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Trust picks for middle-aged investors to add to their ISA before the deadline

06 March 2023

Income specialists, smaller companies and discounted darlings are all options for investors aged between 40 and 60.

By Jonathan Jones,

Editor, Trustnet

Investing between the ages of 40 and 60 is when most of us will save in earnest for the first time. Our early years are spent putting money towards goals, whether it be a car, a house or to start a family.

While these goals persist into our middle years (new cars, house upgrades and kids all remain expensive), most people are earning their highest salaries by this time and can therefore afford to put a bit of extra cash away.

However, the difficulty is knowing what it is for. While the above suggests there are short-term needs, retirement and longer-term planning should now be far more front-of-mind than they have been in the past.

Getting this balance right can be tricky but will be crucial for those looking to retire early, move into the bigger house or pay for children to go to university. Below, fund pickers suggest options for people in this age range. Last week, we looked at suggestions for younger investors.


Dunedin Income Growth and Murray International

Jim Harrison, director at Master Adviser, said it is never too early to start thinking about dividends. With one eye on retirement, investors between the ages of 40 and 60 should start building a steady income stream that can supplement their future pensions now by investing in a stocks & shares ISA.

“Although middle-aged investors might not yet be using ISAs to supplement their earned income, they ought to be building towards that target,” he said.

“Starting to buy an income stream now, and reinvesting dividends until they are needed, is an alternative to the growth-only option and I’d suggest taking a look at Dunedin Income Growth.”

Managed by abrdn’s Ben Ritchie since 2017 – and with Rebecca Maclean and Samantha Brownlee joining as co-managers in 2022 – the fund has had a strong five years, returning 55.6% after a strong run of first-quartile returns from 2018-2020.

It has dropped to below-average since then, but Harrison said a healthy dividend yield of 4.3%, “rock solid” dividend cover of 1.24 years and a board focused on the sustainability of that dividend should give a long-term investor “great comfort”.

Performance of trust vs sector and benchmark over 5yrs


Source: FE Analytics

For those looking to broaden their horizons away from the domestic market and turn to portfolios with international exposure, Murray International “should be in every investor’s portfolio”, said Harrison – not just those aged between 40 and 60.

“An above average dividend yield at 4.1%, almost a full year’s revenue reserves and capital growth in addition to the dividends make this an attractive choice,” he said.

Alliance Trust and Diverse Income Trust

Staying with the balance of domestic and global Genevra Banszky von Ambroz, partner of investment management at Evelyn Partners, said investors in their 40s will be looking to temper their attitude to risk.

“Us millennials have many more financial and personal commitments than we did in our 20s and our risk appetites have moderated as a result. The good news is that there are still some great options to consider in the investment company universe,” she said.

For global equities, she highlighted Alliance Trust, which is a trust overseen by Willis Towers Watson. The firm delegates the stockpicking to between six and 12 fund managers that it believes are best-in-class.

“Globally each manages a portfolio of a limited number of best ideas,” she said, noting that “performance since Willis Towers Watson took over the mantle has been very solid”.

Performance of trust vs sector and benchmark under Willis Towers Watson


Source: FE Analytics

For those looking for exposure to the UK market, Diverse Income Trust is a multi-cap trust that has attractive 4.2% dividend yield.

Managed by Gervais Williams and Martin Turner, it has been a top-quartile performer over 10 years, up 112.8%, but has struggled over one year as the allocation to smaller and mid-sized companies has proven a headwind.

Despite this, they “have an excellent track record of delivering over the longer term, primarily through fundamental stockpicking, but have also been savvy in terms of protecting the portfolio from the worst of the market drawdowns with the use of put options when appropriate,” said Banszky von Ambroz.


Aberforth Smaller Companies Trust

While income is one way to invest, Daniel Lockyer, senior fund manager of Hawksmoor Fund Managers, suggested taking a more risk-on approach.

“For middle-aged investors I choose Aberforth Smaller Companies Trust, whose managers have invested with the same value style since the trust launched in 1990,” he said.

“In recent years growth-biased funds have offered superior returns, largely thanks to near-zero interest rates, but we now believe the value style will come back into favour.”

Indeed, over the past year it has been a top-quartile performer in the IT UK Smaller Companies sector, up 10.4% while its peers have made an average loss of 5.5%.

However, its 10-year returns are less impressive. While the trust has beaten the Numis Smaller Companies 1000 Excluding Investment Companies index by around 10 percentage points, it has failed to beat the sector average (159.1%), which is made up of growth-dominant peers.

Performance of trust vs sector and benchmark over 10yrs


Source: FE Analytics

With fortunes turning around over the past year or so, now could be an attractive entry point for investors. “The portfolio is trading on record low valuations not seen since the depths of the financial crisis and the trust’s shares can currently be bought at an 11% discount and a 3.5% yield,” said Lockyer.


Caledonia and AVI Global

Lastly, Paul Chilver, associate and financial planning manager at Birkett Long, suggested middle-aged investors should look to take advantage of the current market dislocation by picking up trusts that have fallen to big discounts in the short term but that have been strong long-term performers.

“My first suggestion for this type of client is the Caledonia investment trust. Despite its excellent long-term track record, it is still trading at a significant discount – 27% – and I personally feel it provides the opportunity for further growth going forward,” he said.

“My second suggestion is a global equity investment trust which, again, has a ‘healthy’ discount despite some excellent long-term performance. This is the AVI Global Trust whose investment approach over the past 12 months has produced some very good returns. This trust is currently at a discount of around 10%.”

Editor's Picks


Data provided by FE fundinfo. Care has been taken to ensure that the information is correct, but FE fundinfo neither warrants, represents nor guarantees the contents of information, nor does it accept any responsibility for errors, inaccuracies, omissions or any inconsistencies herein. Past performance does not predict future performance, it should not be the main or sole reason for making an investment decision. The value of investments and any income from them can fall as well as rise.