Best Investment Trusts to Have in a Pension

What should you be investing in with your pension? We asked Laith Khalaf, Head of Investment Analysis at AJ Bell, to tell us his top investment trust picks to help those who don't know where to start when it comes to investing for retirement.

Why Choose Investment Trusts for Your Pension Portfolio?

If you’ve got a Self-Invested Personal Pension (SIPP), you might be wondering what to put in it to build your retirement savings and supplement existing savings from a workplace pension scheme. But where to start? Pensions can be mind-boggling at the best of times, and though many SIPP providers allow you to pick and choose what to invest in, they don’t always give you much help on what you should be looking for.

So what should you invest in with your pension? One option that is often overlooked is the Investment Trust. Similar to other collective funds, they pool investors’ money together and a skilled investment team (the fund managers) will decide how to invest it. Unlike a unit trust or OEIC, they are structured as public companies that trade on the stock market. You can buy and sell shares in an investment trust – just as you can for BP or Vodafone.

Investment Trusts come in many shapes and sizes, but there are a number of trusts with a lengthy pedigree of delivering capital growth and income for investors. These may not shoot the lights out in any individual year, but the consistency of returns makes them a good choice for retirement savings.
In particular, it can be worth taking a look at the AIC’s list of ‘Dividend Heroes’. [1] These are trusts that have grown their annual payouts to shareholders year on year for more than 20 years. Many have strong capital returns as well. A growing dividend can be particularly important as it helps you to accumulate wealth as you approach retirement. ‘Dividend reinvestment’ - the process of using the money earned from dividends to purchase more shares in the same company - is a powerful tool for building wealth. It can also be a good way to ensure your retirement income keeps pace with rising inflation when you get there.

There are other advantages to Investment Trusts: they have independent boards that ensure the trust’s objectives are being met. The board will scrutinise the investment management team and address any periods of weak performance, even changing the manager if necessary. This means investors can focus on the long-term without worrying too much about the day-to-day running of the trust, leaving all the complex fund management business to the experts.
We asked expert Laith Khalaf from AJ Bell to weigh in with the top investment trusts he thinks retirement savers should consider including in their SIPP. Let’s dive in.

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Top 3 Investment Trusts for SIPP Investors

City of London Investment Trust: 50+ Years of Dividend Growth

Laith Khalaf’s first pick is the City of London Investment Trust. He says it fits the bill for a long-term SIPP holding thanks to its long track record of dividend payments (or ‘yields’) which have grown every year for over half a century.

Investing in a portfolio of income-producing UK shares, the trust has increased its dividend every year since 1966. Manager Job Curtis has been at the helm since 1991, so it’s fair to say he’s been around the block once or twice. He favours high quality, large cap companies and takes into account the potential for dividend growth as well as the yield on offer.

The trust is currently yielding just over 4%. Khalaf adds that SIPP investors who don't want to draw an income from their portfolio can simply reinvest the dividends to generate more long-term returns. 

Monks Investment Trust: Balanced Growth for Long-Term Wealth Building

Next up is Monks Investment Trust. The road to retirement is a long one, and you need to make sure your capital is growing fast enough to beat inflation – or you’re effectively losing money in the long run. This means taking some calculated risks.

While the out-and-out growth objective of a trust such as the perennially popular Scottish Mortgage can be too volatile for some investors - especially those who might be more comfortable with a bit of income here and there - it has a smaller sibling, Monks, which can provide a lower octane version.

Run by Malcolm MacColl and Spencer Adair, the trust is steeped in the growth ethos of parent company Baillie Gifford, but it takes a less risk-hungry and more diversified approach than Scottish Mortgage, investing in around 100 global companies - many of them in the US.

That said, Monks is by no means a shrinking violet. The trust’s growth bias [its commitment to backing shares it believes are going to go up in value] means it can deviate from the global stock market, for better or worse, for long periods of time, so should only be considered by adventurous investors.

Laith KhalafHead of Investment Analysis, AJ Bell

Personal Assets Trust: Conservative Option for Risk-Averse Savers

And finally, Khalaf suggests Personal Assets Trust for more conservative SIPP investors or those approaching retirement who want to dial down their exposure to the stock market’s highs and lows.

This Investment Trust is run by longstanding fund manager Sebastian Lyon of Troy Asset Management, who invests across a blend of high quality shares, bonds, cash and gold. The idea is to produce a decent rate of return, but with a focus on capital preservation - an approach which has been pioneered in the UK by Lyon and co-founder of Troy, the late Lord Weinstock (the company was named after his 1979 Epsom Derby winner).

The trust won’t do as well as others when markets are racing away, but it should offer better protection to investors when markets are falling. Over the past five years, it has only had one negative year, in 2022, and even then, it only dropped 3.8%, compared to a drop of over 18% on the S&P 500.

Thinking about opening a personal pension?

Are you thinking of opening a personal pension (SIPP) this year? Feeling befuddled by all the choice and don’t know who’s any good? Head over to our compare table to see the wood for the trees, with our expert ratings, real customer reviews and a breakdown of fees, accounts, customer service and more.

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[1] AIC