The Association of Investment Companies (AIC) has collated investment company Isa recommendations from financial advisers for all ages.
With the end of the tax year fast approaching, the Association of Investment Companies (AIC) has collated investment company Isa recommendations from financial advisers for all ages.
Just out of the starting blocks: millennials
Dennis Hall, CEO and financial planner of Yellowtail Financial Planning, comments that investing in technology is a natural ‘fit’ for young investors. He recommends Allianz Technology Trust or the Polar Global Technology Trust, which invests in the companies that are shaping the modern world.
He adds: ‘But the advice to my own children is to invest in smaller companies, and I recommend the Standard Life UK Smaller Companies managed by Harry Nimmo.’
Jim Harrison, director at Master Adviser, makes the valid point that the younger generation can afford to take on more risk due to having plenty of time on their side to ride out the peaks and troughs that come with investing in the stock market. He suggests a traditional area for long-term ‘high risk’ investing is Japan.
‘Baillie Gifford’s Shin Nippon is worth a look, but with Japan you have to be patient, and investments can spend a decade out of the money,’ says Harrsion.
‘The managers would argue that they are no riskier than other equity funds (and over the longer term, I’d agree) but I think we can identify risk from Foreign & Colonial Investment Trust’s unlisted and private equity holdings, and for Henderson International Income from the fact that it is a young investment trust.’
Tim Cockerill, investment director at Rowan Dartington, tips a China focused trust - Fidelity China Special Situations.
He explains: ‘China is now the second largest economy in the world and will no doubt soon be challenging the US for the number one spot. Whilst economic growth has slowed from the heady 10 per cent per annum level to around 6 per cent growth is still substantial and investment in Chinese companies offers a route to benefit from that growth. Fidelity China Special Situations is managed by Dale Nicholls who is proving to be a very adept manager.’
Middle distance: hard working middle years
Here Hall picks the Edinburgh Investment Trust managed by Mark Barnett. Explaining his choice Hall points out that those who are yet to retire are likely to be following a total return strategy, which will then continue post-retirement. He says Edinburgh has been a consistent performer over the years, in terms of both growth and income generation.
‘By not focusing solely on income, and including some growth, this widens the choice without having to be too adventurous,’ he adds.
Harrison, however, prefers to focus on income producing investment trusts. ‘Income can (and should) be reinvested until it is needed so investors benefit from the miracle of dividend compounding. Also, a strong rising dividend stream will drag a share price up over the longer term,’ he says.
He recommends a blend of UK and global equities, suggesting a split between Temple Bar and Murray International.
‘Both managers are committed to responsible dividend growth; Alastair Mundy is a contrarian value investor in the UK space, and Bruce Stout’s fund is international, with a bias towards emerging markets and particularly Latin America,’ says Harrison.
‘Capital values have been volatile with both these funds but with dividend yields of 3.2 per cent and 3.9 per cent respectively, the trusts pay you for your patience.’
Cockerill’s choice is Perpetual Income and Growth, another trust that is managed by Mark Barnett.
Going the distance: enjoying retirement
For a post-retirement pension portfolio Hall recommends one of the handful of investment companies that have a long-term track record of rising dividends across ‘all-weather’ investment conditions. He favours City of London and Bankers, two trusts that have for the past 50 consecutive years increased dividend payments.
Harrison also tips City of London and in addition likes the look of Merchants, which has a juicy 4.8 per cent dividend yield.
He adds: ‘Income in retirement needs to increase and to grow by more than inflation (ideally each year). City has a 50-year record of increasing dividends and Merchants has a 34-year record. Merchants has a higher starting yield, but the increases recently have been lower than those of City.
‘The focus on higher income has resulted in Merchants’ capital value growing at a much slower rate than City. You need to strike a balance between the two, allocating more to Merchants if you need higher income but are not concerned about capital growth, and more to City if you want a lower, rising income with a higher possibility of capital growth.’
If income generation is the key objective, as it is for many in retirement, Cockerill makes the case for commercial property trusts.
‘Standard Life Investments Property Income is yielding 5.5 per cent paid quarterly. The dividend is covered, which means it is secure, and the underlying mix of assets, offices, warehouses, industrial units and retail provides diversification both geographically and by sector. In the long-term we’d expect rental income to grow, another positive,’ he says.
‘With the uncertainty created by Brexit there is of course a risk of a slowdown in the property sector, however we would expect high quality assets to perform best which is where this trust focuses. It is trading at a premium of 8 per cent, which in a yield starved world is not a surprise.’
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