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Rupert Hargreaves | Sunday, 9th January, 2022 More on: BNZL RMV
If I had a lump sum of £1,000 to invest for 2022 and beyond, I would have to take a long-term approach.
Rather than trying to pick stocks and shares I think would do well over the next year or so, I would focus on buying high-quality companies that have a track record of operating successfully over the long term.
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I would also include investment trusts in my portfolio, as these have been shown to produce superior returns over periods of five to 10 years.
The first part of my portfolio I would devote to high-quality operating companies. What I mean by this is that I would search out organisations with a solid competitive advantage and substantial profit margins. In theory, these qualities should help them prosper in the long run.
An example of the sort of organisation I invest in for my portfolio is the distribution group Bunzl.
This company’s main competitive advantage is its size. Distribution businesses tend to have small profit margins, but its substantial economies of scale mean Bunzl’s margins are bigger than average. This gives the firm a significant advantage over its peers. It has been able to use this advantage to consolidate the market and offer clients a better level of service.
Of course, there is no guarantee this advantage will remain in place forever. The company could come under attack from a larger competitor. This is a risk I will be keeping an eye on as we advance.
However, I would be happy to include the company in my £1k portfolio for the next decade, despite this risk.
Another example is the property portal Rightmove. As one of the most visited websites in the country, the business has a substantial competitive advantage. I think it is unlikely it will be unseated from this position, although nothing is impossible when it comes to the stock market.
As well as the stocks outlined above, I would also buy some investment trusts for my portfolio.
Investment trusts are a great way to invest in the market because they are run by professional managers. Further, unlike traditional funds, they are what is known as closed-ended. This means they do not have to buy and sell investments to meet investor withdrawals and deposits. As such, they can invest with a much longer-term view and do not have to worry about investor sentiment.
BlackRock Throgmorton Trust is a great example. The trust focuses on finding the UK’s strongest emerging companies, which I would not be comfortable with buying personally, but I am happy to outsource this to a manager. The one downside of this approach is the trust’s hefty management fee of 1.6%. Still, I am happy to pay a fee for the experience on offer.
A risk of using this approach is the trust could end up underperforming the market if it picks the wrong investments. This means I could be paying a hefty fee for underperformance.
Despite this risk, I would be more than happy to buy the trust for my £1,000 portfolio and hold it for the next decade.
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Rupert Hargreaves has no position in any of the shares mentioned. The Motley Fool UK has recommended Bunzl and Rightmove. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
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