Fund managers are keen to highlight the shares that have served them well in the past when they have made the correct call. But when it comes to naming shares that they are willing to buy and hold for the long-term (20 years), many are less willing to give any predictions.
This article will reveal what stocks some of the top fund managers in Britain would buy if they were forced to hold it for the next 20 years. This buy and hold strategy is perfect for passive investors and it also meets one of Warren Buffets golden investment rules – “only buy something that you would be perfectly happy to hold if the market shut down for 20 years.”
1) Richard Buxton
Stock Pick: Prudential
Reasoning: Prudential has market positions in insurance and savings markets across Asia, which would be hard to replicate from scratch (barriers of entry). As these countries develop and grow over the next 20 years, I believe penetration of their products will rise with rising incomes, so I am confident that the shares will benefit over 20 years.
There is likely to be further consolidation in the UK market, which may well include Pru’s UK arm, creating another source of value, while its American business is a strong one, remitting cash back to the British parent. I can sleep easy with the strong belief that this company will still be around in 20 years, harnessing the unstoppable growth momentum in Asia.
Why listen to Richard Buxton: His old mutual UK alpha fund has returned 181% over the past 5 years compared to the industry average of 94%. Investing with him over the past 5 years would have turned £10,000 into £28,100.
2) Nick Train
Stock Pick: Diageo
Reasoning: The appeal of Diageo’s brands across the generations and as far into the future as one can see means that it offers investors exceptional predictability. Sometimes we complicate the investment challenge. If you can find a company whose products are likely to still be consumed in 25 years time, and if the company can succeed in at least maintaining or preferably increasing the price of its products above inflation, then you have the basis for a wonderful long-term holding. Such companies are rare than you might initially think, but Diageo is definitely one of them.
Why listen to Nick Train: His Finsbury Growth & Income investment trust performance over the past 5 years has been 198% compared to an average of 127%. Putting £10,000 in his fund 5 years ago would see your money grow to £29, 800.
3) Michael Clark
Stock Pick: GlaxoSmithkline
Reasoning: Pharmaceuticals and branded consumer goods companies are ideal for long-term investments and, therefore, are a good foundation for long horizon portfolios.
GlaxoSmithKline, one of the best-known British companies, is strong in both these fields. The shares have a very high dividend yield of about 5.5%. That is one of the best in the London market. The dividend is well covered and should increase over time.
The core of the firm’s pharmaceutical business is a range of products to treat chronic reparatory complaints. This is an area the company has dominated since the sixties. It remains as the forefront of new developments in the field and is likely to retina its market share over time, even decades. The firm also has a very strong consumer business in products, such as toothpaste, which are noted for their brand loyalty.
I believe an investment in GlaxoSmithKline should generate returns of close to 10% per year over the next few year, not at least through the compounding effect of that high yield and growing cash dividend.
Why listen to Michael Clark: His Fidelity money builder dividend fund performance over 5 years is 103% whilst the average fund made 93%. Investing £10,000 with him 5 years ago would see your money grow to £19,400.
4) Giles Hargreave
Stock Pick: Elementis
Reasoning: Elementis is a truly global business, built on innovative science, and positioned to benefit from the way our world is changing.
The specialty products division, which serves industries from cosmetics to oil and gas production, presents the most exciting opportunities. Changes such as increasing longevity and urbanization, and the growth of unconventional oil and gas drilling techniques, are likely to underpin demand for its products.
The company has one more competitive advantage: it owns a mine that is the only source of high-grade hectorite clay, which is used in a number of products. Occupying a niche position, elements is well placed to grow its revenues and market share while maintaing margins.
Why Listen to Gles Hargreave: His Marlborough special situations fund increased 183% over the past 5 years compared to the average of 151%. Investing £10,000 with him 5 years ago would mean that your money would now be worth £25,100.
5) Paul Mumford
Stock Pick: Bloomsbury
Reasoning: The problem is that a lot of investment sectors are prone to change-I cannot pick an oil company because they could run out of oil in two decades; similarly pharmaceutical firms cannot guarantee that it will invest in new drugs, so this is another risky area to buy and hold for the long ted,
So to meet my criteria the share has to definitely still be around in 20 years time and be an even bigger and more profitable industry than it is today.
With this in mine, I would buy Bloomsbury Publishing as people will still be reading books in one form or another in 50 years time, never mind 20. I am impressed how the firm has adapted to the way the younger generation prefers to use e-books and the like, and I think they will continue to make material compatible with new formats as and when they are created.
The company obviously made its name as the publisher for the Harry Potter books, but what I like about it is that its big area of expertise lies in educational books. Obviously these books are timeless, but it also gives the firm a chance to expand its footprint and revenues in other markets, such as India
Why listen to Paul Mumford : His Cavendish Opportunities fund performance over 5 years has been 190% compared to the industry average of 93%. Investing £10, 000 with Paul Mumford 5 years ago will see you almost tripling your money to £29,000.