Moneywise Pension Awards 2011: Best-performing funds
Whether it's debate over public sector contributions or criticism of charges, pensions continue to be a hot topic in the media and for consumers.
Sadly, the good news that we are living longer seems to have been swept aside by savers worrying about what they will live on in their later years, and indeed, the future looks rather gloomy in that respect.
The increased state retirement age of 66 is being brought forward to 2020 instead of 2026 and state contributions to public sector pensions are being significantly cut.
To encourage us to save more into our pensions, the government will introduce its low-cost pension scheme, NEST, in 2012. Its opt-out rather than opt-in approach will aim to get more people saving towards retirement, but there is concern that existing workplace pensions could take a beating as a result of its roll-out.
NEST requires a minimum 8% contribution, including 3% from the employer. Given that in many schemes employers contribute more than this, the worry is they will reduce their contributions in line with the statutory 3%.
More worrying is that in today's tricky financial climate, many of us aren't saving enough - if anything at all - into our pensions. The latest retirement index from Sun Life Financial of Canada reveals that 58% of Britons expect to work beyond age 65.
Almost half those surveyed also fear they haven't saved enough for their retirement, with only 6% claiming to be "very satisfied" with their prospective retirement income.
With all of this in mind, it's absolutely crucial that when you pick a pension, you get one that you can rely on to work the hardest for you.
To help you, the annual Moneywise Pension Awards unveil the top pension providers and pension funds. Our independent panel of judges based their decisions on more than a big name: the winners had to match up to their scrutiny in terms of charges, funds availability, administration and ease of use.
BEST-PERFORMING FUNDS WITHIN A PENSION
TOP CAUTIOUS MANAGED FUND: HENDERSON MULTI-MANAGER INCOME & GROWTH
Winner: Henderson Multi-manager Income & Growth
Managers: Bill McQuaker and Chris Fogan
Pensions offering this fund: Legal & General, Skandia, Zurich
% performance: Three-year 27.53%, five-year 33.34%, seven-year 69.83%
Contact: 0845 608 8703
Commended: Investec Cautious Managed
This is the safest fund category in our awards and funds within this sector would be suitable for low-risk investors due to the 60% limit on equity exposure.
Taking top spot is the Henderson Multi-manager Income & Growth fund. Each fund within the fund invests in a mix of UK and international equities, with 25% invested in fixed income.
"Manager Bill McQuaker is a consistent performer over the medium to longer term. He has been successful in steering the fund through the credit crunch to deliver strong performance, proving he is able to run money in any conditions," says Sumpter.
The Investec Cautious Managed fund is second this year and Pearson believes its higher weighting in fixed income is the reason. "It has a high 40% weighting in fixed interest, which accounts chiefly for the lower level of growth over the past few years," he says.
Henderson's winning fund has a higher charging structure than Investec's, but Pearson adds that it has still managed to achieve greater profit thanks to its increased equity exposure.
TOP BALANCED MANAGER FUND: NEWTON BALANCED
Winner: Newton Balanced
Manager: Iain Stewart
Pensions offering this fund: Aviva, Legal & General, Prudential, Royal London, Zurich
% performance: Three-year 27.08%, five-year 46.85%, seven-year 92.95%
Contact: 020 7163 2802
Commended: Baillie Gifford Managed
Equity exposure for funds in this sector cannot exceed 85%, and of this at least 10% must be in UK equities. Newton Balanced, the winner of this category, combines UK and international equities with fixed interest and cash assets to give balance.
However, the term 'balanced' has become a misnomer when applied to many funds in the sector, McBreen argues. He is therefore full of admiration for the fund team behind Newton Balanced and its approach: "Iain Stewart and his team have shown that capital growth and income can be achieved through smart exposure and stock selection of international securities."
Sumpter also admires Stewart's management: "He runs a well-disciplined fund that is true to the house style, playing to the stockpicking strengths of Newton."
Runner-up Baillie Gifford Managed is still, however, a fund "to be reckoned with", according to McBreen. It has more exposure to equities than Newton Balanced, which has caused more volatile performance recently; but Pearson still thinks both the Newton and Baillie Gifford funds are suitable for moderate-risk investors.
TOP ACTIVE MANAGED FUND: M&G MANAGED GROWTH
Winner: M&G Managed Growth
Manager: Graham French
Pensions offering this fund: Prudential, Zurich
% performance: Three-year 25.38%, five-year 51.72%, seven-year 137.3%
Contact: 0800 389 8600
Commended: Jupiter Merlin Growth Portfolio
Funds in this sector are suited to investors happy to take on more than average risk because up to 100% can be invested in the stockmarket.
This greater exposure means that, as a rule, over a longer timeframe returns tend to be better than more cautious categories - although there is also, therefore, greater potential for performance to dip in the shorter term. This is seen with winning fund M&G Managed Growth, which achieved modest growth of 25.38% over the past three years - but 137.3% over the past seven years.
The fund is a fund of funds, so manager Graham French has included a diverse spread of investments within the M&G range, including its Global Growth, Global Basics and Recovery funds. M&G Managed Growth's exposure to emerging markets and Asia has helped performance but also explains recent dips.
"If you wish to seek exposure towards international stockmarkets, M&G Managed Growth should form a core part of any pension portfolio," advises Pearson.
Last year's winner in this category, Jupiter Merlin Growth, grabs this year's second spot. However, the judges still value it highly and McBreen claims it's "an essential part of any well-designed portfolio".
TOP SPECIALIST FUND: INVESCO PERPETUAL LATIN AMERICA
Winner: Invesco Perpetual Latin America
Manager: Dean Newman
Pensions offering this fund: Zurich
% performance: Three-year 29.48%, five-year 121.34%, seven-year 425.97%
Contact: 0800 028 2121
Commended: Threadneedle Latin America
Comparing funds in this sector is tricky because their investment focuses can differ so widely. For example, one fund will concentrate on pharmaceuticals while another will focus on commodities or gold.
One thing many of them have in common is relatively high volatility but also fantastic potential growth rates.
This year, both winner and runner-up invest in Latin American equities. Pearson says: "If you want exposure to the dynamic economies of Latin America, Invesco Perpetual or Threadneedle should be considered."
Of winning fund Invesco Perpetual Latin American, Sumpter says: "Managed by Dean Newman, there is a focus on extensive company contacts and local knowledge, helping produce long-term performance."
McBreen says the fund has "shown the way" for specialist funds investing in the region. As well as investing in South and Central America, Invesco Perpetual also invests in the Caribbean.
Runner-up Threadneedle Latin America has strong exposure to financials and Brazil. "In light of how the Brazilian economy weathered the global banking crisis, the strategy appears sound," says McBreen.
The managers of these funds look for shares in companies that have fallen in price and popularity for reasons such as operational difficulties, management changes or financial over-extension, are unloved by the market but have the potential to recover over the long term. Managers of recovery funds focus on buying these undervalued companies where they see significant potential that should lead to a turnaround in their fortunes, a renewed appreciation by the market and that recovery will be reflected in the share price.
An interchangeable term for shares (UK) or stocks (US). Holders of equity shares in a company are entitled to the earnings and assets of a company after all the prior charges and demands on the company’s capital (chiefly its debts and liabilities) have been settled. To have equity in any asset is to own a piece of it, so holders of shares in a company effectively own a piece proportionate to the number of shares they hold. (See also Shares).
Generic, loosely-defined term for markets in a newly industrialised or Third World country that is in the process of moving from a closed economy to an open market economy while building accountability within the system. The World Bank recognises 28 countries as emerging markets, including Argentina, Brazil, China, Czech Republic, Egypt, India, Israel, Morocco, Russia and Venezuela. Because these countries carry additional political, economic and currency risks, investors in emerging markets should accept volatile returns. There is potential to make large profit at the risk of large losses.
A term applied to raw materials (gold, oil) and foodstuffs (wheat, pork bellies) traded on exchanges throughout the world. Since no one really wants to transport all those heavy materials, what is actually traded are commodities futures contracts or options. These are agreements to buy or sell at an agreed price on a specific date. Because commodity prices are volatile, investing in futures is certainly not for the casual investor.