FIGHTING FUNDS: Put a rocket under your returns
- Tax deduction on pension contributions appears set to be drastically reduced
Terry Smith: Operates on the principle of ‘buy good companies, don’t overpay and do nothing’
It looks like tax relief on pension contributions will be drastically cut in what we now know will be a ‘painful’ budget.
This measure will particularly harm the prospects of many people in their twenties, thirties and forties.
These individuals need to invest as much as possible for their retirement, as newer company and other pension schemes no longer offer guaranteed generous benefits.
Living comfortably in old age is an expensive commodity – and will become even more so in the years ahead. Right now, a single person aged 65 who wants to live comfortably needs a pot of £790,000, according to analysis by estate agent AJ Bell.
This is in addition to the basic state pension, which may no longer exist in its current form in three or four decades. This makes saving now all the more necessary.
However, some investors are already taking action to counter the budget threat.
Data from the Interactive Investor platform shows that clients aged between 18 and 45 are putting money away in shares, stock exchanges and investment trusts. They have interests in a wide range of companies, making it an ideal way to put money aside for a comfortable retirement.
Anyone considering joining this movement can choose funds that are solid rather than risky, or take a more exciting path, with added dangers but also the chance of bumper payouts. If you want to sleep easy but also live a little dangerously, a mix of the two might be the perfect blend.
Safety first
The Alliance Trust portfolio contains “the best ideas from the world’s best stock pickers,” according to Craig Baker of Willis Watson, who oversees the global trust.
Under his leadership, investment selection has been outsourced to 10 different teams of managers, each tasked with achieving capital growth and increasing dividends in their sector.
The approach has delivered a return of 69.3 per cent over the past five years, compared with 39.5 per cent for the average global trust. In the autumn, Alliance – which was founded in 1888 – will merge with Witan, a trust founded in 1909. The combined trust could then join the FTSE 100.
As a result of this promotion, the trust’s discount (the difference between the share price and the net asset value) may become smaller than the current 5 percent. In the meantime, you are buying your way into these assets for less.
Nick Wood of Quilter Cheviot sums up the appeal of Alliance: ‘It offers good diversification, while investors can be confident that they are not investing in the riskiest assets.’
Fundsmith is a global fund aimed at people who like to keep things simple. Manager Terry Smith operates on the principle of ‘buy good companies, don’t overpay and do nothing’.
According to Aidan Moyle of Hargreaves Lansdown, Fundsmith has performed well since 2010, returning 584 percent, compared with 403 percent for its benchmark, the MSCI World Index, and 250 percent for the sector average.
While the fund has lagged recently due to its lack of technology stocks, Smith and his team provide a special kind of expertise – which is why I am a loyal Fundsmith fanatic.
The JPM Global Growth and Income Trust, on the other hand, does own a number of American technology stocks, but also supports large European companies such as Nestlé.
All holdings are selected on the basis that their profits grow faster than the market average. Wood highlights the trust’s “very strong track record”, which is one reason the discount is only 1.25 per cent.
Options for thrill seekers
The Scottish Mortgage Investment Trust focuses on “transformational trends” in technology, a strategy that has led to some lows. This week, shares in Chinese e-commerce platform PDD, one of the trust’s largest holdings, fell 35 percent.
But there are highlights. Luxury carmaker Ferrari continues to grow, up 45 percent since January.
The discount on this trust – my bet on innovation – is 9 percent.
Dan Boardman-Weston of BRI Wealth Management suggests the slightly less terrifying Liontrust Global Innovation Fund.
The portfolio includes Nvidia and other so-called “Magnificent Seven” technology stocks.
For young investors with a bit more time on their hands, Dan Squires of online trader Saxo UK recommends the Seraphim Space Trust. The foundation funds space-related businesses, particularly those focused on solving the challenges of climate change and sustainability.
James Carthew of QuotedData Analytics says the discount on Seraphim Space has narrowed, though it is still 41 percent, and that the confidence could be “an interesting ride” for those with strong nerves.
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