Investments you can hold for 30 years
One of the difficulties when investing for long term is that very little stays the same for two or three decades.
It’s hard – almost impossible, in fact – to forecast which of the global stock markets will grow most rapidly over a 30-year period, or to predict the next Apple or the fund managers who will replicate the stunning returns achieved by the likes of Neil Woodford or Anthony Bolton.
But the challenge shouldn’t be dismissed; most people would benefit from setting something aside and leaving it untouched for 20 to 30 years.
That is most obviously true for young workers in their twenties and thirties, but it also applies to people nearer retirement. Under the pension freedoms granted in April, pension savers in their forties and fifties can realistically expect to hold investments until their seventies or eighties.
An increasingly popular solution are the so-called “tracker” funds, which now account for £100bn of savers’ money. These investments match the performance of an index, such as the FTSE 100 in London or S&P 500 in the United States. The benefits are low costs and simplicity. While a professional stockpicker can generate returns in excess of a tracker that blindly follows a set of shares, the majority of highlypaid fund managers take too many risks and fail.
Jason Hollands, of fund broker Tilney Bestinvest, recommends the Legal & General International Index fund, which costs 0.14 pc a year. The fund tracks an index called the FTSE World ex UK, which focuses on large companies in developed markets outside the UK. Its largest holding is Apple, accounting for just over £2 in every £100 in the fund. The next two – Exxon Mobil, the world’s biggest oil and gas company, and Microsoft – each account for just under 1pc.
There is a school of thought that shares in emerging markets such as Asia, India and Latin America hold the greatest long-term potential as swelling ranks of middleclass families spend newfound wealth. Mr Hollands recommends Fidelity Index Emerging Markets. The shares it follows include Samsung, the main rival to Apple in mobile phones, and the Taiwan Semiconductor Manufacturing Company, which supplies the computer chips for laptops, mobiles and tablets. A significant 25pc of the fund is invested in China. Costs, vitally important for tracker funds, are 0.26pc a year.
Mr Hollands says: “For a 20 or 30 year timescale, you need to be in investments that are well diversified across global equity markets, rather than narrowly focused.”
The temptation for investors trying to beat tracker funds over 30 years is to back a “star” fund manager. Most, however, “almost certainly won’t be in the job that long”, Mr Hollands warns.
Tim Cockerill, investment director at wealth manager Rowan Dartington, says the average tenure is just three years. “The risk is that you do your homework and find a good fund and manager but after a few years they leave and the fund is no longer the same,” he says.
He recommends funds focused on large, UK-listed shares that pay regular dividends – companies such as Vodafone, British Gas and BP. Artemis Income, managed by the experienced Adrian Frost, or Neil Woodford’s new fund, Woodford Equity Income, is top of his list. In 26 years running Invesco Perpetual High Income, Mr Woodford turned each £1,000 of customers’ money into £25,349; in his first year running his own business, he has doubled the average return for his type of fund.
This type of extended growth record is a positive sign for investors making long-term decisions. As such, the experts say, it’s worth considering investment trusts. This type of fund gives a manager greater control and is often judged on its long-term payout record.
Mr Cockerill tips Bankers Investment Trust, which has been running since 1888 and has increased dividends for 48 years without fail. “I can’t guarantee anything for 20 or 30 years, but I guess Bankers will still be here,” he says.
Mr Hollands suggested the Foreign & Colonial Investment Trust, where each regional portfolio of shares is run by a different team. It has returned 70pc in five years, beating the 63pc average for similar global funds. None of its holdings accounts for more than 1.6pc of the fund, making it highly diversified.
Ben Yearsley, head of investment research at broker Charles Stanley, recommends Scottish Mortgage. The trust has returned 136pc in five years and costs a relatively low 0.3pc. Among its notable shareholdings are the online retailer Amazon (8.8pc of the fund), Chinese search engine Baidu (5.9pc) and electric car maker Tesla Motors (3pc).
For adventurous investors, Mick Gilligan, the head of fund research at Killik & Co, suggests Patient Capital. Neil Woodford is again in charge, this time aiming to buy young companies with “intellectual property” from British universities. The commercial benefits can take years to materialise, but could be significant when they do. However, the fees are somewhat complex, including a 0.35pc administration fee based on stock market flotation values and a 15pc “performance fee” on annual growth above 10pc.