Investment gifts for the family this Christmas

Published by Holly Black on 27 November 2013.
Last updated on 27 November 2013

Family at Christmas

A pair of socks you don't need, a book you won't read, a woolly jumper that doesn't fit, another box of chocolates: Christmas gifts, however well-intentioned, can get a little predictable. So this year, why not treat your loved ones to a gift that will keep on giving an investment?

Perhaps mum and dad could do with some extra pocket money. "Mum needs a good equity income fund that pays regular dividends so she can pay the bills and still have some money left over to go shopping with," says Andy Parsons, head of investment research at The Share Centre. He recommends the Standard Life UK Equity Income fund, which has returned 38% over three years, as an option unconstrained by a benchmark.

"It is run by Thomas Moore, a young dynamic manager who is proving his credentials," he adds.

Safety first

A steady Eddy for great aunt Iris? For a relative who really values financial security above all, it is important to find a fund with a defensive strategy that has minimal exposure to cyclical sectors, says Ben Gutteridge, head of fund research at Brewin Dolphin.

For an equity fund, he recommends Trojan Income, which he calls a "healthy compounder". It is underweight cyclical areas, which should help it ride out volatile periods, he explains. "For the nervy investor less able to take risks, there is a certain merit to this type of fund."

If you think Iris would prefer a bond, Gutteridge has another suggestion. He says: "I hate to be consensual, but for feeling secure about income it would be the M&G Corporate Bond fund. We like its cautious approach to stock selection and the fact that it's not playing any sector prone to leverage. The fund is a good choice when capital preservation is paramount alongside steady, long-term compounding."

A £100 investment in Trojan Income, currently yielding just under 4%, would have grown to £145.74 if Iris had reinvested her dividends over the past three years. The same sum invested in the M&G fund, yielding 3.7%, would have grown to £119.70 over three years with dividends reinvested.

A risky flutter for Dad? Parsons likes the Legg Mason Clearbridge US Aggressive Growth fund for an investor who is not risk averse. The fund invests in small and medium-sized US companies, which it believes "stand to benefit from new products or services, technological developments or changes in management'. Parsons concedes that the market is prone to "peaks and troughs" but says, despite that, "the US is the economy leading the global recovery".

For an alternative high-octane choice, Kieran Drake, research analyst at Winterflood Securities, suggests the Biotech Growth Trust, which focuses on a sector with a "compelling secular growth story". He warns that being a niche area, biotech can yield extremely volatile returns, but believes a specialist active manager can add real value.

"[The trust] has an excellent performance record and, while stock specific risk in the sector is high, some of that is mitigated by the diversified portfolio," he says.

Your £100 gift, with any dividends reinvested, would have grown to £166.62 over three years in the Legg Mason fund, or to £161 in the Biotech Growth Trust.

Child's play

A nest egg for the grandchildren is easy to put together. Investing for a child, whether into a pension or a Junior Isa, is a great opportunity - the long time horizon means you can move up the risk scale and reap rewards from even a small initial investment.

Gutteridge recommends looking to the US when it comes to a Jisa. He says a small-cap fund or the iShares Russell 2000 ETF should do the job. "We like the structural outlook in the US: the recovering housing market, the shale gas and cheap energy story and the improving consumer trends," he says.

Parsons, meanwhile, favours Invesco Perpetual's aptly named Children's Fund. "It is predominantly a UK all-companies fund and it has the big stalwarts of the FTSE 100 in its portfolio, so it offers global expo- sure while giving reassurance to parents and grandparents investing for children." That's why the fund is also a decent choice for an investor looking primarily for stability.

Invesco Perpetual says the fund looks for a balance between "dependable" companies and special situations offering long-term value for shareholders.

You might decide to spread your Christmas gift to your grandchildren over the year by setting up a regular savings plan and paying in a small amount each month. If you'd taken that step with the iShares Russell 2000 ETF for Christmas 2010, and had paid in £30 a month since, your grandchild's fund would now be worth £1,489.63.

Investment trusts tend to outperform unit trusts over the long term, so Drake recommends the Diverse Income Trust, managed by Gervais Williams. The trust is weighted towards UK small- and mid-cap companies and aims to provide healthy, growing dividends. "Performance has been impressive since launch in 2011, with both strong capital growth and income," adds Drake.

If Granny and Grandad could do with an annuity income top-up in retirement, Parsons suggests the Threadneedle Monthly Extra Income fund. It is currently split between equities and bonds, with a heavy bias towards the former - shares account for 74% of the portfolio and bonds just 20%.

Threadneedle says the fund aims to provide income as well as potential for capital growth. It is currently yielding 4.1%.

Unwelcome presence

Alternatively, perhaps you are looking for something for a relative you don't really like - your annoying little brother, superior older sister or the second cousin twice removed you only see once a year at Christmas, when they overdo the sherry and start talking politics.

"Indulge your mean streak and get them an emerging market ETF," Gutteridge suggests. "They are full of dreadful state-owned companies that aren't going to be good for shareholder returns.' Emerging markets have had a particularly tough 2013 and Gutteridge says they are likely to continue to suffer from falling commodity prices, a lack of structural reforms and a dependency on US monetary policy.

The iShares MSCI Emerging Markets ETF would have lost your least favourite relative around 3% over the past three years.

This feature was written for our sister publication Money Observer

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