The 10 top funds since pension freedoms

Fundsmith Equity has been the most popular and the best performing fund for savers entering income drawdown in the last four years, according to research by AJ Bell.

The pensions and platform company looked at clients with a £100,000 pension fund who would have entered drawdown in April 2015 when pension freedoms were introduced, and who would have taken a £5,000 annual income.

AJ Bell calculated in that scenario the Fundsmith Equity investor would now have a pension fund worth £165,100. Out of the top ten most popular funds City of London investment trust came fifth but performed worst, leaving the saver with £96,170, or 43 per cent less than with Fundsmith Equity.

Six of the top ten most purchased funds were investment trusts, AJ Bell found, with Scottish Mortgage being the most popular in this category and the best performing.

Most purchased funds by income drawdown investors since 6 April 2015 (in order of popularity)

Total return – no withdrawals

Total return – annual £5,000 withdrawal*

Fundsmith Equity

£192,100

£165,100

Scottish Mortgage (IT)

£190,700

£161,110

RIT Capital (IT)

£137,250

£114,520

iShares Core FTSE100 (ETF)

£120,580

£97,640

City of London (IT)

£118,740

£96,170

Lindsell Train Global Equity

£187,090

£158,040

Finsbury Growth & Income (IT)

£145,970

£120,960

Vanguard Lifestrategy 60%

£125,690

£104,130

Murray International (IT)

£136,270

£112,220

Personal Assets (IT)

£119,470

£99,210

£100,000 portfolio split equally across the 10 funds

£147,386

£122,910

Source: top 10 most purchased funds by income drawdown investors via AJ Bell.  Investment performance data from FE analytics 6/4/2015 – 28/3/2019.  *5% of opening fund value, taken quarterly

Savers putting their pension in to the investment trust Murray International would have received the most in dividend payments, £17,590.

Splitting the £100,000 across the ten most popular funds would have delivered a natural yield of £9,108 and would have left the saver with a pot now worth £136,710.

AJ Bell, senior analyst, Tom Selby (pictured) describes generating income through retirement is a balancing act.

“The good news is that so far, pension freedom investors have benefited from strong stock market returns and even better active fund selection, in most cases generating a golden combination of income and capital preservation.”

He says the £69,000 gap between the best and worst performing funds shows the importance of investment strategy but even the City of London investor would have been left with “a healthy looking picture” after four years.

Most purchased funds by income drawdown investors since 6 April 2015 (in order of popularity)

Natural yield (dividends paid)

Fund value remaining after taking natural yield

Fundsmith Equity

£4,700

£185,500

Scottish Mortgage (IT)

£4,470

£184,250

RIT Capital (IT)

£7,090

£129,070

iShares Core FTSE100 (ETF)

£16,070

£102,810

City of London (IT)

£16,830

£100,650

Lindsell Train Global Equity

£5,060

£180,120

Finsbury Growth & Income (IT)

£8,390

£135,890

Vanguard Lifestrategy 60%

£4,910

£120,240

Murray International (IT)

£17,590

£115,470

Personal Assets (IT)

£5,970

£113,100

£100,000 portfolio split equally across the 10 funds

£9,108

£136,710

Source: top 10 most purchased funds by income drawdown investors via AJ Bell.  Investment performance data from FE analytics 6/4/2015 – 28/3/2019. 

Despite the positive situation for drawdown since pension freedoms, Selby urges investors to be wary of the stock market.

“Investors should not be lured into a false sense of security, however. Even star fund managers can suffer and the order of investment returns will have a significant impact on retirement outcomes.

“History has shown us that, at some point or another, stock markets are almost certain to blow up, and anyone who enters drawdown and takes big withdrawals at just the wrong time could severely damage their long-term prospects. In other words, don’t assume the experience of the last four years will be repeated in the next four years.”

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