Adviser recommendations for millennials, middle years and retirees.
With the end of the tax year drawing near, time is running out for investors to make the most of this year’s £20,000 ISA allowance. With their strong long-term performance and income advantages, investors may like to consider investment companies for their stocks and shares ISA.
Investors have different priorities at different stages of their lives and, with more than 300 investment companies to choose from, it could be hard to decide. To help, the Association of Investment Companies (AIC) has collated investment company ISA recommendations from financial advisers for millennials, the hard-working middle years and the retired.
Millennials – just starting out
Dennis Hall, CEO and Chartered Financial Planner at Yellowtail Financial Planning, said: “Investors in their twenties and early thirties have time on their side and if investing for the long term they can afford to take a few knocks along the way to get a better outcome. The secret is to buy well and hold. I’m torn between investing into a high conviction investment company like Lindsell Train, or into something more diversified like Scottish Mortgage – personally I hold both and maybe that’s the answer.”
Tim Cockerill, Investment Director at Rowan Dartington, said: “Downing Strategic Micro Cap is a small specialist investment company which runs a very concentrated portfolio of micro-cap companies in which the manager takes large positions, and works closely with the businesses to maximise their success. Due to the less liquid nature of these companies, Downing Strategic Micro Cap’s performance profile is likely to be quite different when compared with mainstream UK smaller company funds - but the reason for investing is that these small businesses have the potential to grow significantly and the manager Judith Mackenzie is very experienced in this space. This is definitely one for the long term, so ideal for patient millennials.”
Jim Harrison, Director at Master Adviser, said: “I’d consider two investment companies here, one an income company, the other a growth, both with young managers. Age or youth doesn’t define the manager, but I look for long-term continuity, and with my recommendations there is potential for the managers to be at the helm for a long time.
“The growth trust is Invesco Perpetual’s Keystone, recently handed over by Mark Barnett to James Goldstone. James’s style is markedly different to Mark’s. For one he is as bullish as I am on financials, particularly banks, and has adjusted the portfolio accordingly. Performance since he took over has outperformed the benchmark FTSE All-Share. It’s not past performance that drives this selection, it’s the presence of a young (he was four years below me at school) manager at the head of an equity growth investment company which you can buy at a 10% discount; ideal for a long-term investment. The 3.2% yield is a bonus.
“Lowland also benefits from having a young co-manager, Laura Foll, working alongside James Henderson. Laura was appointed co-manager in 2016, and this is definitely a partnership of equals; she shares James’s ‘in early, out early’ philosophy and is the natural choice to manage the fund when James retires. Since her appointment, the fund has outperformed the FTSE All-Share. Lowland will take stock specific risks by casting its net down the market cap spectrum, but for young investors with a long investment timescale, this is a risk most can afford to take.”
Neil Mumford, Chartered Financial Planner at Milestone Wealth Management Limited, said: “A perfect investment company for growth, Witan has a unique approach for an investment company by using a global multi-manager strategy and it has been rewarded by excellent returns. This is an ideal investment for millennials saving on a monthly basis, benefitting from pound-cost averaging and the re-investment of a rising dividend which has increased in each of the last 43 years. We have recommended this investment company for many clients’ children and have been very delighted by the returns.”
Middle years – going the distance
Dennis Hall, CEO and Chartered Financial Planner at Yellowtail Financial Planning, said: “Investors in their forties and early fifties are beginning to see retirement on the horizon. Their willingness to take knocks begins to reduce as the emphasis starts to tilt from all out growth towards the preservation of what they’ve gained. Arguably the portfolio will run for another 40 or more years, so my millennial recommendations would equally apply. But if they wanted to take it down a notch I would invest in Monks, a diversified global investment company managed by Baillie Gifford. Alternatively, I’d suggest Bankers, another globally diversified investment company managed by Janus Henderson.”
Jim Harrison, Director at Master Adviser, said: “For middle years investors who probably still have a fairly lengthy investment horizon, and have been around enough to understand market cycles, I’d suggest looking at smaller companies. It is hard to see beyond Harry Nimmo’s Standard Life UK Smaller Companies but I’d recommend taking a look at Neil Hermon’s Henderson Smaller Companies; impressive total return, surprising strong dividend for a smaller companies growth fund and available at almost a 9% discount.
“I’d also recommend investors look at Ruffer; a tractor in rapidly rising markets, but when equities come off, their contrarian asset mix including Japanese equities and index linked gilts may well provide capital value protection.”
Neil Mumford, Chartered Financial Planner at Milestone Wealth Management Limited, said: “For savers in those middle years, still looking for long-term growth prospects and for an investment company that can deliver both growth now and perhaps rising income later, Bankers is the perfect answer. Focusing on growing capital returns via a global mandate, it also has an enviable record of increasing dividends for over 50 years. Including dividends, Bankers has provided shareholders with a return of over 150% over the last ten years, a period including the financial crisis when the fund endured a testing time.”
Tim Cockerill, Investment Director at Rowan Dartington, said: “Mercantile is an investment company which invests in medium and smaller sized companies. It was established back in 1884 and is now £2.1 billion in size, making it one of the larger investment companies. It has an excellent record and is of course backed up by the resources of JP Morgan. The team run a diversified portfolio of circa 100 stocks which allows them to reduce specific stock risk, and yet this is still very much a stock picking fund. It makes a good long-term, core holding providing exposure to the higher growth part of the UK stock market which historically has outperformed large-cap stocks.”
Retirees – employing the return
Neil Mumford, Chartered Financial Planner at Milestone Wealth Management Limited, said: “Most retirees require an inflation-proofed income from their investments to supplement their pensions in this era of low interest rates. Therefore, silver surfers should look no further than one of the AIC’s dividend heroes, Scottish American, managed by the investment giant Ballie Gifford. Currently providing an income yield of 3%, more impressively this investment company has continually delivered a rising dividend income, which has increased by 46% over the last ten years (well above inflation). Although not for the faint-hearted retiree due to its complete exposure to global equity markets, it will pay those that are willing to stick with it through good and bad market conditions."
Dennis Hall, CEO and Chartered Financial Planner at Yellowtail Financial Planning, said: “Retirement doesn’t preclude investors from any of the recommendations given to younger investors (as many of my clients know) but older investors’ objectives tend to shift toward lower volatility and greater income. Sometimes there’s a desire for a higher home bias. For a globally diversified investment company, I’m again choosing Bankers and for UK bias I would choose City of London for its low charges and consistency of income.”
Tim Cockerill, Investment Director at Rowan Dartington, said: “Merchants is a UK equity income investment company which pays an attractive yield of 5.2% per annum, which has increased, year on year, for the past 35 years, so any investor looking for income should have a look at this fund. Another attraction is that Merchants has substantial reserves, which enables this progressive dividend policy to be maintained even when there is a short-term shortfall in the current year’s income. The fund typically holds 50 stocks, spread across the market cap range, with the focus firmly on larger companies. A high and reliable income stream is essential for many investors and this is what Merchants can deliver.”
Jim Harrison, Director at Master Adviser, said: “A strong income fund is needed here and investors should look first (and possibly last) at JPMorgan Claverhouse. Managed by Will Meadon, the trust has been described as a fortress in terms of dividend cover and revenue reserves, having materially more of both than their peers. Meadon is committed to dividend production, but has the freedom to hold non-dividend stocks that many other income managers do not have. This is an investment company to buy, put in a safe place, and never touch again.”
Annabel Brodie-Smith, Communications Director of the Association of Investment Companies, said: “Investment companies can form a valuable part of an investor’s ISA portfolio whether they are looking for growth, income or a combination of both. Their closed-ended structure allows fund managers to take a long-term view and investment companies’ ability to use gearing – borrowing money to invest – can also help deliver strong performance over time.
“Investment companies also have unique advantages when it comes to delivering a reliable, sustainable income. They can hold back up to 15% of their income each year to pay out when times are more difficult. This has led to several investment companies building up impressive track records of dividend growth, with 21 companies increasing their dividends for 20 or more consecutive years. Nonetheless, investment is for the long term and it’s important that investors have a balanced portfolio. If they are in any doubt, they should speak to a financial adviser.”
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- The Association of Investment Companies (AIC) was founded in 1932 to represent the interests of the investment trust industry – the oldest form of collective investment. Today, the AIC represents a broad range of closed-ended investment companies, incorporating investment trusts and other closed-ended investment companies and VCTs. The AIC’s members believe that the industry is best served if it is united and speaks with one voice. The AIC’s mission statement is to help members add value for shareholders over the longer term. The AIC has 347 members and the industry has total assets of approximately £174 billion.
- Disclaimer: The information contained in this press release does not constitute investment advice or personal recommendation and it is not an invitation or inducement to engage in investment activity. You should seek independent financial and, if appropriate, legal advice as to the suitability of any investment decision. Past performance is not a guide to future performance. The value of investment company shares, and the income from them, can fall as well as rise. You may not get back the full amount invested and, in some cases, nothing at all.