Investing during retirement is a different kettle of fish to picking funds for a growing pot of assets. Avoiding capital losses – especially in the early days when your pensions pot is largest – becomes more important than generating high returns.
Retired investors usually want a consistent income and downside protection. People’s risk appetite and financial resilience varies, but generally speaking, retired investors have a lower tolerance for risk than younger investors who are accumulating wealth.
As Rob Morgan, chief investment analyst at Charles Stanley, explained: “Managing a portfolio for income in retirement is a lot trickier than the ‘accumulation’ phase. Volatility becomes an enemy rather than a friend, and care must be taken not to drain a pot too quickly and leave the retiree short of income later.”
Lower tolerance for risk often translates into a higher fixed-income allocation but Dan Coatsworth, investment analyst at AJ Bell, argued that there is merit to keeping some equity exposure for capital growth and dividend income, particularly as people are living for longer.
Low risk multi-asset income and capital preservation funds can potentially provide the best of both worlds and as Morgan said, they “take much of the heavy lifting away from the investor in terms of asset allocation and investment selection”.
Trustnet asked fund selectors to suggest a range of multi-asset strategies that are suitable for retirees.
Troy Trojan and Personal Assets
Hal Cook, senior investment analyst at Hargreaves Lansdown, highlighted Troy Trojan and as one option for retirees to consider.
“Troy Trojan is a good choice for the more risk averse. While the income from this fund is limited, the conservative nature of the way the fund invests definitely has its merits for retirees who have limited capacity for loss,” Cook explained.
“The fund has a simple philosophy, looking to provide long-term growth and some income while limiting losses during weaker markets.”
Troy Trojan has outpaced inflation since launch in May 2001 and has been managed by FE fundinfo Alpha Manager Sebastian Lyon since inception and deputy manager Charlotte Yonge since 2013.
Performance of fund vs sector and benchmark over 20yrs
Source: FE Analytics
Morgan – like Cook – rates Troy Asset Management’s Lyon but prefers his Personal Assets Trust, which focuses on preserving capital.
“Lyon builds his portfolio using three ‘pillars’: solid global companies with strong cash flows, index-linked gilts and gold. He is also willing to hold a large amount of cash if he is cautious and wishes to guard against market volatility,” Morgan said.
“Performance can seem quite pedestrian when equity markets are strong, but the trust has historically fared relatively well in weak markets. It therefore might be worth considering as a defensive holding within the core of a portfolio.”
Royal London Sustainable Managed Growth
The Royal London Sustainable Managed Growth Trust, which sits in the top-quartile of the IA Mixed Investment 0-35% Shares sector, might also appeal to cautious investors, said Coatsworth.
“The fund invests mainly in sterling-denominated bonds with some equity exposure on the side, accounting for about one quarter of the portfolio. It has an ethical and sustainable investment tilt,” he said.
Performance of fund vs sector over 10yrs
Source: FE Analytics
It has been the best fund in its sector over 10 years, making more than double (58.5%) the average peer (27.2%), as well as over the past 12 months, while it is in second place over five years.
Waverton Multi-Asset Income
Alex Farlow, associate director, multi-asset research at Square Mile Investment Consulting and Research, chose Waverton Multi-Asset Income.
The fund is managed by James Mee and Matthew Parkinson, who have three goals: to grow capital in-line with or ahead of inflation, pay a consistent level of income and limit capital drawdown in falling markets.
“It is a directly invested strategy, meaning that it is competitively priced relative to its peers and it has an impressive track record,” Farlow said.
The asset allocation is flexible, but tends to be roughly 50% equity, 20% bonds and 25% alternatives, with the remainder held in cash. “This cash weighting is used to protect capital when the managers’ outlook for markets is bearish,” he explained.
Performance of fund vs sector over 5yrs
Source: FE Analytics
It has been the fourth best fund in the 147-strong IA Mixed Investment 20-60% Shares sector over five years, making 35% – more than double the average return (17%) and since its launch in 2014, it is comfortably ahead of the sector and inflation.
Other options
Morgan also highlighted Ninety One Diversified Income, which he said “tries to balance returns with controlling volatility and offers the potential to capture market upside but cap the downside in times of stress, all while producing a decent income.” It currently yields 4.7%.
Farlow meanwhile suggested Ciaran Mallon’s Invesco Distribution, which has a neutral weighting of 60% to global bonds and 40% to equities, as well as Premier Miton Multi-Asset Distribution, which invests more widely across equities, bonds, property, alternatives and cash.
On the latter, he cautioned that “the team's investment approach and the fund’s income focus can mean that the portfolio is exposed to less liquid areas of the market and investments that can fall more sharply than the market when deeply distressed”.
For retired investors with a higher risk appetite or for those approaching retirement who are still looking for some investment growth, Cook proposed BNY Mellon Multi-Asset Balanced, which is predominantly invested in equities.
Baillie Gifford Sustainable Income is also an option for those looking to invest their money in a fund with an environmental, social and governance (ESG) framework.