Perhaps an investor in their 20s – such as myself – is saving with a house deposit in mind, or a new parent is investing money to help fund their children’s university fees.
With this in mind, FE Trustnet will dedicate an article every day this week to highlighting funds for a specific time horizon.
First up, industry experts reveal which funds they would recommend to investors with a 20-year time-frame.
JOHCM Asia ex Japan Small & Mid Cap
Darius McDermott, managing director of Chelsea Financial, says he has recently bought this fund for his daughter.
"I think Asian smaller companies could be the growth story for the next 20 years," he said. "It’s a huge growth story, which I think will be driven by the consumer story that is starting to take hold."
"I like JOHCM Asia ex Japan Small & Mid Cap, which we’ve recently added to our recommended list. It’s had a really good run."
"You could put in a large cap fund that focuses on Asia, but over the long-term small caps tend to outperform," he added.
Performance of fund vs sector and index since launch
Source: FE Analytics
Cho Yu Kooi’s JOHCM Asia ex Japan Small & Mid Cap fund is up 40.5 per cent since its launch in September 2011, compared with 32.24 per cent from its sector average and 29.34 per cent from its MSCI AC Asia Pacific ex Japan Small Cap benchmark.
Its biggest sector weighting by some distance is consumer goods, which makes up 54 per cent of the portfolio.
The £7.7m fund requires a minimum investment of £1,000 and has a total expense ratio (TER) of 2 per cent – exclusive of performance fee.
M&G Global Dividend
"There are two ways of looking at this question – you can either pick a growth story, or rely on the compounding effect of income," continued McDermott.
"If you’re looking at the latter, I’d go for a global fund. Nobody knows how sterling will perform over 20 years, but the outlook definitely isn’t good over five."
"The choice is between M&G Global Dividend and Newton Global Higher Income. For me, I’d go for the M&G fund as it’s got more of a focus on dividend growth."
"There will be periods when income is out of favour, so I like the fact that this fund has the ability to put a bit of growth into the portfolio."
"It doesn’t actually sit in the Global Equity Income sector, so it doesn’t have to stick to those guidelines," he added.
Performance of fund vs sector and index since launch
Source: FE Analytics
According to FE data, FE Alpha Manager Stuart Rhodes’ M&G Global Dividend fund is a top-quartile performer in its IMA Global sector since its launch in July 2008, with returns of 79.09 per cent.
It has also been a lot less volatile and is one of the highest yielders in the sector, with a payout of 3.08 per cent.
Rhodes invests predominantly in developed markets, but does have some exposure to emerging Asia and Latin America.
The £4.4bn portfolio has been one of the bestselling IMA funds of recent years. It requires a minimum investment of £500 and has a TER of 1.66 per cent.
BlackRock Smaller Companies IT & The Throgmorton Trust
Movements in discounts and gearing mean that investment trusts tend to be more volatile than their open-ended counterparts, which is why they are associated with longer-term investors.
Peter Walls, manager of the five crown-rated Unicorn Mastertrust portfolio, believes that UK small cap focused trusts are an ideal choice for those investing with a 20-year time horizon.
"From the point of view that investors are willing to take on a bit more risk, and given the benefits of scoping out discounts, I think investors should really be looking at small cap trusts," said Walls (pictured).
"A lot of the global trusts out there are trading close to NAV and I do think there is a question mark over how many managers are experts in every regional market. On this basis, I’d go for a UK small cap trust."
"We all know the UK market is not representative of the UK economy. Even in the small cap market, you can find companies with a global reach anyway."
Given the calibre of their managers and attractive discounts, he points to the BlackRock Smaller Companies IT and The Throgmorton Trust as the two standout options in the IT UK Smaller Companies sector.
"The whole peer group has been pretty impressive recently, with the sector average up around 55 per cent over five years," he said.
"If you want one that has a good record in adding relative value, I’d look at BlackRock Smaller Companies and The Throgmorton Trust."
"[Richard] Plackett and [Mike] Prentis are very good managers and they’re attractively valued, with the BlackRock trust on a discount of 13 per cent and The Throgmorton Trust on 17 per cent."
"Standard Life UK Smaller Companies is the standout performer in the sector, but given that it’s only on a discount of 2 per cent, I prefer the other two," he added.
Performance of trusts vs sector and index over 5yrs
Source: FE Analytics
Over a five-year period, Prentis’ BlackRock Smaller Companies IT and FE Alpha Manager Plackett’s Throgmorton Trust have returned 104.43 and 90.43 per cent respectively, significantly outperforming both their IMA UK Smaller Companies sector average and Numis + AIM (ex ITs) benchmark.
Both have also outperformed over one, three and 10 years.
As well as consistently outperforming its rival, the BlackRock Smaller Companies IT also tends to be less volatile. However, as Walls points out, it is on a smaller discount.
Both highly diversified trusts charge a performance fee, but Prentis’s trust has a lower ongoing charges figure – 0.69 per cent compared with 1.15 per cent.
Skandia Spectrum 8
Head of research at FE Rob Gleeson was a little more cautious with his selection. He says John Ventre’s Skandia Spectrum 8 fund is a good choice for investors because it is diversified across a range of asset classes and regions.
"If you’re only going for one fund, I’d go for something that is diversified," he said. "Even though it’s 20 years, I still think you need to be invested in a range of things – I couldn’t recommend a single strategy, because I don’t know what will be the best-performing asset class over that time."
"John Ventre is very good at what he does. I like the range – particularly if you’re only investing in one fund."
Skandia Spectrum 8 is the most aggressive of the funds in the Spectrum range, investing between 70 to 90 per cent in equities at any given time.
It is a fund of funds, which goes some way to explaining its above-average TER of 2.13 per cent. It holds portfolios run by both Skandia and external fund houses. Among its largest holdings are Skandia Property and Dimensional Emerging Markets Targeted Value.
The £44.7m has returned 16.86 per cent since its launch in May 2008. It has no benchmark and sits in the IMA Unclassified sector.
In the next article in the series, FE Trustnet will ask industry professionals to highlight funds for a 10-year horizon.