A hypothetical investor currently lives in the UK and has a large pile of capital that'll be sufficient to last him and his wife for the rest of their lives. His portfolio currently contains net zero unrealised capital gains and none of it is in ISAs. He intends to emigrate from the UK when his children leave home in five years time and from then on live for the rest of his life by a beach in a CGT-free tax haven like Monaco. [These aren't my personal circumstances, but run with me, it's the investments I want to discuss]. He's interested in minimising the UK CGT he will have to pay over the next five years, and reckons that if he can choose long term investments now that he simply holds for the next five years, he'll depart the UK with that capital pregnant with unrealised capital gain and avoid CGT on it.
He thinks that he'll structure his portfolio perhaps half in long term investments that he won't sell within the next five years, and half in shorter-term investments that he will switch and pay UK CGT on the gains. What investments should he choose that he won't sell for a five year time period?
He's willing to buy investments on any major exchange in the world, and wants a diversified portfolio without excessive exposure to any one macroeconomic variable (such as the price of crude oil), and so might involve plenty of medium-size holdings in large healthy companies. He'd prefer to be diversified over currencies as well, ie to have plenty of holdings denominated in non-£ currencies. He's interested in long term sustainable competitively-advantaged companies in growing industries, and because he'll be holding for a long time the pricing of their shares right now isn't so important. He's relaxed about a bit of volatility of share prices over the next two or three years, provided he's convinced the company will do well in the longer term. He thinks the UK economy and stock market are likely to underperform the world over the next five years, so in general wants to avoid UK-orientated companies. I would suggest to the investor that he should have plenty of his capital in:
- Emerging markets ETFs (probably US$-quoted because they have lower fees and give him currency diversification),
- Technology (what global companies in the computer/IT industry with lasting competitive advantages would you suggest to own without selling for five years? The problem is obsolescence of their competitive advantages).
- Outsourcing (ie Indian IT consultants like TCS, Wipro, Infosys) and low cost Asian manufacturing that can be bought in US ADR form?
- Oil explorers, particularly those benefiting from an even higher crude price, such as Canadian tar sands companies like Suncor
- Other metals producers - low-cost copper producers, growing uranium producers like Paladin
- Agricultural companies - fertiliser plays like Potash?
- Alternative energy - what large healthy companies have competitive advantages that'll make them reliable winners over five years?
- Are any large pharmaceutical or FMCG (Unilever, P&G) companies likely to reliably outperform global indices? (Please don't suggest tiny biotech companies, he emphasises reliability)
What other themes should he invest in for an unbroken five year time horizon? What specific named companies should the investor research?