Investment trusts for a tennagers SIPP


#1

I have set up SIPPs for my 2 neices (17 & 21).
Putting in £3,600 pa (after tax reclaimed).
After 6 years the 21 year old has Scottish Mortgage (c,£23k), and Bankers (c.£14k) in her SIPP.
I am now planning to redirect contributions to a new fund (the intention is to pick an fund, contribute for 3 years or so then move onto another fund to get a reasonable portfolio spread. Ending with about 5 or 6 funds in total).

I don;t know if my neices will be interested in personal finances over the long term, so I want to pick funds which can be left and flourish over the long-term.

What funds wpould you suggest - I’m thinking of Perpetual Incone & Growth (to get more UK exposure) as the next choice.
Would you go for active IT’s or consider low cost trackers (Vanguard)?

Many thanks in advance for your comments


#2

Over time the stock market always beats cash and bonds so whether you choose trackers of active funds you would do well.

You could choose to invest with wealthy families like the Rothschilds and Cayzers and got for Caledonia and RIT Capital Partners.They invest for the long term and focus on protecting wealth.

Also, Baillie Gifford is a partnership and I think I’d trust that structure more for very long term investments. Besides Scottish Mortgage they’ve got Monks, there’s a decent piece of analysis on Monks here

I think what you are doing is fantastic and they will thank you for it in the future.


#3

I’m happy to hold Perpetual Income & Growth, although in my case it is for the income rather than capital growth. Saying that, Mark Barnett has delivered both during his tenure.

Alternatives in the same sector to consider would be Lowland and Finsbury Growth & Income. LWI has greater exposure to smaller companies, including those listed on AIM. These could be areas that are able generate capital growth going forward, and this might not be the case with some of the high-yielding large-caps - based more on a feeling rather than anything with substance to it.

FGI has a smaller number of holdings - 26 according to the latest factsheet - and this is an approach that might also deliver long-term growth in capital, and especially if we do experience slow-to-no growth for a number of years.

Additionally, I suggest looking at the UK All Companies sector (formerly known as UK Growth), simply because there are ITs in this sector which do not have to consider income generation, whereas ITs in the Income sector might need to hold more companies with lower growth prospects in order to maintain or increase their own payouts.

Given that your neices potential lack of interest in investing, I would avoid specialist sectors, such as commodities and health care etc., and stick to more generalist trusts. But this potential lack of interest is also an argument for investing in trackers: it does remove the issue that some people have with ‘average manager performance’ and the potential to underperform against ‘the market’. If this is an issue then trackers are the way to go. Personally, I do not see the UK market as being a desirable investment in itself (leastways, for me, if no-one else), and this is mainly due to the large representations of specific sectors.


#4

One of the reasons I feel comfortable with investment trusts @Nigel_Jones is their independent boards.

I bring this up because you mention the long term investment horizon of the girls and their lack of interest. The inference I’m taking form that, correct me if I’m worng is, is you are worried about new managers taking over and performance dipping.

That happens a lot because even fund managers retire, go off and do something else or die.

One thing that protects you though is the Board - shareholders will been their collar and pressurise them for change. Look, it may take a while but look at Alliance trust and the pressure that has come under. The performance isn’t disgusting but it could have been better but the Board have responded to shareholders lead by activist investors and I’m sure any trusts you chose the girls will be exposed to the same thing.

Investment trusts have been good since Victorian times and I think that will continue.


#5

I think you’ve had really good feedback @Nigel_Jones and it’s hard to beter that.

I agree with everything that has been said in terms of feedback to you.

ITs independent boards do protect you And I I think Lowland and Finsbury age great suggestions.
Thee are smaller fund managers I would consider too Like Edinburgh Parters and Aberforth because they’re partnerships too, just like Baille Gifford but I think the advice you’ve bneen given is top notch.


#6

Some fine suggestions here, especially investing with wealthy families which makes sense to me if you’re going to be investing for decades, you trust that as they’re looked after their families for generations they’re continue to do so.

Also I agree with @andre about the Boards giving you that little extra bit of protection even if they’re sometimes slow at pushing through change it does happen eventually because of shareholder pressure.


#7

Previous comments cover it and Mark Barnett is a sound bet and I would chose either the Perpetual Income & Growth or Edinburgh. He has less of a free reign when it comes to the board of Keystone. Mercantile is also a Steady Eddie. But given the current situation I would not rule out Europe to join in the growth story soon and the best one there is Jupiter European Opps. Or maybe it is time for some smaller cap trusts like F&C Global Smaller Cos or JPMorgan European Smaller, Henderson Smaller as I don’t think their run is over yet.
As for the structure of ITs being beneficial for investors, yes, the board should make a difference. This is often ignored by open-ended fans but I think it keeps the manager on his toes, or should do, and should behave in the best interests of shareholders, of which they are, hopefully. It seems that Trustees rarely find the incentive to kill off a rubbish fund…


#8

Many thanks for your thoughtful and hepful comments.

I do like the suggestion of a trust such as RIT Capital Partners, thanks dallas
I have it in my main portfolio as a more defensive holding. For my neices SIPP I have been focused on growth, but the more I think about it makes sense to have a fund which aims to protect as well as build wealth. Over 40 years markets will experience turbulent times.

I do think arkwelder makes a good point in suggesting I consider trusts with a greater exposure to small / mid size companies. Lowland is a certaintly a good suggestion.
What do you think of Fidelity Special Values as a fund that could offer similiar good long-term growth prospects ?

One of the reasons I prefer IT’s is that there is an independent board overseeing investors interests. I feel IT’s (particularly flagship funns) are likely to deliver more consistent returns than active UT’s over the (very) long-term.


#9

@Nigel_Jones I am not sure on RIT since one can never see what they are really doing. They outsource much of the portfolio and seem to sack managers each year for underperformance. They did have a bad spell for 5 years but have improved with the new manager. Overall though I think it is blind faith in a very strong family name frankly. Caledonia is also heavily invested in by a family (Cazer) but this has a much higher level of visibility and the newish managers of this have turned this round and I think the future should be good.
As for the 40 years of ups and downs. If you look back 40 years it should be evident that you don’t need defence for that length of time since it is all evened out over the period. The best form of defence is to get some fat under your belt for the bad times and then add to good stocks in those bad periods. This can only be done with less defensive trusts.
Small-cap has certainly done well and I think has further to go, (I like Lowland, Henderson Smaller, F&C Global Smaller) and FSV is on my list of good value investors. Value has yet to have its day since 07/08 but when it does it will be worth the wait. When Value stocks suddenly take off they ironically become the new growth stocks!
Boards change too so although you are right in the fact that they are a more robust way to manage the trust than a group of Trustees, they can vary over time. In the long run good ITs will beat UTs mainly because of performance, fees (less so now), gearing and capital structure (manager not forced to invest at top and sell at bottom).


#10

Nothing wrong with the suggestions so far - for mainstream UK exposure I would go with either Finsbury Growth Trust (FGT) or Perpetual Income & Growth (PLI).

Slightly higher up the risk level would be Fidelity Special Values (FSV) which is doing well since the manager changed.

If you wanted mid-cap exposure I would go for JP Morgan Mid-Cap (JMF) which has good short and term long record. If you compare its performance relative to the FTSE250 you will see the potential advantages of IT’s versus tracker funds (though this partly due to the discount reducing).

I own all the above (apart from PLI - but I have Keystone instead).

I’m sure you’ve considered this @Nigel_Jones but once your nieces start working - they could be paying into an employee scheme and the rules on maximum contributions across all pensions come into play (rather then the £3600 limit).