Four Funds to Kickstart My Pension

Young investor George Anthony-Jones hopes highly rated funds from Fundsmith, Goldman Sachs, Merian and Evenlode will provide a solid core to his investment portfolio

Emma Simon 5 February, 2020 | 11:07AM
Facebook Twitter LinkedIn

investor views

George Anthony-Jones, 24, has recently started saving for his retirement, which makes him unusual among his peers.

He says: “Most of my friends haven’t really given much thought to pensions or investments. Given we live in London where the cost of living is very high this is perhaps not surprising. But I wanted to start contributing to my future.”

George works as an operations consultant in the financial services sector, and this experience has helped him focus on his own money, as well as giving him the confidence to decide where to invest.

Many people his age are automatically enrolled into workplace pensions, with 5% deducted from an employee's salary and topped up by their employer (with further tax relief coming from the government). This money is usually automatically invested in a “default fund” run by one of the large pension companies.

Self-Selection

George, though, had the option to select a range of funds to invest in. He’s picked a selection that invest in both larger and smaller companies across the UK, global and emerging markets.

Some of these funds are higher risk, but George is comfortable with this: “It’s only a relatively small amount of money I’m putting in at the moment, so I am happy to take on more risk in the hope of delivering better returns over the long term.”

As he is making regular monthly contributions, he hopes this will smooth out the ups and downs in more volatile markets.

George splits his pension equally between four funds: Fundsmith Equity, Merian UK Smaller Companies, Goldman Sachs India, and TB Evenlode Income.

Fundsmith Equity has a coveted Morningstar Analyst Rating of Gold, and a five-star rating, reflecting both its strong performance in recent years, and the confidence analysts have that it will continue to deliver for investors.

This highly popular global fund was launched in 2010 by Terry Smith, the fund manager and founder of the company. The fund has a large cap bias and aims to invest in high quality companies that are defined as having “little need for leverage, an above-average cash return on operating capital employed, and an ability to sustainably grow at this rate of return.”

Morningstar analyst Peter Brunt says: “This is one of the strongest options for investors seeking exposure to high-quality global equities.” But he adds that Smith takes a high conviction long-term approach which may mean shorter term volatility or underperformance.

Merian Smaller Companies is a UK-focused fund, which seeks out opportunities in the small cap sector. Like Fundsmith it is highly rated, with its R share class having a Gold Rating from Morningstar. (Other share classes, which may have a higher charge, have a Silver Rating.)

Analyst Sam Meakin says this fund is “a very strong option in the UK small-cap space, benefiting from a long-tenured manager skilfully executing a consistent approach with the support of a well-regarded team”.

India's Growth Potential

Meanwhile Goldman Sachs India has a Bronze Rating from Morningstar.

As a single-country fund, in a rapidly developing economy like India this is obviously one of the higher risk holdings within George’s portfolio. However, he thinks there is real potential for countries like India to drive world economic growth over the next few decades.

He says: “India is an emerging market we talk a lot about in the office and the long-term outlook sounds really exciting, especially now the government is very pro-business.”

Evenlode Income, a relatively new fund managed by Hugh Yarrow and Ben Peters, has a five-star rating from Morningstar. The fund returned nearly 25% last year, comfortably beating the index and its Morningstar category, with a yield of nearly 3%. Peters also manages the Evenlode Global Income fund. Speaking to Morningstar in December, Peters said that in the short-term, recession fears are making companies cautious about increasing their dividends, but that the longer-term prospects are still healthy.

George says that given the wealth of different fund options out there it wasn’t easy picking these starter funds for his portfolio, so he used fund recommendation lists from companies like Chelsea Financial Services.

He says: “In the future, when my salary increases, I will look to start regular monthly savings into an ISA too. I imagine at some point in the next five years I’ll maybe start thinking about saving a deposit for a house but my ultimate goal is that of having a decent pot of money upon retiring.”

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

Facebook Twitter LinkedIn

About Author

Emma Simon

Emma Simon  is a financial journalist, specialising in investment and consumer issues, writing for Morningstar.co.uk