Which investment companies do financial advisers recommend for millennials, middle-aged investors and retirees?

With just over a month to go before the end of the 2018-19 tax year, it’s a good time to check you’re making the most of this year’s £20,000 ISA allowance. Investment companies’ strong long-term performance, their ability to access a wide range of assets and their unique income advantages make them a compelling option. But with over 400 to choose from, where does an investor start?

The Association of Investment Companies (AIC) has spoken to financial advisers and wealth managers about which investment companies they would recommend for investors at three different life stages: millennials, middle-aged investors and retirees.

Millennials

James Pigott, Founder of Pigotts Investments, said: “JPMorgan Emerging Markets – this is for a long investment period, therefore suitable for younger investors who have time on their side.  It also uses an ESG approach in selecting its holdings.  It has good long-term performance and allows investors access to most emerging market countries in one go.”

Pigott also recommends BMO Global Smaller Companies for millennials. “Being invested in small cap stocks is where to get the most growth potential over the medium to long term. This trust does that in spades and is well diversified across the entire globe.  Investment trusts are the best vehicle for small cap stocks as the fund manager is not forced to sell in a downturn in order to pay off investors who are pulling out of their investment. JPMorgan Emerging Markets and BMO Global Smaller Companies are very diverse, and between them are a good start to obtaining a global spread.”

Genevra Banszky von Ambroz, Partner at Smith & Williamson, said: “Every client is different, but generally, younger clients have a greater ability to withstand volatility versus older generations, given their long-term time horizons and relative lack of financial commitments. With this in mind, it is worth considering equity-focused options which are relatively unconstrained, allowing a skilled manager to allocate capital to those areas which they believe are most attractive, and use all of the tools available to them within an investment trust structure. These tools such as gearing and the ability to consider more illiquid investments such as smaller and unquoted companies can be material drivers of excess returns over the medium to longer term. The investment company universe spoils these investors for choice, offering best-in-class options within a number of sectors. Mobius Investment Trust, a new entry to the sector in 2018, may strike a chord with millennials, particularly given its high conviction approach to investing in smaller companies in emerging markets, together with a clear focus on ESG.”

Jim Harrison, Director of Master Adviser, said: “Assuming that we are talking about a long-term investment, and not just saving for a deposit in five years’ time, I’d recommend a split here, between F&C Investment Trust and Henderson International Income. F&C has a remarkable record in terms of dividend increases and general longevity, and we have every reason to believe this will still be around when today’s younger generation come to draw income in retirement. The dividend yield is low, but investors will have 30-plus years to see this grow. The investment strategy won’t always be as productive as the last ten years, but we are not recommending this for the short term. This is a long-term buy and hold. Henderson International Income will give additional worldwide exposure, and is managed by a young manager in Ben Lofthouse, who is likely to be at the helm for many years. His dividend income discipline, based upon robust balance sheets and strong cashflows, is exactly what you’d expect from the ‘sister’ fund to City of London.”

Neil Mumford, Chartered Financial Planner and Director of Milestone Wealth Management, said: “Witan is a unique investment trust using a multi-manager approach rather than direct investment. It uses boutique fund houses not normally accessed by mainstream multi-manager unit trusts, but at a fraction of the annual cost, making it a very viable alternative.  Its five-year performance of 70% is a more than adequate share price return for the risk taken and in the last ten years it has more than doubled its dividend pay-out. This fund is an ideal investment for investors of all ages but particularly those with longer time horizons, such as millennials, who are happy to accept some short-term volatility in return for long-term capital growth.”

Middle-aged investors

Genevra Banszky von Ambroz, Partner at Smith & Williamson, said: “For those clients who are middle-aged, a more balanced approach is generally called for in my view. I really like Mid Wynd International, managed by Simon Edelsten at Artemis, for an unconstrained global thematic approach which has a focus on real returns, an eye to protecting capital and a ‘near zero’ discount control. For those seeking additional options, Utilico Emerging Markets has a very strong long-term track record of investing in the utility and infrastructure-related sectors in emerging markets, and Diverse Income Trust represents a fantastic example of the power of dividend compounding and is well worth consideration by any investor seeking exposure to the UK market.”

Jim Harrison, Director of Master Adviser, said: “Dividend hero Bankers is an obvious choice here. It has a relatively low starting yield, but exceptionally strong dividend growth over the long term (5.9% over five years, 8.11% over 30 years (Master Adviser research)). Excellent dividend cover of 1.75 years and revenue reserves of £42m put this in the same category as JPMorgan Claverhouse for dividend strength. It’s also available on a slight discount. Discount shoppers should also look at Perpetual Income & Growth, available on a 10% discount. Mark Barnett’s investment style has been under pressure over the last couple of years, not helped by some high-profile, stock-specific issues. He’s not the only manager suffering like this, and his style won’t be out of fashion for long – these are the same principles which made him a material outperformer not so long ago. Regardless of his capital performance, he continues to pay a strong, rising dividend, a payment to patient investors.”

James Pigott, Founder of Pigotts Investments, said: “Baillie Gifford really understand Japan and both trusts - Baillie Gifford Shin Nippon and Baillie Gifford Japan - have stellar performance figures.  I prefer the small cap Shin Nippon over the larger cap Baillie Gifford Japan simply due to longer-term outperformance expectations. Japan is emerging from its long deflationary period and looks to have an exciting time ahead. Shin Nippon is more specific and can be added to a more diverse portfolio as one ages.”

Neil Mumford, Chartered Financial Planner and Director of Milestone Wealth Management, said: “With the uncertainty of Brexit still hanging over us, the UK is the worst performing developed market over the last three years. It has been shunned by overseas investors and many multi-managers are underweight the UK. However, it is home to some of the world’s biggest names and once we have a resolution to our exit from the EU, I feel that over a reasonable time horizon we will see a significant rally in UK equities. The City of London Investment Trust’s investors are likely to be beneficiaries of this uplift in share prices. The dividend has uninterrupted growth for over 50 years, so even if the Brexit issues meander on, investors are also being paid to wait. This is an ideal investment for people requiring a rising income, knowing that over time their capital will also show a healthy increase.”

Retirees

Genevra Banszky von Ambroz, Partner at Smith & Williamson, said: “The requirements of most retirees tend to focus on the delivery of reliable, predictable income streams rather than on capital growth. The ability to build revenue reserves in the good times, to ensure dividend expectations are met in leaner times is a key, differentiating feature of the investment company structure, and there are several cases where dividends have not been cut for decades, including City of London Investment Trust. For those seeking income which is derived from investments with lower correlation to wider markets, companies such as BBGI which derives its revenues from investing in government-backed infrastructure contracts in the UK, Europe, Canada, the US and Australia, and Greencoat UK Wind, which owns a portfolio of operational onshore and offshore wind assets, are worthy of consideration.”

Jim Harrison, Director of Master Adviser, said: “As the generation likely to need an income immediately, retirees should be holding a large chunk of Bruce Stout’s Murray International. A rigorous investment discipline and an addiction to strong dividends have served Bruce well. It was not so long ago that Murray International’s share price had been utterly trashed, falling to around £7.30; dividends continued to increase, cycles turned, and the share price returned to well over £11. The yield for new investors is 4.3%, decent in anyone’s book; for investors who bought at the bottom, it’s over 6.5%.”

James Pigott, Founder of Pigotts Investments, said: “Income naturally comes to mind, but also the possibility of capital preservation. Capital Gearing would be one suggestion. It has achieved a very solid performance for a trust which aims to preserve capital while achieving a positive total return over the medium to long term. Bluefield Solar Income Fund, with a 6% yield from long-life assets, is appealing for those who need income. There is a small but useful revenue reserve which could be used to smooth dividends should the sun not shine, maintaining a sunny outlook for pensioners.”

Neil Mumford, Chartered Financial Planner and Director of Milestone Wealth Management, said: “For clients who want to achieve a better return than cash without too much risk, or for those with a nervous disposition who want a steady return from a manager with a safe pair of hands, there is no better home than Personal Assets Trust. This is managed by the always reliable Sebastian Lyon. The fund will never blow the lights out but will allow investors to sleep at night and should be considered as a staple addition to all portfolios to help reduce the overall risk and minimise the downside. Despite the cautious nature, it has still doubled an investor’s capital over the last ten years.”

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Notes

1. 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 358 members and the industry has total assets of approximately £184 billion.
2. 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.
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