Investing for the longer term

Sunday, Apr 10 2011 by

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?
  • Commodities 
    • 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?


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15 Posts on this Thread show/hide all

marben100 10th Apr '11 1 of 15

On the IT front, one that perhaps merits research is Lenovo (0992.HK). I'd see their competitive advatange (besides low-cost production) as their distribution channel network, which would .be hard/expensive to replicate.

NB I haven't researched Lenovo properly myself, other that knowing it is one of the world's largest IT equipment manufacturers, is based in China and has a rapidly growing home market (as well as global presence). If Yahoo metrics are accurate, the shares don't look cheap but growth remains strong and the SP hasn't moved much over the last 2 years... so could this be a time to buy?

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sirlurkalot 10th Apr '11 2 of 15

Thanks for the reply, Mark. But how come my piece has been changed, I assume by the moderators? Whilst you grumble about the TMF mods, Mark, are they any better here?  Why isn't my post as I wrote it?  What's that stupid picture there for?

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Murakami 10th Apr '11 3 of 15

In reply to sirlurkalot, post #2

Hi SirL, we added a picture so we could feature it on the front page, but no worries if you'd prefer it unchanged. It's back to what it was. Cheers, M

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sirlurkalot 10th Apr '11 4 of 15

Would it be polite to get in touch with the writer, perhaps beforehand by email, if you intend to change what he's written? (assuming no normal abusive/moderation/deletion issues) It might have been fine, but for you to just go ahead and change it without asking seems a little out of order to me.

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Murakami 10th Apr '11 5 of 15

In reply to sirlurkalot, post #4

Fair point. Too much haste. Apologies.

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deucetoace 10th Apr '11 6 of 15

West China Cement is one I would consider (I hold). The cement industry is in an interesting consolidation phase in China and WCC (HK:2233) are based inland away from the boom areas on the coast. They have plans to grow rapidly in the next few years, are rated below equivalent companies (perhaps due to only having moved from Aim to the HKSE relatively recently). There are lots of infrastructure plans for Central/Western China as it is underdeveloped compared to the more coastal areas and the new 5-year plan has been announced recently makes it clear that there's plenty of money going in that direction.

WCC recently announced that they will build their first plant outside their home Province & if successful it should be the start of continued growth outside their home base. The cashflow is very impressive and they got away a US$500m bond earlier this year for expansion purposes in the main.

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nigelpm 10th Apr '11 7 of 15

In reply to sirlurkalot, post #2

Come on SirL - relax!!

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wistman 10th Apr '11 8 of 15

How about Noble Group, listed in Singapore, also available as a spreadbet on IGindex as one to watch.

From the website

Noble is a market leader in managing the global supply chain of agricultural, industrial and energy products. Our “hands on” approach to business has seen us grow to become a world leader in supply chain management in just 20 years.

We specialise in the origination and delivery of strategic raw materials, adding value at each stage of the supply chain. The Group is also involved in technical ship management, trade finance and coal mining running soybean crushing plants and sugar/ethanol mills in Brazil, amongst others.

Our global network encompasses more than 150 office and plant locations in 38 countries across five continents. Our over 11,000 employees include 68 nationalities.

They  have direct involvements in some commodities, eg coal, where they own a mining co or three.(From memory) (That is the "direct origination" to which they refer.

Their Equity research section in "Investor Relations" includes an absolute mass of broker research docs, some really recent, which probably give a clearer picture than I will.  I wish other companies did this.

I have traded this, am "out" at present, but watching with interest. Their last results were pretty impressive, though, andI I think they could be a good long term hold if you are bullish on commodities and Asia.

Check out them broker notes!







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djpreston 11th Apr '11 9 of 15

In reply to wistman, post #8

Excellent choice Wistman and a good thread.

Noble is one of the ones I have followed (and traded) for some time now.

Another one (not too dissimilar in many ways) but much more African orientated is Bollore.  Primarily it is logistics and Fuel distribution but also has plantations (palm oil - and vineyards) as well as industrial operations.

Another might be Vopak - liquid starage facilities (from oil and chemicals through to vegetable oils). It is the world's largest independent tanker terminal operator.

Olam is another one I like Agricultural and food ingredients supply chain management and processing. Theres a good presentation here.

A common theme to all of these (and Noble) is supply chain management and strong positions in their key markets. All are plays on emerging economies and international trade. Another common factor is that all of them, together with Noble, are in the top 10 holdings of CF JM Finn Global Opportunities run by Anthony Eaton, one of the best fund managers I know.

The latest fact sheet relating to the fund is here

Ive long agreed with Anthony's world view and have used the fund for smaller clients requiring a broad brushstroke exposure to the theme and indeed it is a SIPP holding for Mrs P - actually, her only SIPP holding.

Anyways, theres some more food for thought on some of the more "unusual" companies.



Fund Management: European Wealth
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Fangorn 11th Apr '11 10 of 15

You couldn't go far wrong investing in some tobacco companies for the long term element.

My favourites BATS and ALTRIA, and possibly some PMI (International branch of Altria which is growing faster last time I looked.)

Bats divi was circa 4.5%, Altria a bit higher.

Despite on going health concerns of smoking,and heightened regulatory involvement pertaining to where one can or cannot smoke(both here in UK,and in places like Hong Kong, Singapore) these busineses are still highly cash generative,and will be for the foreseeable future.

Neil Woodford is also a big fan of Tobacco last I saw, BATS particularly.

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Mattybuoy 12th Apr '11 11 of 15

Pembina Pipeline (TSE:PPL) -

A very safe way to participate in the growth of the oil sands but with no exposure to oil prices.

I presume dividends are allowed? PPL pays nearly 7% gross.

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Mattybuoy 12th Apr '11 12 of 15

Sticking with the oil sands, I prefer Cenovus (CVE) to Suncor. It's not cheap, but then it does have 100bn barrels of bitumen in the ground. There are also no downstream operations to complicate matters, and the divi is better than Suncor. It's also all in-situ SAGD production, so less contentious.

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Mattybuoy 12th Apr '11 13 of 15

I like US railroads too. There is probably no better moat in existence, and the arguments for increased traffic going forward should be obvious.

Union Pacific (NYSE:UNP) would be my first choice, with Norfolk & Southern (NYSE:NSC) second.

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doverbeach 1st May '11 14 of 15

In reply to djpreston, post #9

Spending some of the bank holiday weekend looking at the names thrown up on this thread - thanks all!

Darron, if you don't mind a slightly OT question, you say you use the Finn fund for smaller clients requiring broadbrush exposure to that theme - is there a rough rule of thumb for what is 'small' here? I have a TDW account, so the location of the companies isn't a problem (which I guess it could be in some SIPPs.)


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djpreston 1st May '11 15 of 15

Hi db

Its all somewhat of a moveable feast as far as "small" goes. It depends on their objectives and risk tolerances as much as total amount.

Obv an "Income" client will have less available for risk assets (equities) and generally a lower risk profile.

For "general"/balanced/medium risked clients then I'd say £70k as the total portfolio size with say 10% allocation to the Finn fund (also other funds for the resources/development theme) just to further diversify risk.

As I say, very much broad brushstroke and not a recommendation.

Right, off to the swimming pool with the boys.


Fund Management: European Wealth
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