Managing My Own Pension - One Year In

The bets I made to secure a +22.6% return, while the S&P 500 declined by 10.6%

Just over a year ago, I decided to transfer pensions from my previous employers into one place to manage the funds myself.

Having a strong interest in investing, I found that I enjoyed the challenge, and I felt at home making challenging decisions about what to invest in. It was also a great motivator to learn more about different industries and investment opportunities, something I am always a big fan of doing.

As it turns out - I picked a hell of a year to begin managing my own pension. With an aggressive bear market taking hold right after I took on this task.

Perhaps if I knew the market conditions in advance, I would have been tempted to leave my pension to the professionals? As it turns out though, I fared pretty well, making returns of +22.6%, during a year in which it was easy to lose money.

This is a rundown of the decisions I made throughout the last 12 months, and is an exercise I plan to repeat each year - whether the picture is rosy or not! Let’s see where we land this time next year.

Opening Investments

I started out in March 2022 by screening good quality companies, that were good value, paid dividends, and I could get behind. I allocated a roughly equal portion of my funds to each.

I varied the sectors and regions a little, but my main criteria for investing was based on solid value, profitability, and a reasonable dividend payout from each, rather than focusing on diversification in and of itself. I also opted to put a portion of the funds available into one of AJ Bell’s own funds.

In addition to strong fundamentals, I also looked to invest in companies in industries where I felt there was a positive trend. My choices were as follows:

• Autoliv - creates safety features for cars and, with a strong post-pandemic automotive industry, seemed to be a smart long-term investment as safety becomes more important in the auto industry

• MDC - a US homebuilding company known for quality construction and good customer service, a bet on growth in the strong post-pandemic housing market

• Argan - a diversified holding company with interests in different industries, offering potential for long-term growth and diversification

• Polar Capital - specialises in investing in emerging trends and innovative companies, for some exposure to high-growth industries

• Microsoft - the technology giant is poised to remain in a dominant position among the big tech companies, with its cloud business continuing to gather momentum

• AJ Bell Adventurous I ACC - an actively managed fund that invests in a mix of high-risk assets, such as equities and commodities, with the goal of achieving high returns over the long term … this is where I will hold any spare funds.

These investments however were mostly short-lived. When we entered May 2022 it became clear that the market was about to get very choppy. I decided to exit from 3 of my 6 opening investments earlier than expected.

Market Turmoil Begins

When inflation, energy prices, the Ukraine war, and interest rates talk started to get a little out of control, in April 2022, the markets became spooked, and to some extent, so did I.

I wanted to shift into investments that were more stable and reliable, during a time of extreme uncertainty. I sold off Autoliv, MDC Holdings, and Argan. As it happens, my original picks weren’t so bad, returning +21.8% +1.8% and -1.9% respectively had I kept them until now instead of selling.

With the outlook for energy prices so bleak, I instead decided to invest in two renewable energy infrastructure companies - The Renewables Infrastructure Group (TRIG) and Greencoat UK Wind.

These investments pay out ~5% dividend per year reliably. Moreover, with price-to-earnings ratios of around ~4/5, and price-to-book ratios of < 1, they should hold their value well too. I thought that they should be relatively secure bets in an energy market with huge supply issues, compared with an extremely turbulent stock market at the time.

In addition to this, I took an opportunity to invest in one of my favourite companies at around at the same time.

In late April 2022, shares in Netflix fell off a cliff. For the first time in its history, the company reported a contraction in the number of accounts quarter-over-quarter, and the share-price almost halved over the course of the following week.

Bearing in mind that Netflix was still the most profitable company in its industry, maintaining an incredible brand and some of the most watched content and shows around, I felt this was a huge over-reaction by a market that was scared.

On the contrary, my conviction was that it was precisely companies like Netflix, with an enviable brand, and profitable position, that would weather the storm the best.

I was thrilled to be investing in Netflix at $187 per share. Ever since reading founder Reed Hastings book, No Rules Rules, I have been sold on Netflix’s vision and culture, and its ability to reinvent itself as a business. This was my chance to put my money behind that.

Observing The Storm

During summer, crises continued to unfold in the global economy. Overall though, I was happy with the positioning of my portfolio. I sat tight and observed the market from a distance, satisfied with a good mixture of quality growth companies like Microsoft & Netflix, combined with some safer positions. As dividends came in I reinvested them into the AJ Bell Fund, and outside of that stayed put.

At a certain point though, it seemed to me that the market was about to get even more turbulent, and that I should potentially liquidate some investments in order to avoid or minimise the damage in case the market took a violent turn. It also seemed a good idea to have some dry powder in case an opportunity were to come up (I was certainly on the lookout). I decided to liquidate my position in the AJ Bell Adventurous fund for that reason.

It then took another two months for my opportunity to arise. Once again, with a highly profitable technology company, that took an absolute beating from the market. In November 2022, I decided to invest in the newly renamed Meta, at ~$97 per share.

This was my second high-conviction bet that I made during the year, and the one that returned the most value to my pension so far. So why did I decide to invest in a company that was seemingly in meltdown?

My conviction here was that Meta was too big to fail. I felt sure that the astounding loss of market cap incurred by Meta would soon become a significant enough pressure for Mark Zuckerberg to change course, and refocus on what matters. My view was that after this happens, Meta would return to its core business (including significantly under monetised opportunities such as WhatsApp), and subsequently return to new all-time-high levels of profitability in the longer term, after making the necessary changes.

This has already started to transpire, with Meta ditching low priority initiatives that were eating away at the bottom line - with the notable exception of its investment in the metaverse.

Meta went even further in the last few months, letting go of over 20k employees, sending a strong message to the market that the company’s commitment to the metaverse will not come at the expense of its core business profitability. The stock has rallied as a result, rebounding by over 100% since investing.

This was the last major decision or change I made in the portfolio this year, outside of investing spare cash from dividends into the AJ Bell fund.

Review, Predictions & Plans

So where did I end up after 12 months? Here’s a summary of my investments returns over the period:

• Autoliv [EXITED]: -0.9%

• MDC [EXITED]: -2.5%

• Argan [EXITED]: -4.7%

• Microsoft [LIVE]: -1.1%

• Polar Capital [LIVE]: -18.7%

• TRIG [LIVE]: -1.9%

• Greencoat Wind [LIVE]: +5.4%

• Netflix [LIVE]: +79.4%

• Meta [LIVE]: +113.3%

• AJ Bell Adventurous I Acc: N/A - bought in and out throughout

• TOTAL VALUE: +22.6% versus starting balance

Overall I am satisfied with the decisions I made during the year. I managed to avoid any bloodbaths, which was easier said than done in 2022/3. But despite staying safe with most decisions during the year, I was still able to make a few high conviction bets when the investment case presented itself. Key drivers of the performance were:

• Picking resilient, diversified, and value based investments

  Although many investments declined in value slightly, overall the value of the investments made stood up to the testing market conditions over the last year.

• High-conviction bet #1: Netflix

  In the market turmoil I was able to pick out an undervalued business, whose prospects were better than market indications, and acted decisively on it.

• Holding cash during a falling market

  When markets became extra sketchy, I made the decision to liquidate some holdings. This had the effect of avoiding the downturn on a portion of my funds, and set me up to make a high-conviction bet later, when the time was right.

• High-conviction bet #2: Meta

  Correctly anticipating the bottom for Meta, and investing decisively drove the most value for my portfolio this year.

Looking ahead at the year to come, markets continue to be very choppy and turbulent. With a US election on the horizon, geopolitical tensions increasing, and an uncertain macroeconomic environment, I am expecting this to be a continuing theme even as we progress into 2023/4. It is with this theme in mind that I will continue to think about which investments to make. My future investments therefore are likely to fall into one of the following three categories:

• Investments with uncertainty as a theme - i.e. businesses that thrive in unstable macroeconomic environments, for instance trading platforms (who often experience spikes in activity during market turmoil)

• High conviction bets during market fallouts - much like Netflix and Meta above, I anticipate more opportunities to open attractive positions in companies that have been oversold during turbulent market conditions

• Stocks that can buck the macroeconomic trends - some businesses become more well positioned during challenging macroeconomic times, and this could also be a theme to investigate for potential investments

Having recently changed jobs, I also have another old pension which is on its way to my SIPP. I will be using this as a chance to reassess each of my current investments, and make sure that all of my funds are well invested for the year ahead.

My aim is to be in a position where I only hold investments where I have strong convictions - no filler stocks kept to make sure my funds are fully invested.

As usual, this content is not financial advice. Please do your own due diligence or consult a professional before making any investment decisions.