Investment trust recommendations for pension savers and retirees

Now that the new tax year is underway, pension savers should be looking to make the most of their annual allowance in 2024/2025. Investors with a Self-Invested Personal Pension (SIPP) can save up to 100% of their earnings into it this tax year, up to a maximum of £60,000 (this was increased from £40,000 last year). It is also possible to carry forward unused allowances from the three previous tax years.

When saving for retirement, investment trusts have strong long-term performance as well as income advantages making them ideal for pensions, but with over 300 to choose from where should you start?

The Association of Investment Companies (AIC) has spoken to financial advisers to discover which investment trusts they would recommend to those building up a pension (the accumulation stage) and those drawing an income from their pension (the decumulation stage). Recommendations for both scenarios are included below.

Trusts for building up a pension (accumulation stage)

Paul Chilver, Associate and Financial Planning Manager of Birkett Long IFA, said: “With the seemingly ever-increasing state pension age and the forthcoming increase to the age an individual can access their pension, investing into a pension is for the long term. With this in mind investment trusts, many of which are trading close to record discounts, could be an excellent option. Discounts are particularly attractive on UK-focused investment trusts and one suggestion for the accumulation stage of investment is the Mercantile Investment Trust managed by JPMorgan which has been at a double-digit discount for many months despite very good short-term performance.”

Philippa Maffioli, Senior Investment Manager of Blyth-Richmond Investment Managers, said: “During the accumulation phase when growth and diversification are essential, I recommend Worldwide Healthcare Trust. This global trust gives investors the opportunity to gain exposure to pharmaceutical, biotechnology, and other related healthcare companies all within an actively managed portfolio. These range from large multinational pharmaceuticals to unquoted emerging biotechnology companies. The fund is managed by OrbiMed Capital which was founded in 1989 and has become the largest healthcare investment firm in the world. The team are actively looking at nearly 1,000 companies and the team works to identify sources of outperformance as well as those with underappreciated products in the pipeline with high quality management teams and strong financial resources.

“I am very keen for my clients to gain exposure to the management style of Spencer Adair and Malcolm MacColl of The Monks Investment Trust during the accumulation phase of a SIPP. Their aim is to focus on global companies from a range of profiles with above average earnings growth which they expect to hold for around five years. That said, they are known for addressing issues head on and aren’t afraid to take a critical look at their portfolio when necessary, which I believe is very compelling. I believe that Monks is well positioned to capitalise on the continuous shift to a more digitalised world and must be included in a portfolio where growth is required.”

Doug Brodie, Founder and CEO of Chancery Lane, said: “In building pensions investors should take note that trusts like Lowland, Murray International and City of London have all handsomely outperformed the FTSE All Share over the last 20 years. Investment trusts may not have the sales and marketing budgets of pension companies so investors have to look a bit harder. A quick look at the long-term returns will show folk there’s a good reason that institutional investors are big investors in trusts.”
 

Neil Mumford, Chartered Financial Planner of Milestone Wealth Management, said: “For those looking for growth, I’d recommend JPMorgan Global Growth and Income Trust. This is one of the few investment trusts to be trading at a premium, but this should not concern long-term investors. It places a high emphasis on the world’s largest stock market the US, accounting for two-thirds of the portfolio. It is a high conviction portfolio with 50 to 90 holdings, with the top ten making up more than 40% of the portfolio. This has allowed it to outperform by some margin with a 305% return over the last ten years. There will be times when there may be swings in the portfolio value but for the patient investor this will hopefully pay off. If there was concern about the premium, this trust would also be ideal for regular monthly investments.”

Drawing an income from your pension (decumulation stage)

Neil Mumford, Chartered Financial Planner of Milestone Wealth Management, said: “The Scottish American Investment Company is my choice for someone looking at building either an income or growth portfolio and is a top five holding in my own SIPP. I am still accumulating but it will stay once I am drawing down. It is a truly diversified equity portfolio, spread equally between the US and Europe at around 35% each of the portfolio. Although it doesn’t have the highest yield at 2.9%, this dividend hero has increased its payouts by an average of 4.2% a year over the past five years and this dividend increase has not hampered its ability to grow capital – a total return of more than 170% over the last ten years should please any investor. The price is currently a complete bargain when you consider that it is trading at an extremely attractive discount to net assets of around 10% when historically it has been trading at near NAV or at a premium.”
 

Philippa Maffioli, Senior Investment Manager of Blyth-Richmond Investment Managers, said: “During the decumulation phase when capital growth is not as important and the emphasis can shift towards capital preservation, Personal Assets Trust has an important place in many retirees’ portfolios. The manager’s approach is reassuringly conservative and is focused on looking at the risk of losing money rather than the risk of volatility. Even though this is the case, it offers global diversification across four asset classes and is a bedrock for lower risk and/or decumulating portfolios. It is managed by Sebastian Lyon who is assisted by Charlotte Yonge and their policy is to protect and increase (in that order) the value of shareholders’ funds over the long term."

“Ruffer Investment Company is another trust which concentrates on capital preservation and has a very successful track record in achieving this. The objective is to maintain a diverse strategy incorporating short-dated bonds, credit and derivative strategies and precious metals, plus a diverse spread of international equities. The investment strategy and asset allocation are set by Henry Maxey and Neil McLeish, Co-Chief Investment Officers, supported by a team of senior fund managers and research analysts. Ruffer seeks to preserve capital using a very disciplined approach with the prime objective of maintaining value over a one-year period and growing capital over the longer term. This means they would perceive a loss in line with the market as a failure.”

Paul Chilver, Associate and Financial Planning Manager of Birkett Long IFA, said: “When you come to draw an income from your pension investment trusts are an excellent choice. In part this is because they can smooth their income payments, meaning some income can be retained in the trust in case it is needed in future when stock markets may be more volatile."

“There are many investment trusts paying an attractive dividend and my first suggestion is a UK-focused investment trust, Edinburgh Investment Trust. This is a long-standing investment trust and is now managed by Liontrust following their acquisition of Majedie. A second suggestion would be a global investment trust, JPMorgan Global Growth and Income. This trust has its greatest weighting to US equities and is currently paying a yield of 3.4% per annum.”

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Notes to editors

1. The Association of Investment Companies (AIC) represents a broad range of investment trusts and VCTs, collectively known as investment companies. The AIC’s vision is for closed-ended investment companies to be understood and considered by every investor. The AIC has 331 members and the industry has total assets of approximately £275 billion.
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