My tax-efficient Self-Invested Personal Pension (SIPP) is my intended passport to a comfortable retirement. And since I’m not thinking of quitting work for decades, I’m committed to filling it with nothing but stocks and shares.
Here are my three biggest holdings.
LF Blue Whale Growth Fund
Managed by Stephen Yiu, the LF Blue Whale Growth Fund seeks to own stakes in “beautiful companies” — the sort of high-quality growth stocks he thinks stand a good chance of compounding investors’ money at an above-average rate.
Some positions will be familiar to UK readers, Microsoft, Nvidia and Visa. Others, such as oil and natural gas giant Canadian Natural Resources and semi-conductor equipment manufacturer Lam Research probably less so.
Performance-wise, it’s a case of so far, so good. Since its inception almost six years ago, Blue Whale has delivered annualised returns of 11.7%. That’s far better than the 8% achieved by its benchmark (IA Global Average).
Yes, managment fees detract from this result. There’s also no guarantee the fund can continue to outperform the market over the long term (most active funds don’t).
However, Blue Whale’s relatively small size (£850m) arguably gives it more flexibility as to where it invests. Its exposure to AI could also turbocharge returns.
Smithson Investment Trust
FTSE 250 member Smithson Investment Trust (LSE: SSON) is another big holding. It’s similar to Blue Whale in running a concentrated portfolio of high-quality stocks. However, there’s at least one key difference.
The median market-cap of companies in Smithson’s portfolio is £6.6bn compared to Blue Whale’s average of over £100bn. So there’s no overlap in companies here (helping to reduce risk).
That said, I can’t deny recent performance has been woeful. The Smithson share price crashed 35% in 2022 as high inflation and galloping interest rates pushed investors away from growth stocks. This leaves the investment trust lagging its benchmark since inception.
That’s clearly not ideal. However, in manager Simon Barnard’s defence, Smithson was seriously outperforming until last year.
For this reason, I’m staying put. Indeed, I think this outperformance will resume when the next bull market kicks in given his commitment to only buying companies with “a dominant market share in their niche product or service or having brands or patents which others would find difficult, if not impossible, to replicate“.
Vanguard Global Small-Cap Index Fund
Rounding off my top three positions is a passive fund. As it sounds, the Vanguard Global Small-Cap Index Fund seeks to track an index rather than outperform it.
This keeps costs low. It also means that my money is spread around a more diversified portfolio (providing some balance from Blue Whale and Smithson). In practice, this allows me to sleep soundly even if markets crash, or merely dip.
No prizes for guessing what the focus is here, minnows from developed markets around the world, no fewer than 4,356 of them.
Why bother? Well, copious academic research has consistently shown that smaller stocks tend to outperform big ol’ blue-chips over time. The snag is that they’re usually far more volatile.
For a patient Fool like me, this is a price worth paying.
In fact, I’d be very happy if I’d invested £10,000 back at the start of 2010. This would have been worth nearly £42,000 by July!
