoSmithKline and Vodafone.

The other popular

income trust, Premier Asset Mangement’s Acorn Income fund, invests in UK mid- and large-cap equities, including Electrocomponents, John Menzies and Cineworld Group.

It returned 46 per cent over the past year and 144 per cent over the past three. It was the seventh most-bought trust by Interactive Investor users in February.

The UK focus also characterised investors’ smaller-company trust choices. The UK-favoured Henderson Smaller Companies Investment Trust and BlackRock Smaller Companies Investment Trust, in sixth and tenth place respectively.

Both benefited from the UK housing boom through investments in Bellway and Ashtead Group, and both outperformed the UK smaller-companies sector, which recorded returns of 37 per cent over one year and 66 per cent over three.

ANT ORANGE

THE 10 TOP MOST-BOUGHT FUNDS

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merging markets fell back out of favour among fund investors in February, while purchases of UK and smaller company funds held firm, the latest data from Interactive Investor shows.

After a brief revival for emerging markets in January, when three EM funds were among the 10 most bought, February’s most-popular funds were generally UK-focused.

Paul Marriage’s

Cazenove UK Smaller Companies fund was

AN APPETITE FOR RISK BOOSTS TRUSTS Investors showed a greater appetite for risk by investing more heavily in trusts.

As a result BlackRock World Mining Trust and Templeton Emerging Market Trust took the final two places on the list, fourth and fifth.

Unfortunately, both have posted negative returns in recent years due to the fact that they are positioned in unfavourable markets.

While the BlackRock trust was slightly above the commodities and natural resources sector over six months, one year and three years, the Templeton trust only outperformed the global emerging markets equities sector over the past month.

However, investors appear to be buying in in the hope that there will be some improvement in the next few years.

knocked off the list after five consecutive months at the top, as it closed to new purchases on 22 January, allowing January’s second-placed fund, AXA Framlington Biotech, to take top spot. The US biotechnology-focused fund, managed by Linden Thompson, is popular, as it delivered a return of 61 per cent over the past year and 164 per cent over the past three.

Although the AXA fund has little in common with the other top purchases, there are trends to be spotted in the rest of the list, most of which continue from January. Income was a focus for investors, while UK smaller companies remained popular.

‘There were strong flows into funds investing in the UK and Europe, whereas Asia excluding Japan and emerging markets suffered outflows, following relatively weak performance in these regions since May 2013,’ say Charles Cade and Ewan Lovett-Taylor in their report on fund trades in January. ‘Perhaps the most notable subsector is UK smaller company funds which have benefited from net inflows every month since August 2012.’

SMALLER COMPANIES

According to Numis, January saw the highest number of monthly inflows into smaller company funds on record, £241 million. The Interactive

GROWTH GREEN

INCOME EMPHASIS Investor data shows these The other priority for invesfunds remained popular in ISA BLUE tors in February was income, February. and this too was UK focused.

Three smaller-company Of five income funds appear-ANT ORANG funds made it into the top ing in the 10 most-bought 10. Investec UK Smaller Companies fund, the River category, only the Artemis GEM BLUE and Mercantile UK Equity Global Income fund had a GROWTH GR Smaller Companies non-UK focus. fund, and the CF Miton UK Jacob de Tusch-Lec’s fund, Smaller Companies fund which delivered returns of 14 took third, fourth and fifth per cent over one year andISA BLUE place respectively.

47 over three, invests chiefly

THERE WERE STRONG FLOWS FUND INVESTING IN THE INTO UK AND EUROPE, WHEREAS ASIA EXCLUDING JAPAN AND EMERGING, MARKETS SUFFERED OUTFLOWS FOLLOWING RELATIVELY WEAK PERFORMANCE IN THESE REGIONS SINCE MAY 2013

GEM BLUE

Charles Cade and Ewan Lovett-Taylor All three outperformed the UK smaller-companies sector, which delivered returns of 32 per cent over one year and 55 per cent over three. Gervais Williams’s CF Miton fund provided the best return over a year, at 55 per cent, while the River and Mercantile fund, managed by Daniel Hanbury, delivered 112 per cent over three years.

Ken Hsia’s Investec fund had the least impressive returns, at 47 per cent over one year and 79 per cent over three, but still outperformed the sector. The fund invests in small-cap UK companies, including Quindell, Optimal Payments and Utilitywise.

in European and US equities. The other most-bought income funds were Unicorn UK Income, Rathbone Income, JOHCM UK Equity and the Invesco Perpetual Income.

They all beat the UK equity income sector’s returns of 16 per cent over one year and 36 per cent over three. All invested in large-cap UK companies, with GlaxoSmithKline, AstraZeneca and Royal Dutch Shell among the top holdings.

Despite its focus on income, the Invesco

Perpetual High Income

fund dropped out of the 10 most-bought funds in February and the Invesco Perpetual Income fund appeared only at the end of the list. This suggests that investors may be getting nervous over the imminent departure of star fund manager Neil Woodford in April.

One growth fund also made the list, the MFM Slater Growth fund, which took ninth place.

Like the income funds, it outperformed its sector, UK all companies, and focused on UK-listed companies, including Hutchison China (HCM) and Entertainment One (ETO).

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EXPERTS’ TOP ISA TIPS

ISAS I SMART STRATEGY FOR

t’s very easy to keep on doing the same things with your annual tax-efficient Isa allowance. However, investors can lose out badly if they do.

It’s not just the Isa allowances that keep changing: the economic environment and the range of investments available do too. So it’s important that investors consider all the Isa opportunities open to them before they make a any big,

irrevocable decisions.

We’ve asked a number of investment experts to reveal their top Isa tips. We are sure they will give you some useful guidelines and help you refine the choices you make.

Some suggestions are reminders about long-standing opportunities; others draw your attention to new developments in Isa investing and highlight the opportunities they offer.ANT ORANGE

INVEST REGULARLY

DON’T DISMISS AIMBASED INVESTMENTS GROWTH GREEN

Mick Gilligan, head of research, Killik & Co Starting an Isa at the beginning of a new tax year and investing small amounts regularly out of your income – rather than a larger amount in one lump sum at the end of each tax year – helps reduce the impact of market volatility, and you start earning compound interest sooner. When income is reinvested alongside the initial investment, it effectively becomes capital, so you have a larger sum producing an income, which in turn can be reinvested.

INVESTING SMALL AMOUNTS REGULARLY HELPS REDUCE THE IMPACT OF MARKET VOLATILITY

ISA BLUE Beddard is an editor Richard at Interactive Investor and manager of Money Observer’s Share Sleuth portfolio GEM BLUE

Now that investors can buy Alternative Investment Market shares within Isas, the universe of potentially profitable investANT ORANGE ments has grown. But there’s also more room for GROWTH GREEN disappointment.

Mick Gilligan Aim’s light-touch regulation makes it easier for younger, ISA BLUE smaller companies to list, and while such shares are reputed to be risky, that need not frighten GEM BLUE

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Isa investors,whether using some or all of their annual allowances, don’t always get the best out of their investments.

Faith Glasgow asks some financial experts for their most valuable tips

investors from investing in Aim firms. Plenty of them have long, illustrious track records in worthy businesses, and it’s easy to find out about them on financial websites. More details are available on companies’ own investor relations websites, the contents of which are mandated

by Aim rule 26, a rule the more heavily regulated main market would do well to emulate.

UP YOUR ISA CONTRIBUTIONS Darius McDermott, managing director, Chelsea Financial Services Don’t forget to increase your monthly Isa investments each year in line with

PLOUGH INTO PROPERTY Gavin Haynes, managing director, Whitechurch Securities

the increase in the contribution limit, if you can afford to. It’s all too easy for regular investors with their money invested automatically every month to overlook those annual allowance increases. And consider increasing your investment whenever you receive a salary increase.

LOOK BEYOND STOCKS AND SHARES Darius McDermott, Chelsea Financial Services Some potential Isa investors think you can only hold stocks

and shares in [non-cash] Isas.

However, this isn’t the case.

Indeed, some other asset classes – in particular those that produce income – offer even more tax benefits than equities when held within an Isa. Bond funds, for example, get (at least) 20 per cent income tax relief on the yield they produce (dividends from equities, in contrast, are subjected to a 10 per cent tax at source, which is not reclaimable, even in an Isa).

The new property authorised investment fund structure for property funds, meanwhile, means Isa investors no longer incur the 20 per cent tax that would previously have been applied on income received from a property investment.

Many people don’t realise they can gain exposure to bricks and mortar through commercial property funds held in a stocks and shares Isa. The asset class currently offers an attractive yield relaANT ORANGE tive to cash and bonds without the volatility of the stock market investments.

GROWTH GREEN Property funds are not without risk, but an allocation to a ISA BLUE commercial property fund (that invests directly in bricks and mortar, not property shares) can GEMadd BLUEdiversification to an Isa portfolio. With the economic outlook improving, the sector looks well placed for recovery.

IT’S ALL TOO EASY TO OVERLOOK THOSE ANNUAL RISK BUT BE ALLOWANCE ACCEPT SURE TO DIVERSIFY INCREASES ANT ORANGE

Darius McDermott

Rebecca O’Keeffe, head of investment, Interactive Investor

GROWTH GREEN

The primary benefits of an Isa are ISA BLUE felt over the long term, so it’s important to recGEM BLUE ognise that taking on risk

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EXPERTS’ TOP ISA TIPS

over the long term is usually a far more profitable strategy than minimising risk. Investors typically take less risk than they should, especially if they have suffered a loss in the past.

You can mitigate your overall risk by diversifying across different asset classes and geographic areas. Regular investing is also a great risk reduction strategy.

It’s also important to recognise the value of dividend reinvestment and understand the benefit this compounding effect has on your portfolio.

And remember to choose a broker that doesn’t penalise you for reinvesting.

TRANSFER YOUR ISAS TO GET THE BEST DEALS Mark King, editor, Moneywise Unlike a stocks and shares Isa, a cash Isa is a simple savings account with a tax-free Isa ‘wrapper’ placed around it so that you don’t pay tax on your interest.

You can choose to have access to your money or tie it up until a future date, just as with typical savings accounts.

Generally, the longer you tie your money up for the better the interest rate you get.

While a cash Isa is considered a low-risk investment – which sophisticated investors may find returns too little as a result – you can transfer a cash Isa should you decide you want to take on more risk or get a better rate. Indeed, you may have to transfer a cash Isa regularly.

Providers offer different rates that can change, so a top-paying 14

March 2014 | inspired

Isa can suddenly become a poorly paying one. But never try to transfer an Isa yourself.

Contact the new provider first ANT ORANGE and follow its transfer rules.

Remember, the amount of GROWTH GREEN money you can invest in a cash Isa in each tax year is capped (currently at £5,760), so if you ISA BLUE want to switch in the middle of the tax year, you will probably be switching the entire GEM BLUE amount – you cannot switch a portion of an existing Isa into a new one and top it up. If your original Isa is due to pay you interest at the end of the year, it should pay you the accrued ANT ORANGE interest up to the date you close the account.

GROWTH It’s GREEN possible to transfer your cash Isa into a stocks and shares Isa if you decide this is a better ISA BLUE home for you money, but you can’t switch your money back from a stocks and shares Isa into GEM BLUE a cash Isa. You can invest up to £11,520 in a stocks and shares Isa in a single tax year, minus anything you may have paid into a cash Isa – which is capped at £5,760.

TAKING ON RISK OVER THE LONG TERM IS USUALLY MORE PROFITABLE Rebecca O’Keeffe

From 6 April – the beginning of the 2014/15 tax year – however, these limits rise to £11,880 and £5,940 respectively.

LOOK AT THE LONGTERM BENEFITS Philippa Gee, managing director, Philippa Gee Wealth Management Some investors look at the return on an Isa or at the limit on how much they can invest in a single year and fail to see the value.

However, they would be wise to consider the longer-term view. Those who have invested each year for a number of years have been able to build sixfigure portfolios that they do not have to pay any further income or capital gains tax on, or list on their tax assessment.

By securing a significant sum in an Isa wrapper each year, as far as you’re able, you can build up a valuable, flexible and taxefficient investment.

The ISA that’s

fair and square We believe in straightforward investing. That’s why we don’t nibble at your investments with percentage charges.

Open an account and for £20 per quarter you get two £10 trades and an ISA for free. After that, it’s just £10 per trade across a wide range of UK and international investments.

Transfer to us today and get up to £240 as a thank you (terms apply). We believe that’s fair and square.

The value of investments, and any income from them, can fall as well as rise so you could get back less than you invest.

Tax treatment depends on your individual circumstances and may be subject to change. If in any doubt, please seek advice.

iii.co.uk/isa

Interactive Investor Trading Limited, trading as “Interactive Investor”, is authorised and regulated by the Financial Conduct Authority. Registered Office: Standon House, 21 Mansell Street, London E1 8AA, Tel: 0845 200 3637. Registered in England with Company Registration number 3699618.

AIM SHARES

THERE ARE

GEMS TO BE UNEARTHED

Alternative Investment Market stocks offer Isa investors a chance to realise heady returns – but you need to pick your holdings carefully because of the high risk of losses in an illiquid market, says Jeff Salway

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bought into funds offering exposure to Aim stocks. hen new rules were introduced It helped that Aim stocks were enjoying a good last August allowing the inclusion run, as were smaller companies generally, with of Alternative Investment Market the amount of money raised on the market over (Aim) shares in Isas, demand for the summer rising sharply. Performance is just one exposure to the junior market aspect of their appeal, however. quickly exceeded expectations. Another surge Aim shares already offered inheritance tax effiin demand is likely in April, as the new tax year ciency: most of them qualify for business property dawns and investors have a fresh annual allowrelief, making them exempt from IHT when held ance to play with. for two years or more. However, it’s worth noting Yet while stocks on Aim can boast eye-catching that BPR is subject to change, and a company can returns and attractive tax perks, they can also be ANT ORANGE lose its eligibility and therefore its IHT relief status very volatile, raising concerns that investors may as a result. Therefore investors wanting to continue be letting the tax tail wag the investment dog withGROWTH GREEN benefiting from IHT relief have to switch out of out understanding what they are getting into.

ANT ORANGE such companies and into those still eligible.

The Treasury’s decision to allow Aim shares into Isas was driven by a desire to encourage ISA BLUE Wider income and capital gains tax benefits GROWTH GREEN also drove some demand for Aim shares after the greater investment in small and medium-sized Isa rule change in August. companies. The move was The move created a bedimmediately popular with ISA BLUE GEM BLUE and-Isa opportunity, whereby investors, and brokers existing Aim share invesreported a sharp rise in Aimtors sold their holdings and listed purchases. Demand GEM BLUE bought them back within for smaller companies funds an Isa. was up too as investors wary David Thomson Among those quick of direct share ownership

WE WOULD ONLY INCLUDE AIM STOCKS IN THE PORTFOLIOS OF ADVENTUROUS CLIENTS

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AIM SHARES

Richard Beddard

picks out four Aim-listed companies worth considering for inclusion in a diversified Isa share portfolio

DEWHURST (£5.20) Dewhurst is a well-established manufacturer of lift pushbuttons, indicators and controls; keypads for ATMs, security devices and petrol pumps; and traffic management products such as bollards.

The company has a long record of profitability under the stewardship of the Dewhurst family and a debt-free balance sheet. That suggests it is a strong competitor.

Profits fell in 2013 – a result of a slowdown in Dewhurst’s major markets and customers having stocked up in the previous year. Management is quite cagey about the company’s prospects for 2014, but an improved performance is likely as conditions in the UK and the US improve. The shares are probably good value at 11 times adjusted 2013 earnings.

MS INTERNATIONAL (£2.04)

Treatt has built up an immaculate record of delivering profits

MS International manufactures military hardware, forks for forklift trucks, and petrol station canopies and car washes.

The company has been profitable in each of the past 10 years and has a balance sheet flush with cash; yet the share price has fallen to a level that values MSI at five times adjusted 2013

earnings. MSI’s current unpopularity stems from a decline in the profitability of MSI Defence Systems, which has the highest turnover of its three businesses.

The company expects 2014 to be no easier than 2013, due to continuing pressure on defence spending, but it’s confident it will add to defence work already contracted and scheduled for every year until 2020.

It’s quite possible that MSI is having a lull that does not reflect on the quality of its products or businesses. If that’s the case, it’s a bargain.

TREATT (£7.47) Treatt distills flavourings and fragrances, essential oils and water-soluble essences. Its products are used in drinks, confectionery, sauces and cosmetics worldwide.

The company’s expertise and close customer relationships might give it a competitive advantage, and it has never suffered a loss. However, it has ushered out managing director Hugo Bovill, and his family has sold its interest.

Management with large shareholdings gives companies some independence from the often shortterm imperatives of fund managers.

to take advantage was Lord Lee of Trafford, the UK’s first Isa millionaire and author of How to Make a Million – Slowly: My Guiding Principles from a Lifetime of Successful Investing. ‘I have a big holding of Christie Group that was originally in my personal equity plan,’ he says.

‘When the company moved to ANT ORANGE Aim [from the main market] I took it out of the Pep, but when Aim shares became Isa-eligible I GROWTH GREEN sold it and bought it back again ANT ORANGE within my Isa.’ April 2014 will mark the ISA BLUE removal of stamp duty from GROWTH GREEN Aim purchases, a development expected to encourage GEM BLUE asset managers to launch a new ISA BLUE wave of Aim-focused funds.

The axing of stamp duty makes the junior market more appealGEM BLUE ing to companies on the main market as well, with several Lord Lee of Trafford recently moving across.

Alec Stewart, partner at Anderson Strathern Asset Management, explains: ‘A company can reduce its regulatory burden by moving to the junior market, with lower audit and compliance requirements.’ For example, the main market

I TRANSFERRED INTO MY ISA A BIG HOLDING OF CHRISTIE GROUP THAT USED TO BE IN MY PEP

18

March 2014 | inspired

However, the new team is focused on controlling costs and developing the most profitable products.

Profit grew 28 per cent in 2013 and Treatt’s long-term prospects are probably good, but the share price has spiked, valuing the shares at 15 times adjusted 2013 earnings.

FW THORPE (£1.43) FW Thorpe designs and manufactures light fittings, known as luminaires. They are becoming increasingly complex with the introduction of LED technology that requires printed circuit boards. Its main business is Thorlux, which supplies lighting to schools, hospitals, warehouses and factories. Other subsidiaries supply retailers, emergency exit signage and cleanroom lighting.

Stable family ownership, long industry experience and a commitment to modernisation and investment are the keys to Thorpe’s prosperity.

Although it has to contend with the additional investment required to produce LED lighting, Thorpe is managing the transition well. The shares cost £1.37, which values the company at about 15 times adjusted 2013 earnings.

That’s a fair price for a quality company.

stipulates that any potential listing should have a market capitalisation no lower than £700,000, whereas there’s no such guideline on the Aim market. Nor do companies need a trading history to list on Aim, compared with the three years required for the main market. Moreover, the cost of listing on Aim is considerably lower.

But for many private investors the main appeal of Aim stocks lies largely in the prospect of skyhigh returns from the success of small and fledgling companies. There are some 1,200 stocks on the market from a wide range of sectors – albeit with a heavy weighting in technology and especially natural resources, and with a gulf in size between the biggest and smallest.

The largest are eligible for the FTSE AIM 50 and the FTSE AIM 100, where the likes of Bowleven, Majestic Wine, Dobbies, Asos and M&C Saatchi are listed.

Stewart picks out three he favours as part of a diversified portfolio. One is Dart Group. The owner of Jet2.com and Jet2Holidays, Dart has had a ‘strong run’ and is focused on becoming more family friendly in these budget-conscious times, says Stewart. ‘It benefits from good visibility of future bookings and strong cash generation,’ he adds.

Aerospace and defence firm Cohort is another with a ‘progressive dividend policy’ that has grown at an annualised rate of 20 per cent over

the past three years, he adds. Among food producers he likes Wynnstay. It has ‘benefited from strong revenue and pre-tax profits’, increasing its interim dividend by 9 per cent.

But there’s ample cause for caution too, because Aim shares are typically far riskier than those listed on the main market. Not only is there the volatility inherent in shares issued by smaller firms, but there remains the potential for liquidity issues, even after the surge of money into the market in recent months. Haig Bathgate, chief investment officer at Turcan Connell, says: ‘They are, by implication of their size, much less liquid in terms of the shares that trade hands on a daily basis, so they are prone to more extreme price movements.’

UK investors may also be averse to Aim stocks that are effectively overseas companies. Indeed, many Aim fund portfolios specifically exclude both these and natural resources firms as well as stocks that don’t offer business property relief.

‘Significant numbers of companies have failed to deliver on expectations in this part of the market, and it is also quite heavily weighted towards technology (12 per cent), resources (9 per cent) and oil and gas companies (22 per cent),’ says Bathgate.

There are transparency concerns too, due to the less stringent regulatory and company reporting requirements on the Aim market.

‘We would only include Aim stocks within the

portfolios of adventurous clients, and then only up to a maximum of 10 per cent,’ says David Thomson, chief investment officer at VWM Wealth. ‘Even then, the bulk of this is likely to be via a venture capital trust, where the investor can also enjoy 30 per cent income tax relief, providing a further cushion against the volatility of Aim shares.’

Collective investment funds and trusts offer a way into Aim stocks that provides useful diversification and so reduces the risk of heavy losses. Investment trusts can offer particular advantages where Aimlisted shares are concerned, as their closed-ended status gives them a hedge against the market liquidity issues that can affect Aim stocks. Haig Bathgate Among the growing number of UK smaller companies investment trusts in which Aim shares are prominent are those run by BlackRock, Standard Life and Aberforth. Unit trusts investing in Aim companies include the L&G UK Alpha Trust and Cazenove UK Smaller Companies.

However, there is a downside to accessing Aim through funds and trusts, as investors no longer benefit from the IHTfree status that direct holders of Aim stocks enjoy. The risk of hefty losses remains the biggest caveat to investing in Aim.

ANT ORANGE Clockwise from top: Cohort, Wynnstay and Jet2.com are Stewart’s picks for a GROWTH GREEN diversified portfolio

ISA BLUE

ANT ORA

AIM SHARES MUCH LESS ARE LIQUID IN TERMS OF THE SHARES THAT TRADE HANDS DAILY

GROWTH

GEM BLUE

inspired | March 2014

ISA BLUE

GEM BLUE

19

FUNDS AND TRUSTS

PERFECT YOUR FUND PORTFOLIO TO SEE IT

GROW Helen Pridham and Fiona Hamilton have rounded up a collection of investment funds and trusts experts believe will prosper in the year ahead for investors looking to cash in on an improving economic outlook

A

huge variety of investment funds, ranging from generalist funds to highly specialised versions, aim to generate capital growth for investors.

Investing in a specific fund entails investors accepting different degrees of risk in return for a range of potential rewards. So when we asked financial advisers to predict which funds offer the best prospects for growth in 2014, we also urged them to consider which types of investor the funds would suit best.

Solid growth funds will appeal to investors who prefer steady investment, while higher-risk growth funds are likely to be more volatile and appeal to those with a higher risk tolerance. Speculative funds could produce handsome returns this year, but they could also dip sharply in value.

Closed-ended status means investment trusts can invest in less liquid asset classes without having to worry about realising their holdings in a market setback. This enables them to invest in areas that have historically proved particularly

20

March 2014 | inspired

rewarding, such as smaller companies, private equity and emerging markets.

Trusts can also increase their assets by borrowing. So long as this gearing is sensibly priced, it should accelerate the trust’s gains in positive market conditions. However, gearing will exacerbate losses in any downturn. The possible closing of the discount will also enhance share price returns.

SOLID GROWTH

Baillie Gifford Global Discovery This fund, picked by independent financial adviser Brian Dennehy, invests globally in growth stocks, especially companies operating in industries with potential for structural change and innovation. Dennehy says manager Douglas Brodie has had considerable experience and success in identifying growth opportunities, particularly among exciting smaller-cap stocks.

CF Lindsell Train UK Equity John Husselbee, head of multi-asset at Liontrust Asset Management, prefers investors to traders.

Renowned investor Warren Buffett takes a similar view, and Husselbee says fund manager Nick Train invests like Buffett. Train looks to buy great companies, such as Burberry, Heineken and Unilever, when they are good value and hold them ‘forever’.

Cazenove UK Opportunities This fund aims to achieve long-term capital growth from a focused portfolio of large and medium-sized UK companies. Gavin Haynes, managing

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| March 2014

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If your priority is high income, long term capital growth or a mixture of both, Henderson Global Investors has a range of solutions which aims to meet your investment needs.

Please remember that past performance is not a guide to future performance. The value of an investment and the income from it can fall as well as rise as a result of market and currency fluctuations, and you may not get back the amount originally invested.

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FUNDS AND TRUSTS KEY FACTS ABOUT THE TRUSTS TIPPED FOR GROWTH

KEY FACTS ABOUT GROWTH FUND TIPS

SOLID GROWTH Baillie Gifford Global Discovery CF Lindsell Train UK Equity Cazenove UK Opportunities HIGHER-RISK GROWTH Investec Global Energy Lazard Emerging Markets Rathbone Global Opportunities SPECULATIVE GROWTH Allianz BRIC Stars Liontrust Special Situations M&G Recovery

Min inv £

Ongoing Charges %*

1-year return %

Sector rank

1,000 – 1,000

0.86 0.80 0.82

59.20 29.10 32.10

2/248 53/271 40/271

1,000 2,000 1,000

0.87 1.61 0.82

14.20 3.20 21.50

40/206 16/68 111/248

500 1,000 500

1.22 1.14 0.96

-1.20 14.50 13.30

134/206 251/271 264/271

Note: Ongoing charges figure refers to the least expensive retail share class. Source: Financial Express and companies websites, as at 3 December 2013

director at Whitechurch Securities, says fund manager Julie Dean has built up an excellent track record.

Securities Trust of Scotland Robin McAdam likes Securities Trust of Scotland, which seeks rising income and long-term capital growth from global equities. The trust yields 3.3 per cent, so it provides income and growth potential. ‘The trust has outperformed its benchmark recently, and we expect this to continue’ says McAdam.

Finsbury Growth & Income Trust Peter Hewitt nominates Finsbury Growth & Income Trust, on the basis of its strong short- and long-term performance. Manager Nick Train seeks out the highest-quality companies to hold long term. The portfolio is dominated by companies Train expects to have longevity, such as Diageo, Unilever and Heineken. ‘The manager looks for strong cash generation and dividend growth, which he believes are undervalued by the stock market,’ Hewitt says.

RIT Capital Partners This multi-asset trust, selected by John Newlands, is the flagship financial vehicle for its chairman, Lord Jacob Rothschild, and his family. ‘Given the uncertainty in the world, it is no bad thing to be diversified, both globally and across a range of asset classes. RIT is a global growth trust that offers a combination of these benefits,’ Newlands says.

His enthusiasm is bolstered by RIT’s current relatively wide discount, which reflects disappointment among investors that it was rather too cautious over the past two or three years.

Net asset value total return after: Share Disc/ Net price prem to yield Gearing 1 year 3 years 5 years p NAV % % % % % % SOLID GROWTH Finsbury Growth & Income Perpetual Income & Growth RIT Capital Partners Securities Trust of Scotland HIGHER-RISK GROWTH Biotech Growth Trust Fidelity Chinese Special Sits Graphite Enterprise Trust Schroder Asia Pacific SPECULATIVE GROWTH Baker Steel Resources Hansa Trust A Impax Environmental Markets Standard Life Eq Inc subscription

501.0 (+) 1.2 368.6 1.0 1248.0 10.5 146.9 (+) 3.1

2.1 3.2 1.1 3.2

5.0 12.0 5.0 4.0

30.5 34.6 21.0 19.2

76.7 71.4 22.5 46.0

203.8 140.7 59.1 113.2

433.5 106.2 569.0 273.0

7.2 6.5 17.0 9.2

0.0 0.9 0.9 1.4

7.0 21.0 -9.0 -2.0

58.2 43.3 16.7 0.8

172.3 0.2 44.2 20.1

296.8 – 40.5 177.9

47.0 860.0 146.3 107.0

33.1 24.3 11.2 –

0.0 2.3 0.6 0.0

1.0 1.0 -2.0 370.0

-5.7 14.2 35.0 –

-13.7 6.9 28.5 –

74.0 94.7 92.1 –

Notes: NAV = net asset value. *Annualised. All data as at 1 December. Source: Numis Securities

Perpetual Income & Growth Trust This trust is classified as a member of the AIC UK growth and income sector, but its yield tends to be below the sector average, because manager Mark Barnett is more interested in income growth than immediate income. Tim Cockerill classifies it as a total return trust and makes it his solid growth choice. Barnett has secured excellent long-term returns during his 15 years at the helm.

HIGHER-RISK GROWTH

Lazard Emerging Markets

ANT ORANGE

MARK BARNETT SECURED HAS EXCELLENT RETURNS

Mick Gilligan believes GROWTH GREEN the investment case for emerging market equities remains strong. He ISA BLUE says: ‘Equity markets Tim Cockerill in emerging regions are trading at their widest price-to-earnings discount GEM BLUE to developed markets since 2006. We believe many well-capitalised businesses that have shown strong financial discipline should generate good profits.’ The Lazard Emerging Markets fund focuses on such businesses.

ANT OR

GROWT

ISA BLU

GEM BLU

Rathbone Global Opportunities This go-almost-anywhere, bottom-up, thorough stockpicking fund looks for undiscovered gems.

Rob Burdett, fund manager at Thames River, believes manager James Thomson strikes the

➳ inspired

| March 2014

23

FUNDS AND TRUSTS

Trust tipsters

Tim Cockerill

Jean Matterson

Andrew McHattie

is investment director at Rowan Dartington

is a partner and chief investment officer at Rossie House Investment Management

is head of The McHattie Group

Rowan Dartington has 20 investment advisers based in seven offices across the south of England. It has £900 million under management. Investment trusts have featured in its discretionary and advisory portfolios for many years.

Our six experts reveal their top fund picks

Peter Hewitt is a member of F&C Asset Management’s global equities team He has managed the F&C Managed Portfolio Trust since April 2008 as well as its forerunner, F&C Managed Portfolio Service, since 2002.

He was head of UK equities at Murray Johnstone from 1981 to 1983, before joining Ivory & Sime.

She joined the firm in 1998 after 20 years with asset manager Stewart Ivory.

Based in Edinburgh, she is one of five investment professionals managing around £300 million, all on a discretionary basis. Around half is in investment trusts.

McHattie Group is an authorised firm that publishes specialist investment newsletters.

McHattie has been the editor of Investment Trust Newsletter since 1996 (www.tipsheets.co.uk) and offers a free service called the ‘it list’ (www.theitlist. co.uk). The company has a Facebook page (www.facebook.com/investmenttrusts).

Robin McAdam

John Newlands

joined Brooks MacDonald Asset Management in 2009 from Adam & Company Investment Management

is responsible for investment trust research at Brewin Dolphin

He has 24 years’ experi ence managing private client portfolios and heads BM’s Edinburgh branch.

The firm has £5.37 billion under discretionary management in bespoke and managed portfolios.

right balance between taking calculated risks for high returns and investing in defensive holdings.

Burdett says: ‘He likes companies undertaking gentle innovation – moving online, for example – rather than game changers, which have more potential to go wrong.’

Investec Global Energy This fund invests in companies that produce energy and provide services to the energy sector. Fund managers Tom Nelson and Charles Whall believe the consensus view on future oil prices anticipates weak demand and growing supply from US shale oil. But they demur, as does Tony Yarrow, at Wise Investment. He says: ‘Oil is harder to extract from shale than gas is, while demand for oil is growing as economies recover. A higher oil price feeds straight through to the companies’ profits.’

Biotech Growth Trust Peter Hewitt favours Biotech Growth Trust, which has achieved scorching gains recently – up 172 per cent over three years to 1 December 2013.

It is managed in New York by Orbimed, a specialist healthcare and biotechnology investor with $7 billion (£4.2 billion) under management.

It offers exposure to a mix of large and profitable biotech companies alongside emerging businesses. Most of its holdings are US-based, and they have

24

March 2014 | inspired

He is supported by four analysts who cover specific sectors, researching openand closed-ended funds.

Brewin Dolphin has 35 offices around the UK and Channel Islands, and manages £28 billion, of which £3.9 billion is in investment trusts.

benefited from a much more positive approach by the Federal Drug Authority – new drug approvals in 2010 were the highest for 10 years.

Graphite Enterprise Trust Andrew McHattie contends that just one sector offers great value: private equity. ‘These trusts were hammered in the credit crisis and discounts widened to extreme levels,’ he says.

His selection is Graphite Enterprise Trust. Its discount to net asset value remains at a level that rings alarm bells in most other sectors, but it has a strong track record and a relatively mature portfolio of shares he expects to rise in value.

Fidelity Chinese Special Situations ‘With Chinese equities looking cheap, the longterm outlook for investing in China is positive,’ Cockerill says. ‘This fund invests in medium and small caps, where high growth can be achieved.

New manager Dale Nicholls is well qualified, and the combination of Fidelity, manager experience and China is compelling in the long term.’

Scottish Oriental Smaller Companies Trust This trust is favoured by McAdam. The investment team identifies quality companies offering sustainable, predictable growth. ‘The trust may underperform if the market rises strongly, but the team’s enviable track record and experience should be respected,’ he says.

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The SIPP that’s

fair and square We believe in straightforward investing. That’s why we don’t nibble at your SIPP with percentage fees. For just £144 per year you can open a SIPP and add an ISA for free.

After that it’s just £10 to buy or sell a wide range of investments including shares, funds, bonds and gilts.

Open an account today and if you transfer your existing SIPP, we’ll give you up to £240 as a thank you (terms apply).

We believe that’s fair and square.

The value of investments, and any income from them, can fall as well as rise so you could get back less than you invest.

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FUNDS AND TRUSTS

SPECULATIVE GROWTH M&G Recovery

Dennehy says manager Tom Dobell backs his convictions, engages with companies he invests in and has delivered long-term outperformance.

‘Dobell’s M&G Recovery fund has a clear valuestyle process and management stability. It invests in a wide range of firms that are out of favour or in difficulty, or whose prospects are not fully recognised by the market,’ he says.

Liontrust Special Situations Husselbee says Liontrust’s Anthony Cross and Julian Fosh have their own unique philosophy. He adds: ‘They look for characteristics in a company that its competitors find difficult to replicate, such as intellectual property or distribution channels.’

Allianz Bric Stars This fund aims for capital growth in the long term by investing mainly in Brazil, Russia, India and China. Haynes says investors have shunned these markets recently and valuations fallen. He adds: ‘For investors looking for a recovery story, this fund is worth consideration.’

Standard Life Equity Income subscription share McHattie says warrant and subscription shares are widely ignored, creating opportunities for those who understand them. He favours the subscription shares of Standard Life Equity Income, which can be exercised at 320p a share up to the end of December 2016. ‘They offer gearing of 3.7 times, and if the ordinary shares grow by more than 2.8 per cent a year between now and the end of 2016, the subscription shares ought to outperform.’

Impax Environmental Markets McAdam likes this trust. It invests in companies seeking to provide cleaner or more-efficient energy, as well as water and waste solutions to the growing problems faced by authorities around the world. It offers exposure to a rapidly changing marketplace as well as to socially responsible investments.

Prospects have improved for biotechs (left) while growing interest in sustainable energy has boosted Impax

Hansa Trust John Newlands sees potential in the A shares of Hansa Trust, which languish at a discount of more than 25 per cent.

He says that, whereas the trust’s portfolio appears skewed, with a third of its assets in Ocean Wilsons, ANT ORANGE there is actually plenty of diversification, because Ocean Wilsons has an GROWTH GREEN investment portfolio that stands at a discount to ISA BLUE underlying value. ‘One day, an attractive bid Tony Yarrow [may] be made for Ocean Wilsons that will enhance Hansa’s NAV and simGEM BLUE plify its capital structure, all to the good of its market rating,’ Newlands says.

A HIGHER OIL PRICE

FEEDS STRAIGHT THROUGH TO PROFITS

GEM B

Jean Matterson hopes for good returns from this trust, shares in which trade on a near 30 per cent discount. ‘It has not had an easy run of late, but we believe the underlying assets are attractive and that the mining projects in the company’s portfolio will continue to progress,’ she says. | March 2014

GRO

ISA B

Baker Steel Resources Trust

inspired

ANT

27

COMPARE MONEY OBSERVER RATED FUNDS The world of funds and trusts is a confusing place with over 2,300 funds and more than 300 investment trusts to choose from.

Money Observer’s Rated Funds system narrows down the playing field to help you decide which funds and investment trusts might be best for you.

Our team of experts constantly monitor the marketplace, rating those funds that have delivered consistently good returns. However, you should be aware that there is no guarantee this performance will be repeated.

With our comparison tool you can filter by what’s important to you, compare up to four funds and trusts side-by-side, as well as view factsheets.

VISIT MONEYOBSERVER.COM/COMPAREFUNDS AND LOOK OUT FOR THE RATED FUND STAMP.

SHARE SLEUTH

BE SURE TO SPOT

THE SUPERIOR

SHARE

A

ccumulating income and capital gains in an index tracking fund is inexpensive, takes little effort and all but guarantees an average return, so it should be the default investment for a lazy equity investor saving for the long term.

To justify the work of deciding which shares to buy and sell, and the effort and cost of placing trades, an active investor must do better. Consequently, the first objective of the active Share Sleuth portfolio is to beat passive investments, after costs, over the long-term, which in practice means any five-year period. The second objective is to win this tussle against an unknowing and unthinking opponent transparently.

At the heart of the portfolio is an online spreadsheet. The first page shows the constituent shares arranged into three categories: ‘add’, ‘watch’ and ‘speculative’. The categorisation is updated daily based on live data in subsequent spreadsheets, each of which contains a financial model for a particular company.

The Share Sleuth portfolio shows the holdings I would add to the portfolio today if it

The Share Sleuth portfolio has been carefully devised to show investors how to find good companies at cheap prices and also prove the value of its investment approach, says Richard Beddard

had spare cash or I were starting afresh. The companies in the add category are high quality, judging by the strategies they follow and their financial strength, and are probably undervalued.

I’m more likely to eject or reduce holdings in companies in the watch and speculative categories. These shares are more risky, either because they have risen greatly in price or because their prospects are more uncertain than usual. I may think the risk is worth taking, but I am prepared to act should that calculation change.

Every decision to increase a portfolio holding must be weighed against the potential of new candidates drawn from all companies listed in the UK and corralled into another live spreadsheet, the Share Sleuth watchlist. When I add a share to the watchlist or trade a share in the portfolio, I explain this in the Share Sleuth blog.

MY FOCUS IS ON ENSURING THAT THE PORTFOLIO IS INVESTED IN GOOD FIRMS AT DECENT PRICES

Richard Beddard, an editor at Interactive Investor since 1999, has managed the Share Sleuth portfolio since 9 September 2009. He’s a columnist at Money Observer magazine and a private investor.

Share Sleuth is a simulation; no money changes hands. But I use prices quoted by a broker and adjust the accounting to factor in notional broker fees and stamp duty. However, I ‘eat my own cooking’ by investing my self-invested personal pension in Share Sleuth companies.

No doubt you are wondering how the portfolio is doing.

Share Sleuth’s five-year anniversary, judgement day, is on 9 September this year, and I will not prejudge it now.

Short-term performance watching and the knee-jerk trading it encourages is, I think, one reason why many investors fail. My focus is on ensuring the portfolio remains invested in good companies at reasonable prices.

You can see a live performance table, and learn what I think of every share in the portfolio and which companies I might add to it at www.iii. co.uk/Zkr.

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| March 2014

29

We believe in being straightforward, this is why we don’t nibble at your investment by charging percentage fees. Find out how this could affect your investment performance at iii.co.uk/straightforward.

If you transfer to us you can even get up to £240 as a thank you (terms apply).

Don’t forget, the value of investments, and any income from them, can fall as well as rise so you could get back less than you invest.

If in any doubt, please seek advice.

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Katherine Garrett-Cox CBE, Chief Executive, Alliance Trust PLC

”

What can you expect to see?

Over the next two pages we have provided a sneak preview of just some of the information you will find on the Investment Focus hub.

We will be updating the site regularly so make sure you sign up for our email alerts to be informed when new topics are published.

Everything you need to know about fees You’ll naturally take a keen interest in the performance of your investments. But it’s just as important to understand the fees you will be paying, as they can have a significant impact on the returns you achieve. Knowing what the different types of costs mean, and exactly what they consist of, can prove rewarding.

It’s worth remembering that for every fee you pay (whether it is a % or flat fee), your investment needs to grow by at least the same amount just to stay ahead of the game. It sounds obvious, but it’s easy to forget. Broadly speaking, there are three types of fees: fund fees, platform fees and fees for a financial adviser.

You can either invest directly into a fund and pay the associated fees, or you can invest via a platform provider (some of which are referred to as wrap platforms, others as fund supermarkets). This is a service that lets you manage and review all your investments online in one place. As a general rule, fund fees are lower when

bought through a platform than if you buy direct. You can invest through a platform on either an execution only basis, where the investor assesses the risks and makes their own investment decisions or on an advised basis.

Learn more about fund, platform and financial advice fees:

www.investment-focus.co.uk

Understanding funds Written by Emma Simon, Personal Finance Journalist For the vast majority of investors the simplest, cheapest and most pragmatic way to invest is through pooled funds.

In contrast a passive fund will simply follow a stock market index, such as the FTSE100 up and down.

Sometimes called managed funds, unit trusts, or even OpenEnded Investment Companies (or OEICs), these are designed to give ordinary savers access to a diverse range of investments.

Having a manager at the helm can be beneficial in a market downturn, as they can take a more defensive approach, buying shares that are better able to hold their value, or, in some cases, switching to bonds or cash instead to help preserve investors’ capital. Managers can also research individual companies and markets, and have access to forecasts, and economic data that isn’t always available to individuals.

One of the principles of investment is that diversification helps reduce risk. But it is expensive, and time consuming, for ordinary savers to buy shares of 80 to 100 different companies and keep track of how each is performing.

But with a managed fund you are pooling your money with other investors, enabling the fund manager to buy a wide range of assets.

Investors have the option of buying an actively managed or passive fund. With an active fund, the manager selects and then monitors these stocks for investors, in a bid to maximise returns.

Learn more about investing for growth or income, exploring different investment remits, how to invest and keeping track of your investments:

www.investment-focus.co.uk

A guide to Investment Trusts What are Investment Trusts?

Investment Trusts are investment vehicles that are listed on the London Stock Exchange and which invest in shares and other securities. They pool together investors’ money and delegate responsibility to a professional fund manager to invest in a range of companies from different sectors and regions across the world.

They were designed for “the investor of moderate means”.

A brief history • The first Investment Trust was launched by Foreign & Colonial in 1868.

Learn more about Investment Trusts, their main features and why you should consider them for your portfolio:

• Investment Trusts made it possible for individual investors to gain diversified exposure to global stock markets.

• Many Investment Trusts were formed in Scotland, including Alliance Trust PLC which was formed over 125 years ago.

www.investment-focus.co.uk

Risk information Investments can go down as well as up. You may get back less than you originally invested.

Alliance Trust does not give advice. You need to ensure you understand the risks and commitments before investing. If you are unsure you should consult a Financial Adviser before investing.

Nobody’s perfect: why we all make irrational decisions The fact that many of us make irrational decisions when it comes to our finances is widely debated and is often referred to as behavioural finance. In this short video we talk to Professor Phyl Johnson, Consultant Psychologist and Visiting Professor of Executive Education at Strathclyde Business School, about why this is and more importantly about what we can do as individuals to avoid it.

Inflation by age This month’s official inflation report showed that the headline rate of inflation fell from 2.0% to 1.9%. Our Economic Research Team analyse this data on a monthly basis to see how inflation rates affect different age groups. In February 2014 the summary highlights include: • The over 75s and the under 30s face the highest rate of inflation in January at 2.1%.

• The over 75s suffered the highest rate of inflation for the whole of 2013 and this trend continues into 2014, as they spend a larger share of their budgets on basic goods such as gas and electricity.

• The 65 to 74 year olds have faced the lowest rate of inflation in 11 out of the last 12 months, thanks to lower inflation in food, petrol and package holidays.

Learn more about how inflation might affect you:

www.investment-focus.co.uk

You can also sign up for our regular email alerts to be informed when new topics are published by clicking here.

About us Unusually for a company of our size, around 70% of shares in Alliance Trust are held by private individuals.

Alliance Trust is an investment and savings business with over 125 year history of building investor wealth. We offer our shareholders, clients and customers a unique portfolio of products and services.

These range from a renowned global investment trust to an innovative range of investment strategies and funds, and a multi-award winning investment platform where investors can host their ISAs, SIPPs or investment accounts. Our mission is to provide products and services that help to ensure a more sustainable, financial future for generations of investors.

Alliance Trust PLC is one of the largest generalist investment trusts by market value listed on the London Stock Exchange and is the parent company to two wholly-owned subsidiaries, Alliance Trust Savings and Alliance Trust Investments.

Alliance Trust Investments is a specialist fund management business offering a range of products and services focusing on global equities, fixed income and sustainable investing with an emphasis on specialist investment solutions.

Alliance Trust Savings is one of the UK’s leading financial services providers for private investors offering customers the information and services they need to manage their investments in a way that works for them.

Risk information Investments can go down as well as up. You may get back less than you originally invested.

Alliance Trust does not give advice. You need to ensure you understand the risks and commitments before investing. If you are unsure you should consult a Financial Adviser before investing.

We’ve been bringing clarity to investment for over 125 years.

Investing for generations.

When it comes to investing, there’s no substitute for experience.

And at Alliance Trust we’ve been helping people invest since 1888.

Our new Investment Focus hub is full of online information and expert opinion. It aims to provide real insight to help you take control of your investments.

Over the next few weeks the hub will build to cover everything from taking your first steps to diversifying worldwide. Please remember that investments can go down as well as up and investors may get back less than they originally invested. For valuable insight from Alliance Trust, visit Investment Focus today.

TAX YEAR ENDS APRIL 5TH – learn more about your options now

Introducing your free, online source of information, help and expert opinion.

investment-focus.co.uk

This has been approved as a financial promotion by Alliance Trust Investments Limited for the purpose of Section 21 of the Financial Services and Markets Act 2000. Alliance Trust Investments Limited is a subsidiary of Alliance Trust PLC and is registered in Scotland No SC330862, registered office 8 West Marketgait, Dundee DD1 1QN, is authorised and regulated by the Financial Conduct Authority, firm reference number 479764. Alliance Trust Investments gives no financial or investment advice.

ADVERTISING FEATURE

Change the way you think about stocks, reap the rewards

By Edward Page Croft, CEO Stockopedia.com

I

remember so clearly the day when I picked my first stock for clients. Managing $2 billion (£1.2 billion) in assets across 100 portfolios for high-net-wealth private investors is no easy task. As I was to learn, when you are green and straight out of university, it’s even harder.

The stock in question was on the Goldman Sachs US ‘buy’ list. It had the potential to be hot.

Dotcoms were bubbling. It was an internet stock, in education services and cheap. It seemed like it had everything, but we needed to get in. One day it fell out of bed. Down 50 per cent on no news.

I’d been trained to call the analyst in situations like this. He reiterated his buy stance. Double buy. On my insistence, we put almost $20 million of client money into the stock within an hour.

The next day it fell another 50 per cent on bad news.

There is nothing more painful than a loss, but you never forget the first one. It immediately forced me to reconsider everything I thought I knew. From that day on I vowed to never trust another’s opinion and find a better way through the market minefield.

I’ve now spent 15 years reassessing common

wisdom about stock selection. No stone has gone unturned in the quest to understand the behavioural flaws that lead to poor decision making.

But there is one finding that crops up again and again in all the research that hurts stock market investors most. We, as investors, are suckers for stories.

A 1990’s study of 60,000 private investor brokerage accounts by Kumar and Goetzmann found that 70 per cent of portfolios held less than four stocks.

The stocks held all tended to be in the same sector, highly correlated and risky. Think internet stocks in the 1990s, China in the 2000s or resource stocks more recently. The grand theme sucks everyone in. The outcome rarely differs. Kumar and Goetzmann Benjamin Graham showed that across these 60,000 accounts the average underperformance was of the order of 4 per cent annually.

This massive failing across private investor portfolios is repeated in nearly every market cycle and is bound to happen again in this one.

Benjamin Graham, the great father of value investing, and tutor of Warren Buffett, once wrote: ‘In the short run the stock market is a voting machine, but in the long run it is a weighing machine.’

IN THE SHORT RUN THE STOCK MARKET IS A VOTING MACHINE, BUT IN THE LONG RUN IT IS A WEIGHING MACHINE

What he meant was that while stories may drive stocks in the short run, statistics drive stocks in the long run. When statistics reassert themselves it can cause huge damage to investors punting their portfolios on stories.

It doesn’t take much to learn how basic statistics can guide your portfolio into winning stock selections, though very few seem to understand how to do it. Benjamin Graham, as his life wore on, gradually came to the conclusion that building portfolios according to rules-based processes was a far more appropriate methodology for the typical investor.

‘Try to buy groups of stocks that meet some simple criterion for being undervalued – regardless of

the industry and with very little attention to the individual company. It seems too good to be true, but all I can tell you, after 60 years of experience, is it seems to stand up under any of the tests I would make up.’

My time is now dedicated to helping investors practice exactly what Benjamin Graham, and many other investment luminaries, have preached: rules-based investing. For the majority, it’s a better process and leads to better outcomes. Our work at Stockopedia.com, where we crunch fundamental and technical data in order to model and track the investment processes of the great investors, bears this out.

Portfolios composed with stocks showing the right statistical mix of value, quality and momentum have significantly outperformed. Rules-based investing beats the market. But more importantly, it helps promote the emotional detachment needed to stop investors from beating themselves.

I’ll never buy a stock on a punt or an analyst’s tip again. Perhaps, neither should you.

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Inside

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onnoisseur

onnoisseur

Welcome TO THE CONNOISSEUR

section of Inspired, a showcase for the finer things in life for those who truly appreciate them.

Enjoying the fruits of your labour away from the relentless demands of our age poses its own challenges and quandaries.

Would a tropical idyll restore your ebbing energy levels?

Might a break based around hair-raising activities revive them even more effectively?

Perhaps reawakening a dormant passion for fine wines or luxury cars would be the most enjoyable reward for your industry.

A luxury tropical holiday is probably near the top of most people’s wish lists. We take a look at some of the most tantalising options.

The arrival of BMW’s new super coupe is featured on page 50. BMW aficionados and petrolheads alike are certain to be won over by its head-turning looks and mouthwatering specs.

Gems come under the microscope on page 53. A rare coloured diamond can be a joy as well an appreciating asset.

Wine is on the menu on page 54, where we explore the charms of Argentinian Malbec.

Watches are often treasured objects, and the best can turn out to be shrewd investments.

We look at the secondary watch market and the growth of online retailing on page 58. Enjoy.

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TRAVEL

Island Fantasy

FIVE TOP PRIVATE ISLAND RETREATS

T

op-rated resorts and hotels offer a variety of temptations and services to impress even the most discerning tastes, but there is no better way to escape the rigours and stresses of daily life than cutting off from the outside world while still enjoying lavish service

in the pinnacle of all resorts: the private island.

There are thousands of small islands around the world, but only a few have chosen to cater to the most discriminating travellers seeking a rarified, yet perfect world of quiet and relaxed luxury. We look at five of the world’s top private islands, destinations where your holiday is certain to be an exceptional experience.

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TRAVEL

As you

Like it N NECKER ISLAND

ecker Island is owned by Sir Richard Branson and guests stay in his home.

The island has become a popular destination for some of the world’s most prominent figures as a hideaway from life’s stresses and strains.

Because Necker Island is a residence and not a resort, guests who rent the island are treated as owners and catered for in a unique way.

The74-acre island is fringed with beautiful white beaches, and surrounded by turquoise waters and coral reefs. It boasts every resort-type amenity: guests can spend their days being pampered in the spa, exploring underwater reefs in a submarine, lounging by the pool bar or swimming in one of the world’s most elaborate private pools.

Haute cuisine is a highlight for most guests – rates are fully inclusive of all food and drink. A team of chefs creates bespoke menus featuring anything from lobster and caviar to a Sunday roast. And because Necker is a home first and a resort second, guests decide whether dining will be formal or informal, inside or outside, themed or traditional.

The bar is stocked with international wines, topquality spirits and beers, and a world renowned house champagne, while special orders can be shipped in at no extra charge – unless an item is particularly rare. Every service and amenity is available around the clock and guests are encouraged to treat Necker as their own home.

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Unalloyed luxury and an impressive range of amenities make Necker one of the most desirable island destinations in the world

JUMBY BAY

Fine

Balance T

he Jumby Bay resort, which is only accessible by boat from Antigua, is a Caribbean hideaway owned by Rosewood Resorts. It is perfect for those seeking either relaxation or spirited adventure.

You can rent the island resort entirely for your stay or simply take a room. Those opting for exclusive use of the island will have the resort’s two pools, three tennis courts, fitness centre, croquet field and putting green to themselves.

A wide range of water sports are available, and guests can indulge in as much adventure or relaxation as they want during their stay. The resort is ideal for large family

reunions or corporate retreats – 40 guest rooms and suites are available on the island.

Executive chef Sylvain Hervochon celebrates gastronomy – and mixology (cocktail making) – with casual elegance, by creating Caribbean-style dishes inspired by fresh local ingredients and incorporating international influences.

Jumby Bay’s rates start at £150,000 for four nights based on double occupancy between May and December.

Visit www.rosewoodhotels.com/en/jumby-bay-antigua for further information.

Caribbean ambiance, international sophistication and adventurous activities make Jumby Bay a compelling choice

TRAVEL

Isle of LAUCALA ISLAND

T Just laze by the pool or venture beyond to dive in the turquoise waters of the South Pacific among stunning reefs and a dazzling array of marine creatures

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he private island of Laucala in the South Pacific is a 3,500-acre site in a picturesque rainforest-laced landscape. Enchanting deserted beaches nestle among coconut plantations, organic farms and lush, green volcanic mountains.

The resort offers an outstanding level of refined luxury as well as a compelling collection of sporting and cultural activities: diving among iridescent marine life in the warm, turquoise waters, guided rainforest tours, horse riding, surfing and golfing on the 18-hole championship course. The island is a superb choice for an escape from civilization, whether you want an adventure in the wild or simply to relax in one of Laucala’s five restaurants and bars.

Rates are available on request. Visit www.laucala. com, for further details.

Plenty Lush green surroundings, sensitive development and beautiful beaches help Laucala island conjure up a complete South Seas experience

inspired | March 2014

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TRAVEL

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March 2014 | inspired

P

PULAU JOYO

ulau Joyo is a seductively serene environment of pristine beaches surrounded by clear, blue sea in Indonesia’s Riau Archipelago.

Accessible from Singapore or Bintan, Pulau Joyo is a true castaway island offering every resort luxury amid untouched natural beauty.

Pulau Joyo is famous for its remarkable sunsets and brightly star-lit sky. The resort can host 28 guests, and 20 staff are on hand to cater to their every need. Guests stay in open driftwood ‘palaces’ that ‘allow the sea in’.

Despite its desert island appeal, Pulau Joyo offers every modern convenience, a range of adrenaline boosting activities and more relaxing options such as spa treatments and massages.

Theresort’scuisinefocusesonwesternandIndonesian dishes. Meals are usually served buffet style and feature grilled fish, squid, prawns, beef and chicken as well as many curry dishes. Side dishes include fresh garden salads, pasta salads, boiled or steamed leafy greens and grilled aubergine (an island favourite). Prawn and tofu kebabs appear from time to time, as does satay. The chef will often provide a selection of freshly picked fruit and homemade cakes for dessert. It’s worth noting that the management will not serve pork or shellfish on this private island.

Pulau Joyo may not be as refined as some islands, but it’s an excellent choice for those who want a more casual, laidback island experience that replicates the castaway experience like perhaps no other.

Rates start at £1,913 a night. More information is available at www.pulau-joyo.com.

Wannabe castaways may find Pulau Joyo’s purer, simpler take on the luxury island experience more to their taste

Slow Lane inspired | March 2014

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TRAVEL

Fijian Paean DOLPHIN ISLAND

I

n the Fijian island paradise of Dolphin Island, a small army of staff await to meet guests’ every need. On arriving – by boat, helicopter or float plane – visitors are invariably struck by the beauty of the island and the luxurious accommodation that awaits them amid 14-acres of lush tropical gardens.

Three traditional palm-thatched bures, individually designed by world renowned interior designer Virginia Fisher, sit in an elevated position around the resort’s infinity pool.

Guests are brought fresh tropical fish to choose each day that are cooked to perfection within hours of leaving the water. The culinary focus is on organic produce and ingredients unique to Fijian cuisine, but meals are tailored to guests’ personal tastes. Papayas, mangoes, bananas and pineapples are plentiful throughout the day.

When it comes to recreation, the 14-acre island is an expansive playground offering a diverse range of watersports as well as diving opportunities on Fiji’s coral reefs.

Rates start at £720 a night. More information is available at www.dolphinislandfiji.com.

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Traditional features, modern comforts and excellent facilities make for a harmonious whole on this Fijian island

Pictured slightly larger than actual size .

Big Pilot’s Watch. Ref. 5009: Your wrist never felt this big before. The case of the top model in the IWC Pilot’s Watch range is a gigantic 46.2 mm in dia­ meter. And the technology inside it is even more impressive: the largest IWCmanufactured automatic movement with its Pellaton winding system is protected

against strong magnetic fields by a softiron inner case. And, needless to say, en­ vious glances. iwc . e n g i n e e r e d fo r m e n .

Mechanical IWC-manufactured movement, Pellaton automatic winding system, 7-day power reserve with display (figure), Date display, Soft-iron inner

case for protection against magnetic fields, Antireflective sapphire glass, Water-resistant 6 bar, Stainless steel

IWC Schaffhausen, Switzerland. iwc.com. The world’s finest timepieces are exclusively available from selected watch specialists.

For an illustrated catalogue or list of nationwide concessionaires please contact IWC UK. Tel. 0845 337 1868. E-mail: info-uk@iwc.com

CARS

Munich

Legend BMW fanatics can open

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their eyes – the M4 has arrived

M

ost BMW aficionados are probably pretty sad to see production of the M3 coupe – quite possibly the company’s most noteworthy and celebrated model – end after almost 30 years. Ever since the first wide-body E30 M3 saw the light of day in 1985, drivers have loved the sporty coupe for its incredible balance, intoxicating power and, of course, solid build quality.

The model never got stale in all that time and always remained the poster child for the M division, so it’s a little weird that BMW has apparently decided to axe it. In truth, though, they haven’t really dropped the M3. The M3 sedan will continue to be produced in 2014, so all

is not lost. Moreover, BMW seems to be adopting a pattern of giving its sedans odd-numbered titles only and its coupes even-numbered titles only, so the 4-Series, and especially the M4 concept that debuted at Pebble Beach, Monterey, California, will fill the gap left by the M3. Many people have been awaiting the new super coupe with great expectancy, but can it fill in for the M3?

The journalists who swarmed over the M4 concept at Pebble Beach were obviously much more interested in it than the somewhat predictable 428i that was also there.

Finished in an eye-catching colour called Aurum Dust (which actually looks a lot like the old M3’s Phoenix Yellow colour), the car presented in California may be a concept, but typically BMW M cars don’t change much before they finally hit the showroom.

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CARS

From front to back, the bodywork is manifestly different and much more aggressive looking than a standard 4-Series car. It really looks to pretty much pick up where the E92/E93 M3 coupe left off, especially with its undeniably cool domed hood. Wide wheel arches, big wheels wrapped in low-profile tyres, more than enough M badges and a well-executed double-bubble roof make the already underwhelming existing 4-Series coupe look even more pedestrian.

Power for the new M4 is likely to come from a three-litre, twin-turbo, straight-six engine. While the horsepower probably won’t differ much from the M3’s old 4-litre V-8, it will generate more than 100lb/ft more in torque, almost 400 in total. With the M4 being a lighter 3,300lb in weight, the M4 promises to be an exciting, worthy car. A proper six-speed manual may be in the mix alongside the now obligatory dual clutch and paddles option.

The best way to look at the M4, however it ends up, is not as a new car but as a new and improved M3 that’s just getting a new name. The decision to rename the coupe is a strange one, but thankfully BMW apparently felt the 3-Series coupe had made such an identity for itself that a new model was needed, albeit in a slightly different incarnation .

With BMW embarking on some new-ageish ideas such as its 1-Series ActiveE and the soon-to-arrive ‘i’ range of cars, it’s nice to see the company also stick to classics such as the heart-stopping sports coupe, even if the latest model does come with a new name.

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Seductive curves and racier performance make the BMW M4 a more than acceptable replacement for the M3 super coupe

Form Sparkling

GEMS

Coloured diamonds are making their mark

O

ne of the main factors that determines the value of what we ordinarily think of as diamonds is their purity: the degree to which colour is absent in the gem. However, with coloured diamonds the extent to which they are saturated with colour is a principal determinant of their value.

Coloured diamonds come in 12 basic colours, more than 90 secondary hues and nine intensity levels. The depth of their colour is what really differentiates these diamonds from their colourless counterparts.

Natural coloured diamonds are 10,000 times rarer than typical colourless diamonds, one of several reasons why they are treasured by the rich and famous yet remain unknown to most other people – despite having been around for centuries.

Of course, some colours are rarer than others. Red, violet and purple stones are as rare as the proverbial hens’ teeth, while green and blue are also rare. The most popular colours are pink and yellow (or canary). They also come in white, grey, orange, black and ‘chameleon’ form.

A pinkie ring encrusted with a large coloured diamond has become a status symbol for men in Asia. That little stone is an unregistered asset that could quickly be sold for millions of dollars should the need arise.

Coloured diamonds are durable and never lose their sparkle or lustre, so they are assets that can be enjoyed every day, unlike stocks or bonds. And they have proved to be fantastic investments, having steadily appreciated in price, with relatively little volatility, for more than a decade. They even held their own during the most recent financial crisis.

Coloured diamonds are auctioned by reputable

auction houses such a Sotheby’s and Christie’s, where prices for large, unique pink, red, blue or yellow stones can reach in excess of $2 million (£1.2 million) a carat and other stones regularly sell for $1 million a carat.

They are often bought by high-net-worth individuals as an insurance policy. Instead of stashing cash in undeclared bank accounts and potentially incurring the wrath of the authorities, the wealthy can purchase some loose yellow diamonds to secure their future.

Clearly, coloured diamonds are much more than a magnificent indulgence.

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WINE

Mendoza Marvels F

Make the most of the deeply satisfying Malbec wines emerging from Argentina and perhaps even enjoy a return on a shrewd investment, says Ewan Lacey

inding a red wine to enjoy in spring is a delicate balancing act. The shock of seeing sunlight after a dark winter fosters in us a desire to drink something refreshing while the still-cool temperatures demand something with comforting depth.

Increasingly, Malbec wines, particularly those from Argentina, provide a perfect solution to this quandary.

And while there are plenty of delicious wines for informal occasions, what is most interesting is the emergence of finer Malbec wines. Some are so good they may well have ageing potential, raising the intriguing possibility that the wine may one day become collectable.

Malbec is the most popular wine among those aged 25-34 and is now becoming a fixture on most restaurant wine lists. There are several reasons for its success: the word Malbec is easy to pronounce, the wine goes well with red meat, the Malbec grape can be turned into wines that are both relatively easy to drink and packed with flavour, and decent wines are available at reasonable prices. Malbec is deep, fruity and charming, and it delivers instant pleasure – claret on a motorbike.

The Malbec grape originated in France, and it remains one of the permitted varieties used to make Bordeaux.

However, it has gained prominence through the work of the post-junta Argentine wine industry.

I recently had the pleasure of tasting some very fine Malbecs with Laura Catena, managing director at the Catena Zapata winery and president of the International Wine and Spirit Competition. She opened my

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WINE

eyes to the potential of this grape variety above sea level). At this elevation the grapes when handled with care. ripen in bright sun but ‘relax’ during the cool Laura’s family business makes a range of evenings. The fact that the wine is made in wines, but the wine that truly astonished tiny quantities (eight barrels only) means me was the Nicasia Vineyard Malbec 2006. every care can be taken during the winemakThe wine is perfumed with floral and fruit ing process to ensure the wine is allowed to notes, and it is smooth and soft at first. show its grown-up side. The cost per botLike all great wines, it has many layers of tle of £70 is not insubstantial, but neither flavour: warm bursts of cherry and blackis the wine. currant cede centre stage to deeper, darker We cannot know whether these wines caramel and mocha notes, and a touch of will ever become investments in the way spice. There’s an amazing depth of flavour, Laura Catena is managing director at the wines of Bordeaux have. What’s cerand the finish is long and lingering. What’s the Catena Zapata winery (above) tain is that Malbec wines have a very rare more, at nearly eight years old, it still has a quality: a balance of finesse and power that slight purple tinge and tastes extremely fresh. There is can delight wine lovers and linger in their memories. every indication that it will age beautifully for at least another decade.

Ewan Lacey is a leading wine expert and general manager of the International The wine’s character is heavily influenced by the altiWine and Spirit Competition. He has appeared on BBC television and radio as well as Channel 4, and written for the national press. tude the grapes used to make it are grown at (1,180m

THE INTERNATIONAL WINE AND SPIRIT COMPETITION The International Wine and Spirit Competition has been the premier drinks competition in the world for 45 years. Each year it receives and reviews thousands of wines and spirits, and presents quality awards to producers.

More than anything, the IWSC exists to help

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people make better decisions, particularly when buying wines and spirits.

An IWSC award on a bottle of wine is a guarantee

of quality backed not only by a rigorous and stringent judging process but also by the skill of the judges, who are drawn from the ranks of masters of wine, master distillers, industry leaders and commentators.

Each year the IWSC honours a leading figure

in the drinks industry with the presidency of the competition. The current president is Laura Catena, who succeeds a notable line of predecessors, including Prince Robert of Luxembourg, winemakers Piero Antinori and Warren Winiarski, and Baroness Philippine de Rothschild.

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Time

LUXURY WATCHES

is precious

A

t a recent watch auction in Geneva at Antiquorum – the world’s premiere auction house for modern and vintage time pieces – a Patek Philippe pink-gold Sky Moon Tourbillon watch emerged as the auction’s top lot and sold for 1.2 million Swiss francs (£807,000).

Unlike most of the timepieces sold at auctions outside Asia, this particular Patek watch – the most complicated wristwatch the Swiss watchmaker has ever produced – was not a vintage model.

That Geneva auction raised intriguing

questions. Are modern luxury timepieces every bit as appealing as the vintage watches that typically command top prices at auction? And does that Geneva auction tell us anything about the contemporary watch market as a whole?

Julien Schaerer, Antiquorum’s managing director in Geneva, says top-quality vintage watches often appreciate in value over the long term. But he urges buyers for whom appreciation is an important consideration to be cautious about purchasing contemporary watches.

‘Watch price depreciation is the cost of ownership, just as it is with a luxury car’ he says. ‘If the value goes up then,

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TIMEKEEPING MILESTONES Around 1410

The mainspring is developed. Combined with the fusee, this innovation makes possible the truly portable domestic clock

1492 1284

Clocks with weights, gears and regulators start to appear, mostly with no dial, to strike the important moments of daily life 58

The mechanical watch appears simultaneously in Italy, Germany and France

1675

Christian Huygens invents the spiral balance spring

March 2014 | inspired

for watches, significantly improving their accuracy

1704

The first watch with jewels is produced by French watchmaker de Beaufré

1714

1790

The British parliament offers £20,000 to whoever can a find a method to determine longitude

Jacquet-Droz and Leschot manufactures a watch attached to a strap

1839

1766

Parliament publishes the rating results for John Harrison’s H4 marine timekeeper. Harrison’s highly accurate marine clock solution to the problem of determining logitude wins him part of the £20,000 prize.

1787

Pierre-Frédéric Ingold is born, an important pioneer in mechanised timepiece production and the use of interchangeable parts

Vacheron & Constantin developes a full set of machine tools for manufacturing its watches

1875

Calcium sulphate is the first luminescent substance to be used for numerals and hands

A Patek Philippe pink-gold Sky Moon Tourbillon recently sold for £807,000

1889

The first known patent for a wristwatch is filed in Bern, Switzerland

1890 1880

The first waterresistant watch incorporating a screwed case is produced by Genevan watchmaker François Borgel

Dialmaker A Beyeler invents a transfer press for applying numerals and letters to dials

1892

Auguste Verneuil in France produces the first synthetic jewels to be used in watchmaking

1904

Wens Wilsdorf launches large-scale production of a women’s wristwatch

first Swiss patent for a self-winding wristwatch with a central oscillating weight

1924

1925

John Harwood files the

The first known wristwatch with a perpetual calendar is manufactured using a pendant watch movement

1926

Rolex creates the Oyster wristwatch with a waterresistant case and crown

with an LED display appears

1978

Quartz watches overtake mechanical watches in popularity

1966

The first quartz wristwatch prototype is produced

1969

The first quartz watch

2005

Creation of the Fondation de la Haute Horlogerie.

Seiko launches the spring drive Kinetic, the first self-winding mechanical watch with an electromagnetic escapement

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LUXURY WATCHES

A Lange & Sohne (above) is a longstanding high-end watchmaker.

Comparative newcomer Roger Dubuis (right) is forging a strong reputation

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March 2014 | inspired

of course, that’s an added benefit. However, he adds: ‘Price appreciation is still quite rare with modern watches. There is some potential for appreciation, but probably only with ultra-limited editions. A purchase has to be seen as a medium- to long-term investment. One should buy a timepiece first out of love for the brand or [the watch’s] complication.’

The watch brands that offer the greatest assurance of appreciation include Cartier, Patek Philippe, Rolex, Audemars Piguet, A Lange & Sohne, Breguet and Vacheron Constantin. All enjoy views from the top of the watchmaking hierarchy, thanks to their longstanding histories and well-established brand identities.

Relative newcomers to the industry, such as Richard Mille and Roger Dubuis, have carved out a niche for themselves with their revolutionary designs and space-age technologies, but it remains to be seen just how well the values of their timepieces will stand up on the secondary market.

According to Nathaniel Borgelt, a specialist at auction house Sotheby’s, somemodernwatcheshavealreadyachieved good prices at auction, but these (like the Patek Philippe Sky Moon Tourbillon) were highly exclusive models when new.

‘Some limited edition pieces currently fetch incredible prices at auction,’ he says.

‘And there is a select group of modern models that could compete with a certain sector of the vintage market based on their brand; innovative features, such as materials or complications; and avant-garde designs.

Buying these has now become a whole lot easier. The luxury watch retailing landscape is changing, and the traditional pattern of physically walking into a luxury salon to buy a watch is gradually being replaced by a trend towards visiting the websites of the big

online retailers from the comfort of your home.

Since 2006, DM London has quietly established a powerful presence for itself in the UK retail watch market with the acquisition of The Watch Hut and The Watch Gallery. DM London chairman David Coleridge says the company has capitalised on the increasing willingness of buyers to purchase online.

‘Having decided that they would like to buy a watch for themselves or someone else,’ he says, ‘people start to do their research. More often than not, this starts online nowadays, where they compare brands, performance and functions.

‘As trust in the online marketplace has developed, many want to buy online because it is convenient and saves time. Shopping online becomes a habit, established sites build trust and awareness with customers, which gives customers the confidence to buy more expensive items.’

He adds: ‘Our challenge is to make the online environment as attractive, informative and enjoyable as a high street store. Then customers will decide to spend online.’

Coleridge believes a multi-channel approach is the way forward for retailers. He says: ‘Without doubt the future is multi-channel selling – a combination of direct selling on the internet and various forms of click and collect – combined with beautiful stores on the high street.

Over the past few years, demand for luxury watches (particularly contemporary models) has spiked sharply in Asia, and according to some specialists, emerging affluence in the

➳

Hublot Classic Fusion The Watch Gallery Exclusive

The Watch Gallery and Hublot have joined forces to create two very special limited edition watches. Both are limited to just 15 pieces worldwide and have been specifically designed to feature The Watch Gallery blue brand colour on the hands and tinted open case back. www.thewatchgallery.com/hublot-watches help@thewatchgallery.com Selfridges Oxford Street Westfield London Manchester Exchange Square

LUXURY WATCHES

Far East has kept global values strong while other markets around the world continue to recover from recession.

Despite the market boost from growing prosperity in Asia, there are signs that the market is becoming saturated and that globally the new watch market isn’t as robust as some commentators suggest.

It may still be a good time to buy, but its important to know what you want and what you’re buying.

Modern watchmakers such as Richard Mille, Roger Dubuis and Greubel Forsey are producing beautiful timepieces, but because of their limited foothold in the market, it’s difficult to predict their long-term success and desirability. They don’t yet have the brand power that might ensure the value of their

watches in the secondhand market remains high.

Such producers might one day stand eye to eye with the most desirable brands such as Patek Philippe and Rolex, but achieving that kind of parity won’t be easy. Collectors looking to invest in timepieces are advised to keep an open mind about modern producers: uncertainty is the one aspect of modern luxury watch market most experts tend to agree on.

That said, the buoyancy in the watch market suggests that plenty of buyers are unconcerned about future values. For them, it’s all about the appreciation of the watch itself. People buy watches because they bring them pleasure – and say something about who they are.

Contemporary watches such as those made by Hublot (left) have yet to show they will have the lasting appeal of watches such as Cartier’s Rotonde de Cartier Astrocalendaire (right)

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