‘I made £80K on an AIM share’ – how an ISA millionaire’s portfolio evolved

Nearly a year ago, we heard how a 58-year old (now 59) painter built a £1 million ISA pot. 

Over 30 years, the investor, who wishes to remain anonymous, stuck to his guns and continued to invest even during market downturns. In fact, he saw market drops as the opportune time to add more money to his ISA. He backed global investment trusts, such as Scottish Mortgage and Alliance Trust, and also bought individual shares.

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A year ago, markets were still suffering a valuation reset linked to higher interest rates. A “new regime” was here, professional investors argued, which would be characterised by a greater focus on valuation, bonds attracting more money, and higher-growth stocks coming under pressure.  

The investor said: “The past 20 years have been amazing for investors. Values have been artificially inflated as interest rates have fallen, but that will unwind as interest rates rise. I don’t know what the portfolio will look like in terms of value in a couple of years’ time.” 

We caught up with the investor to see how he has managed his money over the past 12 months.  

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Recent winners and losers 

One recent winner has been MSI International, an AIM-quoted British engineering firm working in the defence sector. It is his largest position now, at 9% of his portfolio, with shares rising 426% since he invested, totalling a £78,000 gain.  

“This firm has done amazingly well. It [recently] unveiled a land version of a naval gun that shoots drones down, with lots of cool videos of it, leading to a big jump in the share price.  

“I will consider trimming my position, and it’s normally a good idea to take some profit, but I’d have to do further research. There is no point selling a great investment, but I am hesitant to buy more,” he said. 

Two clangers stand out for the ISA millionaire over the past year: Digital 9 Infrastructure and Watkin Jones, the student housing group.  

The investor said he followed ii columnist Ian Cowie into Digital 9 Infrastructure around a year ago. The trust invests in assets that underpin global communications, such as data centres and undersea cables. 

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“Ian Cowie bailed out but I didn't – and it has tanked since Cowie’s call. The trust was listed as having no gearing, but it actually had £300 million of gearing that I didn't know about. I want to avoid highly geared investments when rates go up. It also had to sell a prime asset to pay off debt at a fire-sale price. But I am still holding Digital 9 out of inertia.” 

Shares are now down 64% since our investor bought shares. It is his biggest loss on a recent investment and he has lost around £20,000 since purchase. However, since we spoke, news has broken that Digital 9 will be wound up, which caused shares to jump 10%. “You can’t win them all,” he says.  

The other laggard, Watkin Jones, was hit by rising interest rates, as well as inflation in the construction sector. He bought shares around a year ago and has lost about half his money.  

“It has been a horrible investment but I still like the long-term outlook for student housing and am tempted to buy more shares. A director made a big purchase in the autumn at 40p, and now shares cost 46p, so it looks like an interesting time to buy,” he said.  

The UK sector on the radar 

The ISA millionaire thinks that smaller UK companies are undervalued, and evidence of this is that foreign firms or private equity groups are paying a premium to acquire companies.  

“Bombed-out UK smaller companies are currently underpriced and trade at a chunky discount to their history. They have gone through a rough patch due to rising interest rates, but that seems to have ended and they could have a bright outlook.” 

While investors could buy their own shares directly, the ISA millionaire thinks that accessing them via an investment trust is a better option. This way, investors get a double discount: cheap shares owned by an investment trust that is itself trading on a discount. 

The one he has his eye on his Aberforth Smaller Companies, which is on a 12% discount. 

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“This is an easier way of accessing smaller UK companies,” he said.  

He prefers investment trusts to index funds for the UK, as a FTSE tracker has “done nothing” for a decade. 

In the US, he accepts that trackers have done better. 

“I may have missed out by not owning a US tracker. For new investors, index funds are a good idea, but I prefer picking up investment trusts at discounts,” he said.  

Keep backing big trusts 

As well as buying individual shares, the ISA millionaire is also a big fan of global investment trusts that own diversified portfolios and can be used as “core” investment positions.  

His two biggest investment trust positions (at around 5% each) are Scottish Mortgage, the giant trust from Bailie Gifford that buys innovative companies, and Alliance Trust, which itself selects external fund managers to pick stocks for a portfolio. 

“Scottish Mortgage gives you exposure to big innovation themes, while Alliance Trust gives you access to good managers at a really low price. 

“Alliance Trust is a buy and hold investment. My dad bought it for me when I was younger and I have stuck with it through some tough periods, as well as a restructuring.” 

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Over the past 20 years, Scottish Mortgage has risen 1,603%, while Alliance Trust is up 596%. £10,000 invested 20 years ago would now be worth £170,324 and £69,694, according to figures from fund data group FE Analytics.  

The investor says that Scottish Mortgage is a good way to access technology companies in the US, as is another of his investment trusts: Allianz Technology Trust.  

Allianz Technology Trust, by buying leading tech stocks, has turned £10,000 into £136,942 over the past 20 years.  

He also owns HarbourVest Global Private Equity, an investment trust that invests in private equity funds, which are normally out of reach for retail investors. The £1.8 billion trust trades at a 40% discount to its stated net asset value. 

Would you like to share your investment journey? In our DIY Investor Diary series, we speak to interactive investor customers to find out how they invest in funds and investment trusts, what their goals and objectives are, current issues and concerns regarding their portfolio, and what they’ve learned along the way. The premise is to try and provide inspiration for other investors, and we would love to hear from more people who would like to be involved. We do not require those featured to be named. If you are interested, please email our collectives editor directly at: kyle.caldwell@ii.co.uk