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.
When investing for retirement, fund pickers are forced to take a long term view. With a longer investment horizon, you can take on a little more risk – volatility can be used as an opportunity to buy cheap units and it does not matter if you have one bad year when you are invested for a decade.
While the core of an investor’s portfolio should contain low-risk assets, you can afford to up the risk ante in the growth stages of a pension – that is when retirement is still at least five years away. For this stage funds that invest in higher risk assets such as emerging market equities, smaller companies and high-yield can provide an opportunity for double-digit capital growth.
We highlight the funds rated highly by Morningstar analysts that may provide long-term growth in a pension portfolio.
Aberforth UK Smaller Companies
While the very long-term record here is strong, the fund’s value tilt means it’s susceptible to periods of underperformance when growth is driving the market forward, says Morningstar fund analyst Samuel Meakin. We saw this in 2011, when large-cap growth stocks led the way, combined with investors generally shunning risk. In times of such polarised leadership in the markets, it’s no surprise to see this fund struggle to gain ground.
However, with risk appetite picking up and small caps back in favour since 2012, returns are once again strong over both the short and long term, proving the process isn’t broken. The team is another reason for our confidence: It’s stable, well resourced, and has depth of small-cap expertise. Morningstar rates the fund Gold.
Fidelity Emerging Markets
Fidelity Emerging Markets remains a strong option for investors, say Morningstar fund analysts.
Manager Nick Price has been at the helm of this fund since June 2010. He is supported by a team of six regional portfolio managers. A team of more than 50 emerging-markets research analysts, who are located across the globe, feed ideas into the regional managers and Price, while fixed-interest and global sector specialists across the wider group provide industry views and context. These resources are clearly very impressive and Morningstar analysts rate the fund Bronze.
The investment process is predominantly bottom-up. The team focuses on quality growth companies that exhibit the following characteristics: superior and sustainable return on assets; strong, unleveraged balance sheets; shareholder-friendly management; and reasonable valuations over a full economic cycle.
HSBC Euro High Yield Bond
This fund has proved its worth, and we remain fully confident in its merits, says analyst Mara Dobrescu.
Investors here are indeed in very good hands. Philippe Igigabel has managed the strategy since 2003. He works closely with 11 other managers dedicated to credit at HSBC, as well as about 30 analysts divided by sectors. The experience and the remarkable stability of this team are in our opinion among the strongest in the market. We also appreciate the manager's personal investment in the fund, which aligns his interests with those of investors and rate the fund Silver.
