A new tax year

Ian Cowie explains how investors can spring clean their portfolios.

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April sees the start of a new tax year and a good time to spring clean your savings and investments. Money never sleeps and stock markets rarely stand still, so it makes sense to regularly review your investment companies’ shares to ensure they continue to reflect your requirements for risk and reward - as well as other factors that might be important to you.

Performance is a prime consideration for many people and total returns are easy to assess on the Association of Investment Companies’ website. Simply go to www.theaic.co.uk and click on ‘Find and compare investment companies’ to see up-to-date data on all AIC member companies.

You can search by company name or TIDM - each company’s stock market ‘ticker’. For example, Worldwide Healthcare, one of my longest-held shares, has a TIDM of WWH. Among other information such as ‘Objective’ and ‘Management Group’, you can now see its AIC Sector; in this case, ‘Sector Specialist: Biotechnology and Healthcare’.

Clicking on the sector enables you to examine each company’s share price total return performance over the last year, five and 10 years - along with its sector averages and the same information for each of its comparable rivals. Clicking on the downward-facing arrow alongside each time period will present the companies below in descending order, with the highest returns at the top.

As a medium to long-term investor, I am pleased to see Worldwide Healthcare remains top-performer over five years but less pleased to see it has been pipped for first-place over one year by Syncona and also pushed into second-place over the last decade by Biotech Growth. Each AIC sector table also includes important information, such as “NAV” - or net asset value per share; and “Discount/premium %” - or the percentage difference between NAV and the share price.

The column headed “Gearing” shows how much each investment company is borrowing to invest, which can increase both gains and losses, so may provide an indication of risks being taken in pursuit of rewards. The “AIC ongoing charge” provides a measure, expressed as a percentage of NAV, of the regular, recurring costs of running an investment company.

Income or yield is another important consideration for many investors. On the right hand side of each AIC sector table, you can see a column headed “Dividend Yield %” - showing annual dividends expressed as a percentage of the current share price. For example, if a company has paid an interim dividend of 2p with a final dividend of 3p and its share price is currently £1.25, the dividend yield would be 4%; that is, a total of 5p divided by 125p to give a yield of 4%. The column headed “5 yr dividend growth (%) p.a.” shows how income distributions have risen.

More generally, it is important to consider whether your portfolio of investment companies remains sufficiently diversified over different commercial and geographical sectors to diminish your exposure to setbacks or failure in any one industry or country. For example, technology shares - such as Facebook, Amazon, Netflix and Google (sometimes called the FANGs) - have enjoyed strong returns recently but also suffered a setback after the president of the United States of America criticised some of their employment and tax policies. Closer to home, Brexit negotiations continue to influence many British share prices for good or ill.

Even good news can create problems of success. For example, if a share price rises above a company’s NAV, the shares are said to “trade at a premium” which may prompt some investors to worry it is “priced for perfection” and thus vulnerable to disappointment. If a company or sector has done very well, it may make sense to consider whether it is time to take profits and utilise your annual capital gains tax allowance, which enables individuals to take profits of up to £11,700 tax-free during 2018/2019.

As share prices rise and fall - driven by brokers’ tips, company announcements, news events and other factors - it is important to regularly review whether your portfolio continues to accurately reflect your requirements for income and growth or a mixture of both. Setting aside a little time to spring clean your portfolio, perhaps over one of the bank holiday weekends, could prove a wise investment to minimise risk and maximise rewards.

Ian Cowie is a columnist at The Sunday Times.