I’ll admit, my retirement portfolio isn’t as diversified as it should be because I’m a big fan of keeping things simple. A few key core holdings, as well as a FTSE All-Share tracker fund, are my principal investments.
My two biggest holdings are Unilever (LSE: ULVR) and Prudential (LSE: PRU). These companies have had their ups and downs over the years, but they have become my most significant holdings because I’ve stuck with them. Here’s why I plan to continue holding.
Changing with the times
It is difficult to find an example of a business that has a better track record of growth than Unilever. The reason why the company has been able to churn out returns for investors year after year (the firm went public on 11 Aug 1939) is because it is not afraid to change.
Unilever is continually growing and evolving, shedding old, low-return businesses and investing in other areas. A great example is the recent sale of the group’s spreads business for €6.8bn to private equity towards the end of last year. Some of the funds from this sale are being returned to investors while a chunk is also being reinvested in the business.
Acquisitions also form a large part of Unilever’s constant reinvention process. The group has spent almost €9bn on 19 bolt-on acquisitions since the beginning of 2015.
Short term uncertainty
Unilever has a strong track record of reinventing itself, although in the short term, the biggest cloud hanging over the company’s share price is management’s decision to unwind the dual listing structure the firm has had in place for decades.
By shifting its headquarters to Amsterdam, Unilever won’t be eligible for inclusion in the FTSE 100, which has upset some institutional fund managers. However, I believe that for long-term investors this short-term upset is nothing to worry about.
Indeed, management claims that by simplifying its listing, the company will be able to use its stock to fund more acquisitions, which are fundamentally important to Unilever’s long-term outlook. With this being the case, I believe that if anything, as other investors sell Unilever on uncertainty, now could be the time for us long-term holders to add more.
Unlocking value
Prudential sits alongside Unilever in my portfolio. This is another company that has a long track record of growth, primarily thanks to its exposure to Asia.
And it is this exposure that gets me excited about Prudential’s prospects. As Asia continues to develop economically and the region’s middle class becomes wealthier, the financial services industry across Asia should blossom. Prudential is perfectly positioned for this growth. For example, in the first half of 2018, profit from the group’s Asian business expanded 14% to just over £1bn.
In fact, the group’s Asian ops are so profitable that there has been bid interest from China’s largest insurance group Ping An Insurance.
I reckon a bid could be the endgame here. The firm is in the process of de-merging M&G Prudential, its UK asset management and retirement unit. When the two businesses are separated, the Asian arm will be vastly more attractive for potential acquirers.
With such a bright long-term outlook, I don’t see any reason to sell just yet. With the shares changing hands for just 10.6 times forward earnings today, I might buy more.
