Striving to bring you more investing ideas as we encroach on the new year, we speak to AJ Bell’s Alena Kosava, head of investment research, to get some investment recommendations for investors with differing levels of risk, as well as for those seeking income. Of course, these are just suggestions for investing in 2023, not advice, as we don’t know your personal financial circumstances.
Funds and trusts for cautious investors
Personal Assets IT
Personal Assets is a solid choice for investors looking to protect and increase (in that order) the value of their investment over the long term. The trust has generated steady returns over previous years and tends to do particularly well amid challenging market conditions and souring economic narrative – conditions we’ve been experiencing throughout 2022 – which the trust’s experienced manager Sebastian Lyon had been concerned about for a long time.
With a heavy sell-off across stock markets and big falls in value across the bond universe, underpinned by fears over the potential for persistently high inflation for a considerable period going forward, the defensive nature of this trust, and in particular its exposure to inflation protecting assets such as gold and inflation-linked bonds, means it has notable appeal.
Amid bear market falls in both shares and bonds throughout 2022, the trust is down around 2.4% YTD at the time of writing (1 December 2022), thus offering protection to client capital.
Royal London Investment Grade Short Dated Credit
With high inflation and interest rates expected to increase, albeit likely at a slower pace, it could be a challenging year for bonds. Nonetheless, many investors should consider exposure to bonds as part of a diversified portfolio. The fund’s investment objective is to achieve a total return over the medium term (3–5 years) by investing at least 80% in investment-grade bonds – those with a lower risk of defaulting on their interest payments as determined by independent credit agencies such as Standard & Poor. Of these, at least 70% will be short-dated (bonds that will reach maturity within five years).
The fund is well-ahead of the its broader peers over the medium and longer term, as well as outperforming the shorter-dated ICE benchmark. The portfolio is well diversified holding some 280 positions.
Funds and trusts for balanced investors
Fidelity European Trust
The trust aims to achieve long-term growth in both capital and income by predominantly investing in equities of continental European companies. The strategy is focused on identifying companies growing strongly and good prospects for continuing to do so. Manager Sam Morse has three decades of experience having worked at Fidelity for 18 years and looks for businesses exhibiting an ability to grow dividend sustainably over a 3-5 year period. He co-manages the strategy with Marcel Stötzel, who was appointed in September 2020.
The portfolio is comprised of quality companies trading at reasonable prices. The manager also runs an open-ended strategy – Fidelity European Fund – implementing the same philosophy and approach to selecting European stocks. The process steers clear of trying to time markets and typically avoids more cyclical stocks and smaller companies in order to avoid big falls in value.
First Sentier Global Listed Infrastructure fund
As the prospect of recession is staring investors in the face, diversifying into alternative assets classes such as high-quality infrastructure has a place. Whether it is through energy needs, distribution networks or communication services, infrastructure is a key part of a fully functioning economy. Due to the ongoing war in Ukraine, the importance of energy security and independent infrastructure assets also came to the fore.
The First Sentier Global Listed Infrastructure fund looks to provide exposure to all of these areas and more in a global portfolio of infrastructure companies. With over 40% invested in energy related companies, it provides exposure to many who are leading on energy transformation while also giving exposure to critical distribution infrastructure such as railroads and toll roads.
The fund is ahead of the index this year, having kept up with the market rally from the lows in March, delivering a gain of +8.8%, relative to the index gain of +7.3%. Longer term performance is also ahead of the broader market.
Funds and trusts adventurous investors
Worldwide Healthcare Trust
Having emerged from the Covid-19 pandemic and now facing a prospect of a global recession, a healthcare selection might seem like an obvious choice, but Worldwide Healthcare Trust had a tough 2020 and has languished so far in 2022 for a number of reasons. With an underweight to the big Covid pharma stocks and an overweight to life sciences, biotech and China, this trust has faced some issues and underperformed its benchmark by 20%. Challenges around Chinese exposure persisted in last couple of years.
However, the bigger picture away from the immediate Covid winners’ story is how the rapid drug development of the last 18 months translates into revolutionary new treatments looking forward. In a recent update, managers talked about biotech being in a ‘sweet spot’ and the place to be in a recession.
With the long-term drivers behind healthcare well established and further investment set to continue making for an exciting future ahead for drug development, this broad, diversified play on healthcare looks attractive after a period performing badly.
JPM Emerging Markets Income
While emerging markets have suffered over the last few years, this has largely been driven by steep losses in China. Amid numerous challenges – geopolitical risks around Taiwan and zero-Covid lockdowns to name but a few – investors may (understandably) feel nervous. Having said that, China is emerging from its zero-Covid policy, and while western central banks are fighting inflation in full force, emerging economies were swift to react and raised rates earlier, with many regions now in a position to start reducing interest rates. As inflation starts to come down from its peak in the US, it central bank may start to slow interest rate rises, which may weaken the dollar. This should also be supportive for emerging markets.
Income from shares is looking attractive in current volatile markets, offering some cushioning in the form of regular dividends.
The fund is closely aligned with the JPMorgan Global Emerging Markets Income Investment Trust listed on the London Stock Exchange, with the strategy launched one year before this fund in July 2010.
Funds and trusts for income seekers
City of London IT
For many investors who want income the UK is the obvious place given its traditionally higher yield, and City of London Trust is one of the highest yielding trusts in AJ Bell’s Trust Select List. Yielding c.4.9%, the trust aims to provide long-term growth in income and capital, principally by investment in shares listed on the London Stock Exchange. It has the longest track record of consecutively raising its dividend out of any investment trust – since 1966. It has achieved this mainly by focusing on quality companies able to grow their dividends over time. The board fully recognises the importance of dividend income to shareholders, with a relentless focus on consistency over time – the trust is able to hold back up to 15% of its income, reserving cash away for use in challenging times when company dividend income may be cut. The trust invests mainly in UK equities with a bias towards large, multinational businesses able to grow their profits consistently over the long run.
Manager Job Curtis has been running the trust since 1991. While invested mainly in UK stocks, the companies within the portfolio enjoy overseas revenue streams making for a diverse global exposure. Overseas names include the likes of TotalEnergies, Nestlé and Novartis.
Jupiter Asian Income fund
Away from the UK, there are other regions with strong dividend cultures. In Asia, companies continue to be relatively well managed with low levels of debt, helping to support the dividend which currently sits at c.4.7%. This portfolio is fairly concentrated, with 28 names. Manager Jason Pidcock is a cautious investor, seeking out high quality companies that have strong management and governance, as well as a clear focus on the shareholder to ensure dividends are a key part of the company strategy.
Learn how to invest with Steps to Investing, our experts pass on a wealth of knowledge to help you get the most from your investments whether you are just starting out or have years of experience.