Financial advisers’ recommendations for millennial, middle-aged and retired investors.
As the end of the 2019-20 tax year approaches, time is running out to make the most of your £20,000 annual ISA allowance. Investment companies’ strong long-term performance, income advantages and ability to invest in a wide range of assets make them a compelling option, but with over 300 to choose from where should an investor start?
The Association of Investment Companies (AIC) has spoken to financial advisers to discover which investment companies they would recommend at three different stages of an investor’s life. Recommendations are included below for millennials, middle-aged and retired investors.
Jim Harrison, Director at Master Adviser, said: “An investment trust which feels zeitgeisty and might appeal to younger investors with a long investment horizon and a taste for something other than vanilla is Hipgnosis. Hipgnosis purchases songs and the associated intellectual property rights, and receives the three streams of royalties: mechanical - when a copy is made, for example a CD or a permanent download; performance - when it is performed live, broadcast or streamed online; and synchronisation - when it is used on TV, or in a video game for example. Like an infrastructure fund, it is mainly a capitalisation of cash flows, although the catalogues and individual songs can be sold on.
“It is not without risk – the music industry has always been vulnerable to having their product distributed for free, and today’s chart topper can quickly fade. Once the income stream from a song dries up, it’s hard to see it holding its capital value. Hipgnosis has a dividend yield of 4.9%, but is trading at a noticeable premium to NAV, so investors might want to wait until this reduces. I wouldn’t put a whole ISA contribution in here, but it could be an interesting diversifier for a portfolio.”
Philippa Maffioli, Senior Adviser at Blyth-Richmond Investment Managers, said: “For a young person starting their investment journey, I am very keen on recommending that they invest in a couple of investment trusts on a monthly basis (or as a lump sum, depending on their circumstances) in order to benefit from pound-cost averaging. Scottish Mortgage is a large, low-cost investment trust which is actively managed by James Anderson and Tom Slater. It has global exposure and the managers look for strong, well-run businesses which offer the best potential and durable growth opportunities for the future.
“I believe that it is important for young people to have exposure to small and mid-cap companies in order to benefit from long-term capital growth. I therefore recommend Blackrock Throgmorton which is managed by Dan Whitestone whose speciality is constructing a well-diversified portfolio and I believe that this trust should be the bedrock of a young person’s portfolio.”
Paul Chilver, Associate and Financial Planning Manager at Birkett Long, said: “Generally speaking younger clients have a longer investment time horizon and can withstand stock market volatility. Therefore, they can accept a greater degree of risk and two investment trusts managed by Baillie Gifford offer potential long-term growth. Pacific Horizon invests in the Asia Pacific region and is currently at a potentially attractive discount of circa 7%. It provides diversity across the Asia Pacific region. Edinburgh Worldwide sits in the Global Smaller Companies sector and invests with a view for long-term capital growth and is a good option for investors with a longer-term objective.”
Philippa Maffioli, Senior Adviser at Blyth-Richmond Investment Managers, said: “I recommend JPMorgan Claverhouse to middle-aged investors because of its strong dividend growth, whilst also allowing investors to benefit from capital appreciation. It is good for relatively young retirees because they can benefit from the yield of 4.4% as well as capital growth which makes it a good long-term holding.
“I have been recommending F&C Investment Trust for over 20 years. Due to its pedigree and the ongoing commitment of the management, I believe it is an essential component of everyone’s portfolio regardless of stage in life. I am keen to see it in a middle-aged person’s portfolio because of its sheer size and resulting diversity. With its potential for capital growth and modest dividend, it is good for retirement, saving for school fees and leaving a legacy.”
Paul Chilver, Associate & Financial Planning Manager at Birkett Long, said: “An attractive equity region which has generally been out of favour in recent years is Europe. I suggest there are two investment trusts to consider for investment – Fidelity European Values and BlackRock Greater Europe. Both companies historically have had a strong European equity offering. In addition, both trusts have an all-cap investment approach and are currently trading at a discount.”
Jim Harrison, Director at Master Adviser, said: “A middle-aged investor is likely to have a long time to go to retirement, but ought to have an eye on how they might replace their earned income when they do retire.
“Growth stocks have been in the ascendancy for the past few years, though we have seen signs of that changing; investors with a long horizon would do well to consider Temple Bar, run by the veteran avoider of ninja-grannies, Alastair Mundy.
“A dividend hero of 36 years, with a yield of 4.5% and a five-year dividend growth rate of 5.7%, Temple Bar will spend potentially lengthy periods where the share price suffers, but Mundy pays you handsomely to wait. If the dividend growth rate is maintained, it’s more than possible that by the time you come to retire your yield-to-cost is high enough for you to disregard the day-to-day fluctuations of the share price.”
Paul Chilver, Associate & Financial Planning Manager at Birkett Long, said: “Retirees are more likely to require an income from an investment and with that in mind a suggestion would be Temple Bar managed by Investec’s Alastair Mundy who is known for his contrarian investment approach which has been out of favour in recent years. However, having this value bias means that the investment will provide diversification to an individual’s portfolio and it is currently paying a dividend of over 4% per annum. With a slightly lower dividend yield of 2.1%, Finsbury Growth & Income is another good option for a retiree and its investment approach would blend nicely with Temple Bar.”
Jim Harrison, Director at Master Adviser, said: “There will be various requirements for a retirement investor, but a main one is likely to be the need for an immediate income as a salary replacement. A key component of this should be Simon Gergel’s Merchants. The objective is a higher than average yield with long-term capital growth. The current yield is around 5.8%, partly thanks to the recent fall in capital values across the market, and that looks like a steal for a predominantly blue-chip portfolio. The dividend growth rate is modest, 2% a year over the last five years, and this is the price investors pay for the higher starting yield. Combined with a trust which starts with a lower yield and grows, for example Lowland, investors could easily get the best of both worlds.”
Philippa Maffioli, Senior Adviser at Blyth-Richmond Investment Managers, said: “Henderson International Income is vital within a retiree’s portfolio due to its attractive dividend yield of around 4.0%. Ben Lofthouse is a well regarded fund manager, whose aim is to provide diversification for investors who already have plenty of UK equity income exposure and therefore require international income exposure.
“Dunedin Income Growth is essential for an income-hungry retiree. It contains a selection of high-quality UK and overseas companies, delivering a resilient quarterly income. It is managed by Louise Kernohan and Ben Ritchie and currently has a yield of 4.6%. Dividends are paid in February, May, August and November, which is good for providing smooth dividend flows within a portfolio.”
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