This article is part of Morningstar's Guide to Retirement Saving. All this week we are arming you with the tools you need to secure the best possible retirement income.
Emma Wall: Hello and welcome to the Morningstar series 'Ask the Expert'. I'm Emma Wall and here with me today is Morningstar's Dan Kemp.
Dan Kemp: Hello.
Wall: Hi, Dan.
Kemp: Hi.
Wall: So its tax efficient, tax planning week this week and today is our SIPP day, our pension day. We're going to talk about the type of fund that you might want to hold in your SIPP. There are certain qualities these funds have that we're looking for, for SIPP funds.
Kemp: That's absolutely right. The great thing about pension investments, and of course SIPPs are type of pension, is that you can invest for the long-term and that's really when the best investment decisions are made. And so when I've been looking for potential funds for SIPPs this week, I really focused on those long-term managers and also the asset classes that you probably want to hold for the long-term.
Wall: Because you can't be forced into selling, you can switch to a different investment, but you can't take your money out of a SIPP. So as you say, it means you can perhaps up your risk slightly.
Kemp: Exactly right. You can up the risk because there is that discipline. You can't really take your money out in the dips, so you’re not forced to disinvest and that's a really great thing for investors. We should always be thinking long-term when we look at these funds. So I've picked three equity funds, but spread out over different regions.
Wall: And what's the first one today?
Kemp: So the first one is really a core fund. It's a U.K. fund. It's the Old Mutual UK Alpha Fund, which I'm sure many of your viewers will know. It’s run by the brilliant Richard Buxton. He takes a long-term growth orientated approach and is really a fantastic investor.
Wall: And he of course was at Schroders, moved across to Old Mutual. But at Schroders when he launched the fund, which is pretty much exactly the same as this one, it was designed specifically to play to his strengths, wasn't it? I mean, this is what he does best running this type of fund.
Kemp: Exactly right. And that's a great sign with a manager, where you've got a fund that's been designed by them and really is focused on their key strengths. And so he can take some contrarian views, he can hold on to unfavourable assets for long-term and really drive the most return out of them.
Wall: And what's the second fund today?
Kemp: So the second fund is for people who want to take a little bit more risk and focus on more of the value approach and remember value investment only really works over the long-term, seldom does it work in the short-term, so it's perfect for pensions. And that's the Lazard Global Emerging Markets Fund. And that's been run by James Donald since launch and again, he really plays to his strengths as an investor.
Wall: That’s quite good to highlight that fund because some of the top rated funds by our analysts in that emerging market space are actually soft closed. This one is still open to new money.
Kemp: It's still open to new money. It was closed for a while, it got a little bit too large and that’s a great sign as well, when an investor is prepared to close their fund rather than take too many assets. But it's reopened and now it's available to investors.
Wall: And as a broad emerging market fund, it means you are leaving to the professionals that decision about where to allocate. Because of course, emerging markets are becoming increasingly different from one another, so you, the investor, don’t have to choose between China and India. The fund manager can do that for you.
Kemp: That’s exactly right and over the long-term through your pension investment cycle the opportunities in the emerging markets will move from one country to another, one sector to another. Another great thing about James, he tends to take this value approach which allows him to invest in unpopular assets.
So he holds a lot of Russian equities at the moment and again that's the sort of thing that you'd only own if you are there for the long-term.
Wall: And what's the third and final fund.
Kemp: So the third one, again a long-term orientated fund and that’s the BNY Mellon Long Term Global Equity Fund, so that one is even in the title and this is run by a company called Walter Scott, who owned by BNY Mellon, of course a global megalith when it comes to investment management. And that’s much more of a Buffett-esque approach.
Again your viewers will know that Warren wrote his latest letter to shareholders, talking about that long-term investments investing approach, investing in companies with great moats that protect their business and that’s really the focus of this fund, buying great companies and holding them over the long-term.
Wall: In fact that idea of buying a company and being able to hold it forever more, never having to dig it up from the bottom of your garden, is a bit like the Terry Smith approach. What is typical of the sort of companies that they're looking for, I mean is it very developed market heavy or is the manager really able to find these great ‘champions within their field’ across the world?
Kemp: Well, it is a global fund, but it's likely to have the bulk of its assets at all times in the developed markets and so in contrast to what James is doing over at Lazard, but it really tends to hold great innovators, tech companies has been cool holding, more recently they've had quite a lot of Japanese companies which are being undervalued. So they looking for long-term growth opportunities, again just like Warren Buffett.
Wall: Dan, thank you very much.
Kemp: Thank you.
Wall: This is Emma Wall for Morningstar. Thank you for watching.
