The Association of Investment Companies (AIC) has asked advisers to suggest investment trusts for long-term growth and a higher income for first-time buyers of this kind of fund, and two IC Top 100 Funds feature among the suggestions. The AIC says pension reforms, which from next April will make it easier for people to consider alternatives to annuities, are an opportunity for savers to look at areas of investment they may not have considered previously when seeking long-term growth and a higher income in retirement. So it asked financial advisers to suggest investment trusts from the UK Equity Income, UK All Companies and Global sectors.
The Global sector suggestions are IC Top 100 Funds Scottish Mortgage Investment Trust (SMT) and Witan Investment Trust (WTAN). These investment trusts are strong performers – both beat the Global sector average and the FTSE All-World Index over one, three, five and 10 years. And Investors Chronicle readers earlier this year voted Scottish Mortgage as their favourite investment trust by some margin.
Read more on Global investment trusts
| 1-year share price return (%) | 3-year cumulative share price return (%) | 5-year cumulative share price return (%) | 10-year cumulative share price return (%) | |
|---|---|---|---|---|
| Scottish Mortgage Ord | 22.90 | 123.09 | 154.91 | 265.22 |
| Witan Ord | 19.15 | 89.38 | 99.02 | 148.83 |
| AIC Global sector average | 8.17 | 50.04 | 67.49 | 139.33 |
| FTSE All World TR GBP | 12.66 | 53.30 | 64.19 | 143.85 |
Source: Morningstar as at 26 December 2014
Two advisers suggested Scottish Mortgage.
"One aspect of investment companies I particularly like is that they can retain part of their annual income to distribute in later years," says Francis Klonowski, certified financial planner at Klonowski & Co. "This has enabled them to maintain a consistent dividend payment even in years when stock market conditions are less favourable, with several having a strong record of increasing their dividends each year. Scottish Mortgage is a prime example of this. Although investing mainly for capital growth, it has a record of paying a consistent and rising dividend so may still suit income seeking investors. Its five-year performance is way above sector average, but this is no short-term fluke - the picture looks even better over 10 years."
Scottish Mortgage has raised its dividend for 31 consecutive years.
"Scottish Mortgage's ongoing charges are only 0.5 per cent - lower than some index-tracker funds," continues Mr Klonowski. "My only issue is that it is trading at a premium to net asset value (NAV) of 2.68 per cent, in common with many popular investment companies just now. You are therefore buying into the investment company at a higher price than those underlying stocks, although with its long-term performance record this seems a risk worth taking."
James Pigott, managing director at Pigotts Investments, also suggests Scottish Mortgage.
"I would choose Scottish Mortgage because it has a very diverse portfolio with an aggressive edge that should pay off over the medium to long term," he said. "The yield of just over 1 per cent should cover any platform and custody fees, leaving a little for reinvestment in the dips. The gearing (debt) is 13 per cent, which in today's market is more than most, but it does contribute to better performance if managed well, which it has been in the past. The management, Baillie Gifford, is sound and the fund managers are highly respected in their field. The current commitment to technology and China has led to it being in the top quartile (of its sector in terms of performance).
And investment trusts are well suited to long-term investing. This is because over a long period any discount or premium issues tend to be neutralised. Gearing and the increasing dividend payments make a massive difference to performance and are compounding."
SCOTTISH MORTGAGE INVESTMENT TRUST (SMT) | |||
|---|---|---|---|
| PRICE | 246.69p | GEARING | 13% |
| AIC SECTOR | Global | NAV | 241.84p |
| FUND TYPE | Investment trust | PRICE PREMIUM TO NAV | 2.68% |
| MARKET CAP | £3.07bn | YIELD | 1.17% |
| No OF HOLDINGS | 74* | ONGOING CHARGE | 0.50% |
| SET UP DATE | 1909 | MORE DETAILS | www.bailliegifford.com |
Source: Morningstar, *Baillie Gifford.
TOP TEN HOLDINGS as at 30 November 2014
| Illumina | 8.1 |
| Baidu.com ADR | 7.9 |
| Amazon.com | 7 |
| Tencent | 5.9 |
| Alibaba Group Holding | 5.3 |
| Inditex | 4.6 |
| 3.1 | |
| Fiat Chrysler Automobiles | 3 |
| Banco Santander | 2.8 |
| Kering | 2.5 |
Geographic breakdown
| North America | 36 |
| Continental Europe | 27.2 |
| Asia Pacific | 23.3 |
| United Kingdom | 6.8 |
| Net Liquid Assets and Bonds | 3.4 |
| Emerging Markets | 2.7 |
| Japan | 0.7 |
Meanwhile Gavin Haynes, managing director at Whitechurch Securities, likes Witan Investment Trust.
"This trust is ideal as a core holding for a first-time investor. It adopts an innovative multi-manager approach, selecting 10 to 12 managers investing across global equity markets. Chief executive officer Andrew Bell actively oversees the trust, changing the managers when appropriate to ensure the portfolio remains actively invested.
Read Andrew Bell's outlook for 2015
Two aspects that I particularly like about the trust are its exemplary dividend growth record and its careful control on annual fees. Although the trust only provides a yield of 2 per cent, they have managed to increase it every year for nearly 40 years. With regards to fees, the average overall annual fee comes in at around 1 per cent, including performance fees attached to some of the underlying managers. This compares very favourably with equivalent multi-manager unit trust funds, where overall annual fees can be over 2 per cent."
