4 under-rated funds to supercharge your pension growth

Many saving for retirement allocate everything to a low-cost FTSE 100 tracker, an easy option that historically returns around 8% a year with dividends reinvested. But there are specialist funds that grow around twice as fast.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

If you aspire to a comfortable retirement, particularly if you’d like to retire early, building up the value of your pension quickly is crucial. The mathematical ‘rule of 72’ tells us that an investment that increases in value at 7.2% a year will double its price in a decade. Push the annual return to 10% and you’ll get there in 7.2 years, thanks to the power of compounding. And if you can achieve 14.4%, your money will double in just five. Or, if you remain invested for the original 10 years, you’ll have twice as much money. Sounds tempting!

Over the long run, a low-cost FTSE 100 tracker or a diversified portfolio of individual stocks stands a good chance of exceeding the first of these growth rates by perhaps 1% a year, while some of the big-name growth- and small-cap investment trusts have achieved the second. But the third? Annual mid-teens historical returns are generally confined to risky and volatile microcaps — too risky for retirement money for some — and to funds investing in specialised sectors and strategies. They’re niche products so you shouldn’t be overexposed to any one of them, but as part of a portfolio that includes some household name investment trusts, they could play a vital role in ensuring your retirement is more comfortable — and arrives sooner — than a boring tracker could achieve.

Courting success

Burford Capital (LSE: BUR) is the world’s leading litigation funder, backing corporates in commercial and intellectual property disputes and enforcing judgements for a share of the awards. It has returned a spectacular 484.8% in the past five years, a figure unlikely to be repeated as the business is now mature. Nevertheless, an average annual return of 20-25% could be within reach. Profits are dependent on judicial decisions and exchange rates (most cases being in the US), so volatility may be high, making this a choice for investors with long time horizons.

Should you invest £1,000 in Burford Capital Limited right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Burford Capital Limited made the list?

See the 6 stocks

Healthy returns

International Biotechnology Trust (LSE: IBT) has achieved the highest five-year return in the hot biotech sector, at 221%. With rich countries facing ageing populations and major medical breakthroughs increasingly achieved through technology, I believe IBT’s mix of medics, scientists and financiers are well placed to continue generating 25-30% a year from a global mix of listed and unquoted investments. The trust recently introduced a 4% annual dividend — great for retirees, but those not yet in drawdown should reinvest it.

Private pleasures

Private equity-owned businesses generally outperform listed ones. But, as the name suggests, the asset class is seldom available to the public. A few listed private equity trusts represent the exceptions, Pantheon International (LSE: PIN) being the UK’s longest-established and, in my view, best. Returning 168.3% over five years, it’s hugely diversified, by fund manager, stage, scale and geography, so the 11.8% annual NAV return achieved since inception, which includes a big hit following the global financial crisis, could be beaten. Second biggest holding in my SIPP.

Stellar strategy

A handful of fund managers aim to achieve private equity-like returns by investing in small firms where they believe they can exert influence on management to execute strategic change. The shining star among these is Strategic Equity Capital (LSE: SEC), which has generated a 177.2% return for investors over five years. Its share price fell slightly in 2016 because it moved from trading at a premium over Net Asset Value to a discount, as the small-cap IT sector fell out of favour. This makes it a smart buy now, raising the probability of achieving 12-15% a year growth going forward.

Should you buy Burford Capital Limited now?

Don’t make any big decisions yet.

Because Mark Rogers — The Motley Fool UK’s Director of Investing — has revealed 5 Shares for the Future of Energy.

And he believes they could bring spectacular returns over the next decade.

Since the war in Ukraine, nations everywhere are scrambling for energy independence, he says. Meanwhile, they’re hellbent on achieving net zero emissions. No guarantees, but history shows...

When such enormous changes hit a big industry, informed investors can potentially get rich.

So, with his new report, Mark’s aiming to put more investors in this enviable position.

Click the button below to find out how you can get your hands on the full report now, and as a thank you for your interest, we’ll send you one of the five picks — absolutely free!

Grab your FREE Energy recommendation now

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Mark Bishop owns all four shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Smart young brown businesswoman working from home on a laptop
Investing Articles

Have I left it too late to buy Nvidia shares?

When the whole world was racing to buy Nvidia shares, Harvey Jones decided they were overhyped. Does the recent dip…

Read more »

Dividend Shares

I asked ChatGPT to pick me the best passive income stock. Here’s the result!

Jon Smith tries to make friends with ChatGPT and critiques the best passive income pick the AI tool suggested for…

Read more »

The flag of the United States of America flying in front of the Capitol building
Investing Articles

Hargreaves Lansdown’s clients are buying loads of this US growth stock. Should I?

Our writer's noticed that during the week after Christmas, many investors bought this US growth stock. He asks whether he…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

Greggs shares plunge 11% despite growing sales. Is this my chance to buy?

As the company’s Q4 trading update reveals 8% revenue growth, Greggs shares are falling sharply. Should Stephen Wright be rushing…

Read more »

Surprised Black girl holding teddy bear toy on Christmas
Investing Articles

Will ‘biggest ever Christmas’ help keep the Tesco share price climbing in 2025?

The Tesco share price had a great year in 2024. And if 2025 trading continues in the same way, we…

Read more »

Investing Articles

This dirt cheap UK income stock yields 8.7% and is forecast to rise 45% this year!

After a disappointing year Harvey Jones thinks this FTSE 100 income stock is now one worth considering for investors seeking…

Read more »

Group of young friends toasting each other with beers in a pub
Investing Articles

With much to be cheerful about, why is this FTSE 250 boss unhappy?

JD Wetherspoon, the FTSE 250 pub chain, is a British success story. But the government’s budget has failed to lift…

Read more »

Chalkboard representation of risk versus reward on a pair of scales
Investing Articles

2 huge investment risks I’m worried about in 2025

Ken Hall looks at two big investment risks that are keeping him up at night as we enter 2025 with…

Read more »