A ready-made buy and hold ISA portfolio
As we rush towards the last day of the tax year on April 5, investors may be thinking about how to invest their tax free Individual Savings Account allowances, before they lose them.
There's no need to panic though. As long you fund your ISA before the end of the tax year, you can take your time selecting investments to populate it. If you're making long-term investments, time spent learning about the businesses that carry your expectations will probably be well spent.
I have some suggestions, stemming from my research into resilient adaptable businesses. I believe these 10 shares are attractively priced. But share prices are capricious and I don't expect they'll necessarily be worth more this time next year, when I'll report on their performance.
The longer the holding period, the more confident I am these businesses will prosper and their shareholders with them. If I'm lucky enough to be writing in five and 10 years' time, my choices are much more likely to be vindicated.
To track the performance of this ISA portfolio, I have chosen to invest half the £20,000 ISA allowance, £1,000 in each company including fees: a notional £10 broker fee and 0.5% in Stamp Duty Reserve Tax (unless the company is listed on the Alternative Investment Market, because they are SDRT exempt).
The brief profiles below are linked to more detailed reviews.
Cohort (CHRT): 350p
Cohort (CHRT) is four defence technology companies that operate fairly autonomously. The group has grown revenue and profit as its biggest customer, the Ministry of Defence, has had less money to spend. By shifting its focus towards products, which are less dispensable and easier to export, than consultancy and training, it's reducing its susceptibility to defence spending cuts. Cohort says customers like its decentralised structure because smaller companies are more responsive and the larger group provides financial stability, but the board must tread a fine line between giving subsidiaries the freedom to profit and maintaining sufficient oversight to step in if they're on the wrong track.
Dart (DTG): 793p
When I expressed my frustration that Dart (DTG)'s a difficult business to get your head around, the chief executive of Dart's airline, Jet2, once quipped that flying hundreds of people at five hundred miles an hour in a metal tube is complicated. Dart, though, which also owns a much smaller road-haulage business, has made it look easy. As it's stealthily expanded from its base at Leeds-Bradford as far as Glasgow and Stansted, Jet2's flying increasing numbers of holidaymakers from murky Britain to the Mediterranean. I think Dart provides better service than the low-cost airlines and holiday websites that use them to "dynamically package" holidays, at lower cost than traditional tour operators like Tui and Thomas Cook.
Dewhurst (DWHT): 950p
Dewhurst (DWHT)'s a family controlled business that manufactures components for lifts, ATMs, and also railway carriages. The common denominator is pushbuttons, Dewhurst made its name as a designer of attractive vandal-resistant pushbuttons for lifts and they're also used in ATM keypads and to open and close railway carriage doors. I think the biggest risk Dewhurst faces is technological obsolescence. As alternatives to cash proliferate, demand for ATM keypads may fall, and alternatives to pushbuttons, particularly touchscreens, are appearing in lift designs, particularly in plush and busy lifts. However, Dewhurst remains highly profitable and has moved adroitly with the times, acquiring customers to diversify, and broadening its product ranges to embrace new technology.
Adventurous investors may consider buying the non-voting shares (DWHA), which are cheaper but receive the same dividend.
Games Workshop (GAW): £23.40
The inclusion of Games Workshop (GAW) in my ISA portfolio may confound regular readers because I recently reduced the number of Games Workshop shares held in the model Share Sleuth portfolio I manage for Money Observer magazine. I decided to rebalance the portfolio after Games Workshop had grown to be its biggest holding, not because I doubted the quality of the business. As the owner of the popular Warhammer gaming and modelling franchise, I believe it, to a larger than usual extent, controls its own destiny. The biggest risk is in the share price as within a year Games Workshop has gone from being unloved to highly fancied.
Howden Joinery (HWDN): 488p
Kitchen supplier Howdens (HWDN) units are good enough, but I don't think that's what makes it such a special company. It's special because it does not sell kitchens to the public. It only sells them to local builders and tradesmen, a unique focus that means it understands and serves its customers better than anyone else. As Howdens rolls out depots around the country I think it would be very hard for a competitor to emulate it. The main unknowns are how long it will be before Howdens has saturated the country, and what happens then. I'm relying on the company to work that one out.
Judges Scientific (JDG): £21.40
Judges Scientific (JDG) has a beguilingly simple business model. It buys small scientific instrument manufacturers and then does very little with them. These businesses, it says, are already successful, but because they are private companies out of the glare of the stockmarket, it can buy them cheaply. While acquisitions often fail to deliver the benefits their acquirers envisage, this is not such a big risk at Judges as, in the main, it's not seeking to integrate the businesses and achieve efficiencies. The main risk is that it pays too much for the acquisitions, but judging by the accounts, it doesn't.
Science (SAG): 210p
Cambridge-based Science (SAG) is a research and development consultancy. It does scientific research for other companies, or advises them, for a fee. In recent years it's augmented the original business, Sagentia, which developed products for medical and commercial customers, with advisory businesses that have brought it into contact with new customers in industries like food and beverages. The company is highly profitable, but it remains to be seen whether the acquisitions amount to more than the sum of their parts, which they would if the clients of one business go on to buy the services of another.
Solid State (SOLI): 390p
Solid State (SOLI) manufactures rugged computers, radios, batteries and antennas and it distributes electronic components. Like Judges Scientific, it's grown by acquisition, but unlike Judges it takes the riskier route buying companies on the cheap and then operating them more efficiently. Judging by the high levels of profitability it subsequently achieves, I believe Solid State is succeeding, but as always there's a risk. As it grows, the acquisitions must be bigger too, if they are to have the same impact.
System1 (SYS1): 320p
System1 (SYS1) is the most speculative of the ten selections. The company is a market research firm. It pioneered techniques derived from behavioural science researchers to test our emotional response to advertisements. Just as it seemed to be on the threshold of greatness having switched its focus from lucrative but ad-hoc consultancy to a suite of products it could scale more easily, the bottom fell out of the advertising market. Big advertisers like Unilever have dramatically scaled back their budgets, and System1, having itself disrupted the industry, is at risk of disruption from technology companies. You won't hear me using this word often, but an investment in System1 is a bet that its entrepreneurial founder and his colleagues to find a way to profit consistently in a rapidly changing industry. I figure you're allowed one bet in a portfolio of 10.
Victrex (VCT): £25.38
Victrex (VCT) is the world leader in PEEK production, a tough, light, durable polymer used to replace metal in a growing range of applications from airframes to medical implants. Hitherto a supplier of the material to manufacturers, it's seeking to open up completely new markets by becoming a niche manufacturer of components made from PEEK and PEEK composites. While heavy investment in unproven applications is risky, so far Victrex has remained highly profitable and cash generative, while increasing its capacity and investing in product development.
Source: interactive investor Past performance is not a guide to future performance
Richard owns shares in Cohort, Dart, Dewhurst, Games Workshop, Science, Solid State, System1 and Victrex.
These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties. The content is not intended to be a personal recommendation, and is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.
Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.
We use a combination of fundamental and technical analysis in forming our view as to the valuation and prospects of an investment. Where relevant we have set out those particular matters we think are important in the above article, but further detail can be found here.
Please note that our article on this investment should not be considered to be a regular publication.
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|HOWDEN JOINERY GROUP||486.20p||-0.27%|
|GAMES WORKSHOP GROUP||2,500.00p||-1.38%|
|All data 15min delayed as of: 04:06:27 22/04/18|