Investors planning for retirement should take advantage of the upcoming ISA deadline by adding to portfolios that can grow, but crucially also retain their capital, according to industry experts.
Saving for retirement can be a tricky task to manage. A recent survey by NerdWallet found that more than half of participants were worried that they had not saved enough to sustain their lifestyle in retirement and 34% said concerns over their retirement funds caused them significant stress.
While some will prefer to protect their cash while making moderate gains, others will argue that their retirement may span several decades and need to take some calculated risk to ensure their money lasts.
Experts therefore have highlighted some investment trusts that can give people peace of mind that their hard-earned savings will not be eroded, as well as some that can provide good risk-return options.
First up are the picks for those not yet in, but nearing their retirement. Neil Mumford, charted financial planner at Milestone Wealth Management said that many middle-aged people “have one eye on growth and the other on their retirement,” recommending the Scottish American Investment Company to those in this situation.
The global equities trust aims to grow dividends at a faster rate than inflation and is up 174.7% over the past 10 years. Investors can turbo charge this return by reinvesting their 2.8% dividend yield to buy more shares in the company, he said.
The portfolio was also recommended by Paul Chilver, associate and financial planning manager at Birkett Long on the same basis that its regular pay-outs were an attractive feature.
He said: “It is one I personally like as it is underweight North America and this could blend well with other global investment trusts investors may hold.”
His other recommendation was the Mercantile Investment trust. Shares are on a 10.9% discount to the net asset value following a year of underwhelming performance – it was down 21.3% over the past year but over the long term it remains a top option, up 157.8%.
Chilver expected a recovery in returns and said its discounted share price makes now a good time to buy the trust.
Away from growth trusts, Phillipa Maffioli, senior advisor at Blyth-Richmond Investment Managers, recommended the AVI Global investment company.
It takes advantage of mispriced stocks, investing primarily in close-ended investment funds, family-backed holding companies and asset-backed special situations.
The trust is a holding that Maffioli personally holds in a number of her own portfolios, as well as the Brunner Investment trust which is a “dividend hero”, having consistently increased its payout over the past 50 years.
By investing in large, well-financed businesses with strong growth opportunities and reliable dividends, it has made 157.8% over the past decade.
The experts also compiled a separate list of trusts for people who are already retired and seeking investment options to protect and grow their savings.
The International Public Partnership trust, recommended by Genevra Banszky von Ambroz, fund manager at Tilney Smith and Williamson, invests in social infrastructure such as energy transmission, transport and education which together make up the top 59% of sector allocations.
It is up 5.4% over the past year, highlighting the defensive nature of the IT Infrastructure sector, which held up well when other areas of the market dropped. The trust has also backed this up with steady 10-year performance of 115.8%, but investors should be aware that the trust is not cheap, with shares currently on an 12.4% premium.
Performance of trust over the past year
Source: FE Analytics
Maffioli put forward JPMorgan Global Growth Income trust as a good option for retirees. Its yield of 3.9% is an attractive incentive for retirees and its large research team supports good stock picking, she said.
“On top of this, exposure to this investment trust provides an opportunity for growth from an unconstrained selection of companies from around the world,” she said.
It has made 255.5% over the past decade and 8.7% in the past twelve months, consistently beating both the MSCI ACWI benchmark and IT Global Equity Income sector.
Meanwhile, Mumford said that retirees are either income seekers or capital compounders and his recommendation – the Bankers Investment trust – is a combination of both.
The £1.3bn portfolio is flexible with its country and sector exposure and seeks to invest in companies with strong cash flows and dividends.
Although returns are down 6.2% in the past year, it has increased 198.8% in the past decade.
Mumford said: “Apart from the modest 1% increase last year, it has achieved its aim in most years, and over the last five years the dividend payments have increased by a respectable 28%, whilst the share price has increased by more than 50%.”
The final pick was Chilver’s, who highlighted the Shires Income trust. It has a regional emphasis on UK companies but does not have constraints on sectoral allocations and is style agnostic.
“This diversified approach has helped to keep volatility down and the trust is currently paying over 5% per annum as an income which is very attractive,” he said.
Total return of trust over the past ten years
Source: FE Analytics
Returns are 2.9 percentage points below the FTSE All Share index over one year, but the portfolio has outperformed over the past 10 years, up 108.7%.