Five fund picks for pension investors

We are living in financially unpredictable times, where paying for higher energy and food bills can trump our long term saving and investing plans. But neglect your pension at your peril.

A fifth (22%) of people have either stopped (14%) or cut back (8%) on pension contributions during the cost-of-living crisis, according to recent research, and men are more likely to have done this (25%) than women (18%)*.

But, and I can’t stress this enough, pensions are an extremely tax efficient way to create a retirement nest egg, because of the tax relief they attract. A quick recap:

If you’re a basic rate taxpayer, you’ll get 20% tax relief, so every pound you pay in becomes £1.25. In reality this means getting a 25% boost to every contribution you make into your pension.

If you’re a higher-rate taxpayer, you’ll get 40% tax relief. So every pound becomes around £1.66 – the equivalent of a 66% boost. Additional rate taxpayers get 45% tax relief (effectively around an 80% top up).

Where to invest your pension

Where should you invest that pension money to make sure it grows over the long term to give you a tidy sum when you come to retire?

You’ll want a diversified portfolio, of course, and, in our opinion, ideally full of quality assured FundCalibre Elite Rated funds. To mark Pensions Awareness Day 2023, here’s five to consider.

Baillie Gifford American

“Finding a great company and building conviction around its potential is only half the story. The real edge is to be a patient investor, waiting for the company’s innovation to be a commercial success, and holding the shares as that success grows exponentially,” says Ben James, US equity investment specialist at Baillie Gifford.

Baillie Gifford has shown patience in the US by investing for over a century. But it also has some reasons for you to invest there right now. One of them is AI. “We expect it to accelerate and widen new possibilities across every industry in our investment universe – the US is perfectly placed as it’s the innovation capital of the world,” says James.

On top of this, the Baillie Gifford fund sees higher interest rates, which have made capital more expensive, as sorting the wheat from the chaff of truly great businesses and the just good. “This may be the ideal environment for the selective and patient growth investor. Do you want to own today’s companies or tomorrow’s?” says James.

Rathbone Ethical Bond

Long-term investors can rest assured Bryn Jones has been at the helm of the Rathbone Ethical Bond fund for 19 years. He’s always managed the fund with an ethical investment process because he believes poorly governed businesses are ones that fail. “Companies that don’t consider the environment will be at greater risk of higher taxes, regulatory scrutiny and a higher cost of borrowing,” he says.

Historically, bonds have often been used to diversify investments. This is especially the case for pension schemes – particularly as employees near retirement or are in drawdown. Bond portfolios allow pensioners to draw an income from the pension without impacting capital too much. Now is a good time to protect pension pots with some of the highest yields on offer from corporate bond funds of the last few decades.

Jupiter Merlin Portfolios

Multi-manager portfolios – such as the Jupiter Merlin Portfolios – are one-stop investment solutions which invest in a variety of funds managed by some of the best and most experienced professional investors, all blended together by the team’s expertise.

One new addition to the Jupiter Merlin Portfolios this year has been the lesser-known Prevatt Global Master fund run by Jonathan Tepper, author of the critically acclaimed book “The Myth of Capitalism”, who has also run his own investment boutique.

His investment philosophy revolves around winning by not losing, which very much chimes with the Jupiter Merlin focus on downside protection and on the compounding of capital over time.

IFSL Marlborough Multi Cap Income

While most UK equity income funds focus on the corporate giants, this fund has the freedom to invest in businesses of all sizes and, although it does hold some FTSE 100 stocks, it favours smaller companies, which is a key differentiator.

“Our approach offers a number of advantages for long-term investors. Although smaller companies can be more volatile, they have historically outperformed larger companies over the long term,” says manager Sid Chand Lall.

“They are often younger, highly innovative businesses and their size means they can be more agile, moving quickly to seize on new business opportunities. At the same time, they can be generating healthy cash flows and robust profits. Indeed, we make it a point to only select companies that can actually afford to pay a dividend.”

Allianz China A-Shares

China’s economy has disappointed so far in 2023. But the country has always been a long term play, says Shao Ping Guan, manager of the Allianz China A-Shares fund. This portfolio is a pure China A offering, delivering ideas from key areas China would like to grow and promote such as new energy vehicles, semiconductors, AI, big data/digitalisation, industrial robotics, and innovative drug discovery.

China equities are poorly represented in global indices, so can offer good diversification for investors – despite accounting for around 18% of global GDP, the weight of China A shares in the MSCI AC World Index is minimal – and they historically have low correlation with the US and broader developed equity markets.

“As the Chinese economy adopts a more sustainable growth path, global investors would be remiss to limit China in their asset allocation mix, as we see attractive opportunities, especially in areas related to technological innovation and manufacturing upgrade, which are and not easily replicated in other markets,” says Shao Ping Guan.

*Source: The Guardian, 4 September 2023

_{Photo by Braňo on Unsplash}