Adviser recommendations for Millennials, Middle Years and Retirees

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.

Just out of the starting blocks: millennials

Dennis Hall, CEO and financial planner of Yellowtail Financial Planning said:

For younger investors looking for a long-term investing adventure there is a bewildering choice.

"Investing in technology might be a natural ‘fit’ and my choices would be the Allianz Technology Trust or the Polar Global Technology Trust, investing in the companies that are shaping the modern world. 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 said:

The younger generation with a longer investment horizon can afford to take on more risk, but I’m not actually convinced they need to. A traditional area for long-term ‘high risk’ investing is Japan, so 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.

“However, for the riskier element of a portfolio I prefer to use Foreign & Colonial Investment Trust and Henderson International Income. 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 and Colonial Investment Trust’s unlisted and private equity holdings, and for Henderson International Income from the fact that it is a young investment trust.

Time and Money (PD)

Tim Cockerill, Investment Director at Rowan Dartington said:

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% p.a. level to around 6%, 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. Some of the holdings are large cap, but its focus is mid and small cap – it also runs a short book so it carries a higher level of risk, but with time very much on your side at this age, the additional risk is well worth taking.

Middle distance: hard working middle years

Dennis Hall, CEO and financial planner of Yellowtail Financial Planning said:

Those who are yet to retire are likely to be following a total return strategy which will continue post-retirement. By not focussing solely on income, and including some growth, this widens the choice without having to be too adventurous.  My choice would be The Edinburgh Investment Trust managed by Mark Barnett, who took over after Neil Woodford left. Mark Barnett also manages Perpetual Income & Growth."

Jim Harrison, Director at Master Adviser said:

I still 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.

“Here I think a blend of UK and global equities is appropriate, and I’d recommend 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. Capital values have been volatile with both these funds but with dividend yields of 3.2% and 3.9% respectively, the trusts pay you for your patience. Ideal for income and capital investment over the medium-term of 5 to 10 years.”

Tim Cockerill, Investment Director at Rowan Dartington said:

Equity income trusts have proven to be an excellent long-term investment and if the income isn’t required it can be reinvested.  One of the most successful trusts, Perpetual Income and Growth yields 3.5% and is managed by the very experienced Mark Barnett. However, the last 12 months have been difficult and the trust has lagged its peers. That said it is on a discount of nearly 9% and invested in solid quality businesses which in many cases have the ability to compound their returns, which in the long-term is very good for their share price. Consequently, if held for the long-term this looks like an attractive entry point.”

Going the distance: enjoying retirement

Dennis Hall, CEO and financial planner of Yellowtail Financial Planning said:

For older investors, only spending the dividend income is often preferable to a ‘total return’ strategy that partially relies on capital gains. Fortunately, there’s a handful of investment companies that have a long-term track record of rising dividends across ‘all-weather’ investment conditions. For investors looking for a very UK weighted strategy I recommend the City of London Investment Trust, and for investors with a global appetite, the Bankers Investment Trust.”

Jim Harrison, Director at Master Adviser said:

For ‘grandparents’ or those who’ve retired and are looking to generate income, you need to pick from the ‘dividend heroes’ list for reliability and growth. I’d concentrate on City of London Investment Trust and The Merchants Trust.

“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.

Tim Cockerill, Investment Director at Rowan Dartington said:

If income generation is the key objective, as it is for many in retirement, then commercial property trusts are potentially a good choice. Standard Life Investments Property Income is yielding 5.5% 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.

“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%, which in a yield starved world is not a surprise.”

Annabel Brodie-Smith, Communications Director at the AIC said:

“Investment companies are worth considering for your stocks and shares ISA at any stage of life. They benefit from a closed-ended structure, allowing managers to take a long-term view and provide access to a diversified portfolio. Investment companies can also ‘smooth’ dividends, where they can squirrel away up to 15% of the income they receive each year to boost dividends when times get tough in the future.

“Investment companies have strong long-term performance, so having the time and the patience to buy and hold, can deliver for investors in the future. That’s not to say it won’t be a bumpy ride along the way however, as features such as gearing and discounts widening can magnify the effects of volatility. But for those investing over time, it’s worth finding out more about investment company ISA choices.

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