Podcast
PodcastFestive finances: investing for children
In this special Christmas podcast episode, host Cherry Reynard is joined by Gabriel Sacks, Rebecca Maclean, and Samantha Fitzpatrick to share their insights on how to start investing for children.
Authors
Rebecca Maclean
Co-Manager, Dunedin Income Growth Investment Trust
Samantha Fitzpatrick
Co-Manager, Murray International Trust
Duration: 32 Mins
Date: 04 Dec 2025
Tune into our special Christmas podcast episode, hosted by Cherry Reynard, featuring Gabriel Sacks, Lead Manager of Aberdeen Asia Focus, Rebecca Maclean, Co-Manager of Dunedin Income Growth Investment Trust, and Samantha Fitzpatrick, Co-Manager of Murray International.
The episode discusses the best ways to invest for children, emphasising the benefits of starting regular contributions early to take advantage of the potential benefits of compounding. The managers highlight the importance of considering time horizon, risk appetite, and diversification across asset classes and regions. They also explain why investment trusts can be a great choice for long-term goals like investing for your child’s future.
Listen now
00:00:02 Cherry Reynard
Hello and welcome to the Aberdeen Investment Trust Christmas Podcast, looking at investing for children.
00:00:08 Cherry Raynard.
I'm Cherry Raynard.
00:00:10 Cherry Raynard.
Now, while your children may not be thrilled to open an investment trust certificate on Christmas morning, it may be something that they will thank you for in the long term.
00:00:18 Cherry Raynard.
To talk about the best way to invest for future generations, I have with me three of the Aberdeen’s fund managers.
00:00:25 Cherry Raynard.
So welcome to Rebecca McLean, manager on the Dunedin Income Growth Investment Trust.
00:00:30 Rebecca Maclean
Hi, Cherry.
00:00:31 Rebecca Maclean
It's a pleasure to be here.
00:00:32 Rebecca Maclean
Looking forward to the holidays.
00:00:35 Cherry Reynard
And Gabriel Sacks, manager on the Aberdeen Asia Focus Fund.
00:00:39 Cherry Reynard
Welcome.
00:00:40 Gabriel Sacks
Hi, thanks for having me, Cherry.
00:00:43 Cherry Reynard
And finally, Samantha Fitzpatrick, manager on Murray International.
00:00:47 Samantha Fitzpatrick
Hi, everyone.
00:00:48 Samantha Fitzpatrick
It's my pleasure to be here today.
00:00:50 Cherry Reynard
So welcome, everyone.
00:00:53 Cherry Reynard
Now, I wonder if we can kick off by talking about what characterises a good investment for children.
00:00:58 Cherry Reynard
I mean, clearly it may depend on what it's being used for, educational costs, for house deposits, even pensions.
00:01:06 Cherry Reynard
But Rebecca, I mean, presumably one of the key advantages of investing for children is that you have time on your side.
00:01:13 Cherry Reynard
So you've got to capture that long term.
00:01:17 Rebecca Maclean
I think when thinking about investing for children, it's important to think about the time horizon you're investing over.
00:01:24 Rebecca Maclean
So this is important when you're thinking about the risk that you should be taking from your investments.
00:01:30 Rebecca Maclean
And what I'd say is that it's never too early to be investing.
00:01:33 Rebecca Maclean
And the earlier you can invest, the better because of the benefits of compounding and the time that you're investing over.
00:01:40 Rebecca Maclean
So certainly, sort of, yeah, if you can invest early and think about that risk
00:01:47 Rebecca Maclean
as well.
00:01:47 Rebecca Maclean
So think about what that means in terms of your risk appetite, which means thinking about different asset classes, which you could be investing in, whether it's fixed income or equities or private markets, and how you balance those different assets together in order to generate a portfolio of investments, which is suitable for that purpose in terms of, you know, what it is you're looking to use those investments for.
00:02:14 Cherry Reynard
And I mean, Gabriel, I think there's a temptation when investing for children to think that you have to be super safe, but actually that kind of long-term horizon should enable you to open up new kind of investment horizons, if you like, and tap into long-term growth trends.
00:02:33 Cherry Reynard
I wonder if you can talk about that and talk about some of those trends that you're seeing.
00:02:38 Gabriel Sacks
Yeah, absolutely.
00:02:40 Gabriel Sacks
I'd agree with Rebecca that, you know, I think the benefit of
00:02:44 Gabriel Sacks
investing for children is that you can think in multi-year periods.
00:02:48 Gabriel Sacks
And from that perspective, you have less to worry about the very short term, which can maybe be a bit fearful when you're trying to plan for something more near term.
00:03:00 Gabriel Sacks
So yeah, certainly, you know, thinking about what can offer a growth for a portfolio over the long term, you know, you should look at
00:03:09 Gabriel Sacks
In my opinion, things like Asia, obviously, everyone has their own home bias, and they will have some risk aversion to investing overseas potentially.
00:03:18 Gabriel Sacks
But in terms of thinking about a portion of your capital that you're happy to allocate internationally, you know, Asia is a part of the world that's growing very fast.
00:03:31 Gabriel Sacks
There's a lot of innovation, faster growth in developed markets, less debt.
00:03:36 Gabriel Sacks
So certainly, there's a case for adding
00:03:39 Gabriel Sacks
some exposure to those markets, which can also be less correlated to assets that you already own, either being it, you know, a property in the UK or your own investments.
00:03:52 Gabriel Sacks
So, that will give you some growth optionality and opportunity to enhance your return and potentially to reduce risk overall in the portfolio as well.
00:04:04 Cherry Reynard
Samantha, bringing you in.
00:04:06 Cherry Reynard
Obviously, stock market investing is inherently riskier than just putting money in a bank account.
00:04:14 Chery Reynard
But there are ways to mitigate stock market risk.
00:04:18 Cherry Reynard
I mean, I wonder if you can talk through some of the ways you do that on Murray International?
00:04:24 Samantha Fitzpatrick
Sure, I think we're lucky that we have a truly global remit.
00:04:28 Samantha Fitzpatrick
So what we do find is that by having
00:04:32 Samantha Fitzpatrick
a good mix of different businesses.
00:04:35 Samantha Fitzpatrick
It means that over the long term, over 10 and 20 years, although you'll have stocks doing all sorts of things, it just gives you that flexibility really and gives you the opportunity to offer something a bit different.
00:04:49 Samantha Fitzpatrick
So I think we are fortunate, we are
00:04:53 Samantha Fitzpatrick
very clear to people about what it is and what it's not.
00:04:56 Samantha Fitzpatrick
So people have to be comfortable with stepping outside markets other than the UK.
00:05:01 Samantha Fitzpatrick
And if you're taking a long-term view, even things that might seem inherently risky, like the currency side, for example, over time, and because you have such a variety of exposures there, aren't as scary as people would think from the outside.
00:05:16 Cherry Reynard
And Samantha sticking with you, I mean, the trust has an income remit as well.
00:05:22 Cherry Reynard
I wonder if you can talk about the role that income plays in kind of generating long-term growth?
00:05:28 Samantha Fitzpatrick
Sure.
00:05:29 Samantha Fitzpatrick
So I think when you're talking about investing for children, you mentioned at the outset,
00:05:34 Samantha Fitzpatrick
There may be an element of that you want to look at, things like educational costs or even further down the line, universities.
00:05:41 Samantha Fitzpatrick
So you might need income, you might actually need to have the ability to take money out for a variety of reasons.
00:05:48 Samantha Fitzpatrick
And even within the global income space, people or managers generate that income in different ways.
00:05:55 Samantha Fitzpatrick
So some people generate income from capital upside and there's nothing wrong with that, but it does rely on markets going up.
00:06:02 Samantha Fitzpatrick
really over time, really consistently over time to be able to really bank on that.
00:06:08 Samantha Fitzpatrick
So the way we do things is different.
00:06:10 Samantha Fitzpatrick
So we try to generate the income from the underlying holdings in order to pay that out to our shareholders.
00:06:17 Samantha Fitzpatrick
So that gives typically a bit more reassurance.
00:06:21 Samantha Fitzpatrick
We have the ability to dip into reserves.
00:06:24 Samantha Fitzpatrick
The investment trust structure is very powerful in that side as well.
00:06:27 Samantha Fitzpatrick
You can put income aside for a rainy day.
00:06:30 Samantha Fitzpatrick
rather than pay all outs in any one given year.
00:06:33 Samantha Fitzpatrick
So that smooths the income payments, which can be incredibly helpful for people.
00:06:38 Samantha Fitzpatrick
And if the idea is simply to reinvest that income, then that's a great option as well, because the power of compounding is really quite something.
00:06:47 Samantha Fitzpatrick
So if you're looking at investing
00:06:49 Samantha Fitzpatrick
over a period of 10, 20 years perhaps, what a difference that makes if you can just steadily, increase those holdings and just steadily tuck that money.
00:06:59 Samantha Fitzpatrick
Away.
00:06:59 Cherry Reynard
Gabriel, turning to you, I mean, the kind of changes that we've seen over the past decade have just been extraordinary.
00:07:06 Cherry Reynard
And now, you know, we're in the midst of this sort of AI boom or bubble, depending on your point of view.
00:07:15 Cherry Reynard
I wonder if you could talk a little bit about
00:07:18 Cherry Reynard
how you see markets change over your time as an investment manager and the sort of new themes that you've incorporated over time?
00:07:31 Gabriel Sacks
Yeah, look, I think we, I think people will look at Asia and think of the region as a homogeneous, I don't know if that's how you pronounce it, asset class, but actually there's so much difference across each of the markets.
00:07:46 Gabriel Sacks
So you've seen very disparate performance.
00:07:49 Gabriel Sacks
from an India, from a China, from Southeast Asia, from Taiwan, which as you say, is more linked to AI.
00:07:55 Gabriel Sacks
So even within the sort of Asia small cap remit that we have, we are extremely diversified.
00:08:03 Gabriel Sacks
And you know, the cash flows that you get from a retailer in Vietnam will be very different from the cash flows or uncorrelated to the cash flows you get from an industrial automation business in China.
00:08:14 Gabriel Sacks
And you know, you play a lot of
00:08:16 Gabriel Sacks
domestic growth themes in these markets, the domestic growth of the consumer, but also a lot of global themes, including things like AI, where the supply chain in Taiwan and Korea is really enabling companies like Nvidia, like the hyperscalers in the US to
00:08:36 Gabriel Sacks
to bring AI to reality, really with the chip manufacturing, et cetera.
00:08:40 Gabriel Sacks
You can play the infrastructure theme and the energy transition theme where a lot of the renewable supply chain is in Asia.
00:08:48 Gabriel Sacks
You know, over 70% of solar, wind, electric batteries is in Asia.
00:08:52 Gabriel Sacks
So, you know, there's a lot there alongside things like when we talk about China, again, the industrial automation theme.
00:09:02 Gabriel Sacks
with robotics, which, they're very advanced in that space.
00:09:05 Gabriel Sacks
It might be early days now, but, in five years time, we might be talking about the emergence of humanoid robots.
00:09:13 Gabriel Sacks
I think we still think it's a bit early days, but, you know, those things are actually creeping up on us.
00:09:18 Gabriel Sacks
And there's a lot of interesting thematics that we can tap into, which are really exciting.
00:09:24 Gabriel Sacks
And, you know, again, always having to, I'd recommend playing
00:09:29 Gabriel Sacks
these themes through a fund rather than single stocks, because that will help you diversify and minimize risk.
00:09:37 Gabriel Sacks
you don't want to put all your eggs in one basket, I would say.
00:09:41 Gabriel Sacks
So, I'm being a bit self-serving here in talking about Asia Focus, but I think it applies to other strategies as well.
00:09:49 Cherry Reynard
Yeah, there was a wonderful Chinese robot Olympics, which if anyone can catch up on that on YouTube, it's truly a wonderful thing.
00:10:00 Cherry Reynard
Now, Rebecca, I think, obviously, when investing for children, some people are more comfortable just sticking to their domestic market and sticking to the UK.
00:10:12 Cherry Reynard
I wonder if you can kind of make the case for the UK after what's been a slightly difficult period and just sort of highlight some of the themes that you can get exposure to within the UK.
00:10:26 Rebecca Maclean
Yes, the UK equity market has been out of favor for some time.
00:10:30 Rebecca Maclean
So if you look at capital flows, so that's how people are investing in a country.
00:10:36 Rebecca Maclean
Actually, the UK market has been in outflows for a couple of years now, where people have been allocating away from the UK, haven't been investing, well, mostly in the United States, but in other markets as well.
00:10:49 Rebecca Maclean
So I'd say I'd characterize the UK market as quite unloved.
00:10:53 Rebecca Maclean
Having said that though, the performance has been good this year.
00:10:56 Rebecca Maclean
So actually year to date, the UK market is up over 20% and it's beaten the US market, which may come as a surprise to some people because they're maybe not thinking about the UK so much in their portfolios and their context there.
00:11:11 Rebecca Maclean
But yes, the UK market has done quite well.
00:11:14 Rebecca Maclean
And there really are some excellent businesses listed in the UK market.
00:11:18 S Rebecca Maclean
You know, it's got a wealth of different companies serving
00:11:23 Rebecca Maclean
different sectors which you can harness by investing in the UK.
00:11:26 Rebecca Maclean
So I'd say, it's definitely worth a look.
00:11:29 Rebecca Maclean
But it's important to note that the UK market isn't the UK economy.
00:11:33 Rebecca Maclean
And actually, it's a very global market.
00:11:36 Rebecca Maclean
So only 25% of the revenues of the UK equity market are in the UK, domestic revenues, and yeah, 75% are overseas.
00:11:45 Rebecca Maclean
So these are global businesses and in many cases, global leaders.
00:11:49 Rebecca Maclean
So I think there's lots of opportunities in terms of what we
00:11:53 Rebecca Maclean
we've been looking at.
00:11:54 Rebecca Maclean
So Dunedin Income Groweth can invest in the UK, but also overseas up 25%.
00:11:58 Rebecca Maclean
We've currently got 17% of the assets in Europe.
00:12:01 Rebecca Maclean
We're seeing lots of opportunities in the UK.
00:12:04 Rebecca Maclean
And we're looking for quality companies that deliver resilient income.
00:12:08 Rebecca Maclean
So a company like RELX, which is a data and analytics business that serves scientists, lawyers, businesses on a daily basis with their offering.
00:12:19 Rebecca Maclean
You know, that's a real sort of crucial service for those customers.
00:12:23 Rebecca Maclean
that business has performed well.
00:12:26 Rebecca Maclean
They're actually benefiting from AI too.
00:12:28 Rebecca Maclean
So lawyers are increasingly using Relex's products, which use AI to help lawyers save time when it comes to contract writing or researching cases.
00:12:39 Rebecca Maclean
And that's translating into better revenue growth for the company.
00:12:42 Rebecca Maclean
So I think that's an example of like a truly excellent global business that we've got listed in the UK market.
00:12:49 Rebecca Maclean
And I think, you know, from being an asset class, which is quite unloved,
00:12:53 Rebecca Maclean
Performance has been good of late and it's probably time for people to be looking again at their UK allocation.
00:13:00 Cherry Reynard
And then Samantha, just finally, I wonder if you could talk about some of the kind of themes you've got going on in Murray International at the moment.
00:13:07 Samantha Fitzpatrick
Well, there's such a mix.
00:13:09 Samantha Fitzpatrick
Honestly, there's 50 companies, but
00:13:12 Samantha Fitzpatrick
As I said, we're invested in, I think, every main market sector that is out there.
00:13:17 Samantha Fitzpatrick
So we do have the luxury of being able to go wherever we just see the best opportunities.
00:13:25 Samantha Fitzpatrick
Gabriel mentioned AI is absolutely a theme, we can play that.
00:13:29 Samantha Fitzpatrick
But also some of the ones that have been around for a long time are still relevant.
00:13:33 Samantha Fitzpatrick
So things like an aging population, people just need more medical, you know, whether it be equipment or more drugs just to keep them healthy as they get older.
00:13:42 Samantha Fitzpatrick
So that's all very much still part of, you know, long-term growth trends that we can tap into given the global remit.
00:13:51 Samantha Fitzpatrick
And even within
00:13:52 Samantha Fitzpatrick
sectors, things don't stay the same.
00:13:54 Samantha Fitzpatrick
So we've been having a lot of debate within some of the consumer companies, if people are going to be using weight loss drugs, for example, how does that affect tastes going forward?
00:14:06 Samantha Fitzpatrick
How does that affect lifestyle choices going forward?
00:14:09 Samantha Fitzpatrick
So you can't ever stay still, but it's fascinating when you talk to businesses over time and just get to tap into that.
00:14:17 Samantha Fitzpatrick
expertise of these very smart people running the businesses to get a feel for how things are changing and to try and pick companies that over time will benefit from these changes.
00:14:28 Cherry Reynard
So obviously compounding is the thing that when you're investing for children, that's what you've really got on your side.
00:14:35 Cherry Reynard
That's what you've really have to harness to sort of build wealth over time.
00:14:41 Cherry Reynard
Rebecca, I wonder if you can talk about why it's so important and also how you bring it into your
00:14:47 Cherry Reynard
investment strategy, because presumably that's what you're looking for from companies as well.
00:14:53 Rebecca Maclean
Yeah, so maybe to start about what is compounding and why it's so powerful.
00:14:57 Rebecca Maclean
So if you, for example, were to invest every year consistently 1000 pounds over 18 years of a child's life, and if you've got a 5% return annually from that investment at the end of those 18 years, you've got about 30,000 pounds.
00:15:13 Rebecca Maclean
If instead, that's sort of one first scenario.
00:15:15 Rebecca Maclean
If instead you were to do actually just two tranches, one when they're nine of 9,000 and one when they're 18 of 9,000, your end result's going to be more about 23,000.
00:15:27 Rebecca Maclean
So you're getting a 30% uplift to your investments from that consistent investing over time because you're able to benefit from the time invested at the beginning.
00:15:37 Rebecca Maclean
So that's a sort of how powerful it can be in terms of what compounding can mean.
00:15:42 Rebecca Maclean
In terms of our investment process and how we think about companies, we're looking for quality businesses that can deliver resilient income.
00:15:51 Rebecca Maclean
And 30% of the portion of the NAV is looking to invest in companies that are going to generate income for the trust.
00:15:59 Rebecca Maclean
But we invest 70% of the bulk of the NAV is in what we call quality compounders.
00:16:04 Rebecca Maclean
These are high quality businesses which are facing markets which are structurally growing.
00:16:11 Rebecca Maclean
They've got a strong
00:16:12 Rebecca Maclean
competitive position in their markets, they've got strong balance sheets and management teams which were able to navigate that uncertainty.
00:16:19 Rebecca Maclean
So that's
00:16:20 Rebecca Maclean
That's sort of how we're looking for those investments over time because if you get a company which is able to deliver strong returns and grow consistently over time, that's often underappreciated by the market and it can be quite a powerful thing in terms of investment as well.
00:16:36 Rebecca Maclean
So I suppose that's an example of like what compounding means from a, you know, we're putting money in and thinking about your investments, you know, for your children, but also it translates also into how we think about investing
00:16:50 Rebecca Maclean
in Dunedin income growth.
00:16:52 Cherry Reynard
Great.
00:16:52 Cherry Reynard
And then Gabriel, as the manager on probably the highest growth strategy amongst the three of you, I wonder if you can talk about minimising sort of losses to make sure you keep getting that sort of compounding effect and how you go about doing that in the portfolio?
00:17:13 Gabriel Sacks
Yeah, look, I think you do.
00:17:16 Gabriel Sacks
have to take some risk at the end of the day.
00:17:19 Gabriel Sacks
And the reality is with a long-term time horizon, I wouldn’t really try and time markets.
00:17:26 Gabriel Sacks
I think that's one of the key mistakes people try to do is I'll just wait until valuations are cheap.
00:17:32 Gabriel Sacks
We've seen the market crash and then I'll go big and allocate a lot to this growth area.
00:17:38 Gabriel Sacks
But actually the reality, it's really, really difficult to do.
00:17:41 Gabriel Sacks
So, if you're just not too comfortable putting
00:17:45 Gabriel Sacks
large amounts of money, I think most people will, won't be in that position.
00:17:51 Gabriel Sacks
just invest a small amount consistently, as Rebecca was saying early on, and then just let that compounding do the work for you.
00:18:00 Gabriel Sacks
I think a lot of people will get into that trap of thinking, actually, you know, I'll wait or I'll do a bit more of this later on.
00:18:10 Gabriel Sacks
But, you know, just
00:18:11 Gabriel Sacks
Think about asset allocation that you're comfortable with based on your objectives.
00:18:17 Gabriel Sacks
Invest early and then don't think about it too much is what I would say.
00:18:22 Gabriel Sacks
So you're not going to avoid some big drawdowns, but they are few and far between.
00:18:28 Gabriel Sacks
There'll be some big drawdowns which will scare you, but markets tend to rebound after that and then reach new highs.
00:18:35 Gabriel Sacks
So use the time to your advantage.
00:18:38 Cherry Reynard
I guess it never feels like quite the right time to get into markets.
00:18:43 Cherry Reynard
It either feels terribly risky, even when markets are cheap, or it feels when times are good, everything feels too expensive.
00:18:51 Cherry Reynard
So yeah, you sort of have to hold your nose whenever you do it.
00:18:55 Cherry Reynard
Samantha, I wonder if you can talk a bit about active management and why that can be an advantage?
00:19:02 Samantha Fitzpatrick
Yeah, it just provides something different.
00:19:04 Samantha Fitzpatrick
So I think
00:19:07 Samantha Fitzpatrick
If people are setting themselves out as being active managers, make sure they are, because there are so many very low-cost ways to get general exposure to equity markets, if that's what you want to do.
00:19:19 Samantha Fitzpatrick
So if then you're going to pay for a service, just make sure you're not having the same thing.
00:19:25 Samantha Fitzpatrick
And I think right here, right now, that's more important than ever.
00:19:28 Samantha Fitzpatrick
So people, you know, might think they're diversified by having
00:19:32 Samantha Fitzpatrick
an allocation to a tracker fund, for example, and then change to a global equity fund.
00:19:37 Samantha Fitzpatrick
They might like the US, so let's have a bit of US.
00:19:39 Samtha Fitzpatrick
But if you actually look to see what the holdings are, you know, 9 times out of 10, it'll be the same, you know, 8 stocks or whatever that you're exposed to over and over again.
00:19:49 Samantha Fitzpatrick
So just be really careful and make sure
00:19:53 Samantha Fitzpatrick
But they don't all perform the same way.
00:19:55 Samantha Fitzpatrick
that's a bit of a giveaway.
00:19:56 Samantha Fitzpatrick
If you're seeing that all these different products that are maybe marketed slightly differently, called something different, but they're all performing the same way, then, you know, I would argue that you're taking on more risk in the true sense of the word than you think you are.
00:20:11 Samantha Fitzpatrick
So just make sure that if you're paying an active manager, you know, they are actually taking
00:20:16 Samantha Fitzpatrick
independent decisions and they're going to provide you with a different type of exposure, then you can probably get very cheaply if you would rather have a tracker or have some exposure to that way of investing.
00:20:27 Cherry Reynard
I think that leads us on quite nicely to some of the kind of potential mistakes investors make when they're investing for their children.
00:20:37 Cherry Reynard
And certainly, that idea of being optically diversified, but actually just
00:20:43 Cherry Reynard
having a portfolio stuffed with a single sector or a single region is definitely a big risk and definitely a big risk at the moment.
00:20:52 Cherry Reynard
Gabriel, I wonder if you could give us your thoughts on some of the potential mistakes investors make when they're investing for children?
00:21:01 Gabriel Sacks
Yes, of course.
00:21:02 Gabriel Sacks
You know, I think I highlighted a couple of the earlier question around not investing early enough and trying to time markets.
00:21:10 Gabriel Sacks
I think some of the other
00:21:12 Gabriel Sacks
risks perhaps would be linked to what Samantha was saying, maybe not getting what you're expecting.
00:21:20 Gabriel Sacks
So, I think doing a bit of homework on the style of a manager and which market conditions they might perform.
00:21:28 Gabriel Sacks
And then possibly having two managers in a particular asset class that behave differently could be an interesting way of getting exposure to particular asset class and, you know, avoiding
00:21:41 Gabriel Sacks
periods of extended underperformance if a style is out of favor.
00:21:45 Gabriel Sacks
that would be perhaps a more sophisticated way, let's say, of trying to diversify your managers, but it's something that I think is worth thinking about as well.
00:21:57 Gabriel Sacks
And just the point around diversification in general, you know, by country and asset class, I think is an important one.
00:22:04 Gabriel Sacks
I think markets are incredibly concentrated at the moment.
00:22:08 Gabriel Sacks
probably one of the highest levels of concentration ever, which I think both Samantha and Rebecca were mentioning there.
00:22:13 Gabriel Sacks
I think US is 70% of global equities, the MAG 7, 15%.
00:22:19 Gabriel Sacks
And you know, MAG 7 can maybe continue to do well, but you know, diversification is an important concept that maybe people are overlooking at this point.
00:22:29 Cherry Reynard
And finally, to you, Samantha, anything you'd add on those
00:22:33 Cherry Reynard
mistakes to avoid.
00:22:35 Samantha Fitzpatrick
I think it's been covered really well, and a lot of it does come down to that, not putting everything in the one basket.
00:22:42 Samantha Fitzpatrick
And even if you like it, why have 10 different versions of the same thing, essentially?
00:22:46 Samantha Fitzpatrick
You know, it's very easy to have, a bad period and think, oh, I've got this wrong, let's change, let's take my money out.
00:22:52 Samantha Fitzpatrick
But we do this with individual stocks.
00:22:55 Samantha Fitzpatrick
You know, you reanalyse, well, why was it in this in the first place?
00:22:59 Samantha Fitzpatrick
Has something fundamentally changed with my view or is it a timing issue?
00:23:04 Samantha Fitzpatrick
And if you can, be strong enough to just keep, that steady inflow, if it's like, a monthly subscription or whatever it may be, then over time, as Rebecca highlighted, that really just gradual, keep topping up over time can have a really powerful impact.
00:23:22 Samantha Fitzpatrick
So diversification and patience is absolutely key.
00:23:26 Cherry Reynard
Yeah, I mean, one thing we haven't mentioned yet particularly is inflation.
00:23:31 Cherry Reynard
I mean, Rebecca, I wonder if you could talk a bit about that and why stock market investment helps protect against that?
00:23:41 Rebecca Maclean
So inflation is the increase in prices.
00:23:44 Rebecca Maclean
And what you're looking for when you are investing is to generate a return, which is in excess of inflation.
00:23:50 Rebecca Maclean
That will mean that the value of the money that you have at the end will be more valuable, adjusting for those price increases.
00:23:58 Rebecca Maclean
And I think when you're looking at different asset classes, you're not necessarily getting protection from inflation.
00:24:04 Rebecca Maclean
So if you've got cash, for example, the real value of that cash is going to decrease over time with inflation.
00:24:11 Rebecca Maclean
So it's not going to protect you.
00:24:13 Rebecca Maclean
But one of the benefits of equities is that it does provide a bit of an inflation hedge, particularly when you're investing in companies which have got pricing power.
00:24:22 Rebecca Maclean
So that means that the companies may be feeling inflation themselves in terms of their input costs or wage inflation that they need to run their business.
00:24:32 Rebecca Maclean
But if they've got pricing power, it means that they are able to pass that on through the price of their products.
00:24:38 Rebecca Maclean
And so their profits, their revenues will also
00:24:41 Rebecca Maclean
also increase in value too.
00:24:44 Rebecca Maclean
So equities, it's not all driven by that because valuation is important as well and the value of the stock market can go up and down, but actually in many ways equities can give you that hedge that you're looking for in order to protect the purchasing power of your money.
00:25:03 Rebecca Maclean
So yes, certainly it's an important consideration for investors when they're thinking about how they should diversify their portfolios into different
00:25:11 Rebecca Maclean
asset classes.
00:25:11 Rebecca Maclean
And it's one of the one of the benefits of equity investing.
00:25:16 Cherry Reynard
Now, we can't claim any neutrality here because you all run investment trusts.
00:25:23 Cherry Reynard
But I wonder if we can also take a look at why investment trusts are potentially a good vehicle for parents or grandparents sort of investing for children.
00:25:33 Cherry Reynard
So Rebecca, your thoughts on that?
00:25:36 Rebecca Maclean
Yeah.
00:25:37 Rebecca Maclean
I mean, it's not a sector that I knew much about until I started running an investment trust, which is really, quite surprising.
00:25:46 Rebecca Maclean
I feel that there is not enough awareness across the general public about it, but it really is a great sector.
00:25:53 Rebecca Maclean
It gives you a wealth of different options of different types of investment strategies to invest in, particularly in the UK, different asset classes, different regions with different mandates.
00:26:03 Rebecca Maclean
So, you know, it's a wealth of diverse
00:26:07 Rebecca Maclean
investment opportunities in the investment trust sector.
00:26:10 Rebecca Maclean
And then there are numerous benefits as well too.
00:26:12 Rebecca Maclean
I mean, just to sort of start to highlight that Dunedin income growth is 153 years old.
00:26:19 Rebecca Maclean
It's the second oldest investment trust - which I just find incredible.
00:26:24 Rebecca Maclean
It's managed to evolve and navigate different economic environments and different political environments and cycles and evolved to remain relevant to shareholders
00:26:37 Rebecca Maclean
And I think that's just, a real testament to the structure.
00:26:41 Rebecca Maclean
We've got an independent board and their mandate is to, make sure that the trust is doing right by shareholders.
00:26:48 Rebecca Maclean
And so that's something that really does like keep the manager on the toes, but make sure that the mandate's relevant as well.
00:26:54 Rebecca Maclean
But there really are incredible opportunities across the investment trust sector.
00:26:58 Rebecca Maclean
I really encourage people to go out and have a look at the opportunities which are on offer.
00:27:03 Cherry Reynard
And then,
00:27:05 Cherry Reynard
Gabriel, I wonder if you can talk about how the structure sort of helps with long-term decision making?
00:27:12 Gabriel Sacks
Yeah, so the structure is really suited to long-term investing because it is a fixed amount of capital, you know, that you don't see inflows and outflows into the trust, you know, it is a listed vehicle.
00:27:27 Gabriel Sacks
where you can buy and sell units of the company.
00:27:31 Gabriel Sacks
So from that perspective, it's really well suited to take that long-term perspective and also to invest in other asset classes.
00:27:38 Gabriel Sacks
So I'd echo what Rebecca says is, you know, I think they're fantastic ways of investing, not just for children, but also for children given that long-term perspective.
00:27:47 Gabriel Sacks
And a couple of things that I would highlight there, you know, because of that fixed capital structure and lack of flows,
00:27:53 Gabriel Sacks
It also gives the manager the opportunity to invest counter-cyclically.
00:27:58 Gabriel Sacks
So, typically when markets are out of favour, you'll see redemptions from a fund.
00:28:03 Gabriel Sacks
But actually, because you've got this fixed capital, you have that capital to invest when times are difficult and when share prices are cheap.
00:28:12 Cherry Reynard
Samantha, last word to you on that.
00:28:14 Samantha Fitzpatrick
Yeah, I think it's a really powerful structure.
Samantha Fitzpatrick Samantha Fitzpatrick
And the fact that I mentioned earlier just about that smoothing ability of income is crucial.
00:28:22 Samantha Fitzpatrick
So
00:28:23 Samantha Fitzpatrick
For example, in the COVID years, there was a lot of underlying investments that didn't even have a choice.
00:28:29 Samantha Fitzpatrick
they were told to stop their dividends.
00:28:32 Samantha Fitzpatrick
Some of the financials in Europe and the UK, just for prudent reasons, were told they weren't allowed to pay dividends to shareholders.
00:28:39 Samantha Fitzpatrick
And if we hadn't had the ability to dip into reserves, then that would have meant a dividend cut for our shareholders, but that was not the case.
00:28:46 Samantha Fitzpatrick
So it meant that we were able to use reserves and keep our dividends growing, even if the underlying investments were going through a tricky period.
00:28:55 Samantha Fitzpatrick
And then the converse of that is true.
00:28:58 Samantha Fitzpatrick
So when we have better years, we can replenish those reserves.
00:29:01 Samantha Fitzpatrick
So it just gives you that ability to smooth income if that is what's important to our shareholders.
00:29:07 Cherry Reynard
Yeah, definitely.
00:29:08 Cherry Reynard
And I guess that's kind of important for things like educational costs and that sort of thing.
00:29:14 Cherry Reynard
Now, just finally, any tips from your own experience?
00:29:19 Cherry Reynard
Samantha, I know you've got teenagers.
00:29:23 Cherry Reynard
Any thoughts there?
00:29:24 Samantha Fitzpatrick
Yeah, I think, I mean, in an ideal world, I wish this was all taught better at schools.
00:29:30 Samantha Fitzpatrick
Because I think even looking back, all the things that you were taught, it might have been quite interesting, but it had really zero impact on your ability to live as an adult.
00:29:38 Samantha Fitzpatrick
So, explain.
00:29:40 Samantha Fitzpatrick
I wish people could explain better, maybe at schools, or maybe it's more on the parents to do it.
00:29:44 Samantha Fitzpatrick
So I would be guilty of maybe not doing this so well.
00:29:48 Samantha Fitzpatrick
But, you know, if you can just introduce at some point that concept of, you know, what is a mortgage, what's an interest rate, that power of compounding.
00:29:57 Samantha Fitzpatrick
is extremely important, but I had a positive experience fairly recently because my daughter was part of that cohort that was lucky enough to have a child trust fund.
00:30:09 Samantha Fitzpatrick
So this was something people may remember the government set up for anyone born between 2002 and 2011.
00:30:16 Samantha Fitzpatrick
And basically you got a pot of money, it was 250 pounds,
00:30:20 Samantha Fitzpatrick
that was invested.
00:30:21 Samantha Fitzpatrick
And then there was the ability for family members to contribute to that.
00:30:26 Samantha Fitzpatrick
You didn't have to, there was no set amount.
00:30:28 Samantha Fitzpatrick
But my in-laws actually decided to invest just a small amount for my daughter every month.
00:30:35 Samantha Fitzpatrick
So over the course of 18 years,
00:30:39 Samantha Fitzpatrick
that power of compounding has really come through.
00:30:42 Samantha Fitzpatrick
So it meant that my daughter didn't know anything about this until she was 18.
00:30:46 Samantha Fitzpatrick
And then you have the choice at that point either to take the cash out, whatever you've got in your pot, or you can transfer it into an ISA, for example.
00:30:54 Samantha Fitzpatrick
So she had no clue that she had this money being put away by her grandparents.
00:30:59 Samantha Fitzpatrick
And now she's got a lovely wee nest egg that will hopefully be put towards our first car.
00:31:04 Samantha Fitzpatrick
So I think for things like that,
00:31:06 Samantha Fitzpatrick
to actually get people interested and start a conversation and, just be aware that it doesn't have to be a big scary world.
00:31:14 Samantha Fitzpatrick
If you use the right kind of language, it can be really interesting and it should be something I think that we should teach our children better about over time.
00:31:24 Cherry Reynard
Great, okay, we will wrap up there and we'll hope for some investment trusts in our stocking this year.
00:31:30 Cherry Reynard
So many thanks to Gabriel, Samantha and Rebecca and thanks to everyone for joining.
00:31:43
This podcast is provided for general information only and assumes a certain level of knowledge of financial markets.
00:31:50
It is provided for informational purposes only and should not be considered as an offer, investment recommendation or.
00:31:56
Solicitation to deal in any of the investments or products mentioned herein, and does not constitute investment research.
00:32:03
The views in this podcast are those of the contributors at the time of publication, and do not necessarily reflect those of Aberdeen.
00:32:10
The companies discussed in this podcast have been selected for illustrative purposes only, or to demonstrate our investment management style and not as an investment recommendation or indication of their future performance.
00:32:22
The value of investments and the income from them can go down as well as up, and investors may get back less than the amount invested.
00:32:29
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00:32:32
Return projections or estimates and provide no guarantee of future results.
Hello and welcome to the Aberdeen Investment Trust Christmas Podcast, looking at investing for children.
00:00:08 Cherry Raynard.
I'm Cherry Raynard.
00:00:10 Cherry Raynard.
Now, while your children may not be thrilled to open an investment trust certificate on Christmas morning, it may be something that they will thank you for in the long term.
00:00:18 Cherry Raynard.
To talk about the best way to invest for future generations, I have with me three of the Aberdeen’s fund managers.
00:00:25 Cherry Raynard.
So welcome to Rebecca McLean, manager on the Dunedin Income Growth Investment Trust.
00:00:30 Rebecca Maclean
Hi, Cherry.
00:00:31 Rebecca Maclean
It's a pleasure to be here.
00:00:32 Rebecca Maclean
Looking forward to the holidays.
00:00:35 Cherry Reynard
And Gabriel Sacks, manager on the Aberdeen Asia Focus Fund.
00:00:39 Cherry Reynard
Welcome.
00:00:40 Gabriel Sacks
Hi, thanks for having me, Cherry.
00:00:43 Cherry Reynard
And finally, Samantha Fitzpatrick, manager on Murray International.
00:00:47 Samantha Fitzpatrick
Hi, everyone.
00:00:48 Samantha Fitzpatrick
It's my pleasure to be here today.
00:00:50 Cherry Reynard
So welcome, everyone.
00:00:53 Cherry Reynard
Now, I wonder if we can kick off by talking about what characterises a good investment for children.
00:00:58 Cherry Reynard
I mean, clearly it may depend on what it's being used for, educational costs, for house deposits, even pensions.
00:01:06 Cherry Reynard
But Rebecca, I mean, presumably one of the key advantages of investing for children is that you have time on your side.
00:01:13 Cherry Reynard
So you've got to capture that long term.
00:01:17 Rebecca Maclean
I think when thinking about investing for children, it's important to think about the time horizon you're investing over.
00:01:24 Rebecca Maclean
So this is important when you're thinking about the risk that you should be taking from your investments.
00:01:30 Rebecca Maclean
And what I'd say is that it's never too early to be investing.
00:01:33 Rebecca Maclean
And the earlier you can invest, the better because of the benefits of compounding and the time that you're investing over.
00:01:40 Rebecca Maclean
So certainly, sort of, yeah, if you can invest early and think about that risk
00:01:47 Rebecca Maclean
as well.
00:01:47 Rebecca Maclean
So think about what that means in terms of your risk appetite, which means thinking about different asset classes, which you could be investing in, whether it's fixed income or equities or private markets, and how you balance those different assets together in order to generate a portfolio of investments, which is suitable for that purpose in terms of, you know, what it is you're looking to use those investments for.
00:02:14 Cherry Reynard
And I mean, Gabriel, I think there's a temptation when investing for children to think that you have to be super safe, but actually that kind of long-term horizon should enable you to open up new kind of investment horizons, if you like, and tap into long-term growth trends.
00:02:33 Cherry Reynard
I wonder if you can talk about that and talk about some of those trends that you're seeing.
00:02:38 Gabriel Sacks
Yeah, absolutely.
00:02:40 Gabriel Sacks
I'd agree with Rebecca that, you know, I think the benefit of
00:02:44 Gabriel Sacks
investing for children is that you can think in multi-year periods.
00:02:48 Gabriel Sacks
And from that perspective, you have less to worry about the very short term, which can maybe be a bit fearful when you're trying to plan for something more near term.
00:03:00 Gabriel Sacks
So yeah, certainly, you know, thinking about what can offer a growth for a portfolio over the long term, you know, you should look at
00:03:09 Gabriel Sacks
In my opinion, things like Asia, obviously, everyone has their own home bias, and they will have some risk aversion to investing overseas potentially.
00:03:18 Gabriel Sacks
But in terms of thinking about a portion of your capital that you're happy to allocate internationally, you know, Asia is a part of the world that's growing very fast.
00:03:31 Gabriel Sacks
There's a lot of innovation, faster growth in developed markets, less debt.
00:03:36 Gabriel Sacks
So certainly, there's a case for adding
00:03:39 Gabriel Sacks
some exposure to those markets, which can also be less correlated to assets that you already own, either being it, you know, a property in the UK or your own investments.
00:03:52 Gabriel Sacks
So, that will give you some growth optionality and opportunity to enhance your return and potentially to reduce risk overall in the portfolio as well.
00:04:04 Cherry Reynard
Samantha, bringing you in.
00:04:06 Cherry Reynard
Obviously, stock market investing is inherently riskier than just putting money in a bank account.
00:04:14 Chery Reynard
But there are ways to mitigate stock market risk.
00:04:18 Cherry Reynard
I mean, I wonder if you can talk through some of the ways you do that on Murray International?
00:04:24 Samantha Fitzpatrick
Sure, I think we're lucky that we have a truly global remit.
00:04:28 Samantha Fitzpatrick
So what we do find is that by having
00:04:32 Samantha Fitzpatrick
a good mix of different businesses.
00:04:35 Samantha Fitzpatrick
It means that over the long term, over 10 and 20 years, although you'll have stocks doing all sorts of things, it just gives you that flexibility really and gives you the opportunity to offer something a bit different.
00:04:49 Samantha Fitzpatrick
So I think we are fortunate, we are
00:04:53 Samantha Fitzpatrick
very clear to people about what it is and what it's not.
00:04:56 Samantha Fitzpatrick
So people have to be comfortable with stepping outside markets other than the UK.
00:05:01 Samantha Fitzpatrick
And if you're taking a long-term view, even things that might seem inherently risky, like the currency side, for example, over time, and because you have such a variety of exposures there, aren't as scary as people would think from the outside.
00:05:16 Cherry Reynard
And Samantha sticking with you, I mean, the trust has an income remit as well.
00:05:22 Cherry Reynard
I wonder if you can talk about the role that income plays in kind of generating long-term growth?
00:05:28 Samantha Fitzpatrick
Sure.
00:05:29 Samantha Fitzpatrick
So I think when you're talking about investing for children, you mentioned at the outset,
00:05:34 Samantha Fitzpatrick
There may be an element of that you want to look at, things like educational costs or even further down the line, universities.
00:05:41 Samantha Fitzpatrick
So you might need income, you might actually need to have the ability to take money out for a variety of reasons.
00:05:48 Samantha Fitzpatrick
And even within the global income space, people or managers generate that income in different ways.
00:05:55 Samantha Fitzpatrick
So some people generate income from capital upside and there's nothing wrong with that, but it does rely on markets going up.
00:06:02 Samantha Fitzpatrick
really over time, really consistently over time to be able to really bank on that.
00:06:08 Samantha Fitzpatrick
So the way we do things is different.
00:06:10 Samantha Fitzpatrick
So we try to generate the income from the underlying holdings in order to pay that out to our shareholders.
00:06:17 Samantha Fitzpatrick
So that gives typically a bit more reassurance.
00:06:21 Samantha Fitzpatrick
We have the ability to dip into reserves.
00:06:24 Samantha Fitzpatrick
The investment trust structure is very powerful in that side as well.
00:06:27 Samantha Fitzpatrick
You can put income aside for a rainy day.
00:06:30 Samantha Fitzpatrick
rather than pay all outs in any one given year.
00:06:33 Samantha Fitzpatrick
So that smooths the income payments, which can be incredibly helpful for people.
00:06:38 Samantha Fitzpatrick
And if the idea is simply to reinvest that income, then that's a great option as well, because the power of compounding is really quite something.
00:06:47 Samantha Fitzpatrick
So if you're looking at investing
00:06:49 Samantha Fitzpatrick
over a period of 10, 20 years perhaps, what a difference that makes if you can just steadily, increase those holdings and just steadily tuck that money.
00:06:59 Samantha Fitzpatrick
Away.
00:06:59 Cherry Reynard
Gabriel, turning to you, I mean, the kind of changes that we've seen over the past decade have just been extraordinary.
00:07:06 Cherry Reynard
And now, you know, we're in the midst of this sort of AI boom or bubble, depending on your point of view.
00:07:15 Cherry Reynard
I wonder if you could talk a little bit about
00:07:18 Cherry Reynard
how you see markets change over your time as an investment manager and the sort of new themes that you've incorporated over time?
00:07:31 Gabriel Sacks
Yeah, look, I think we, I think people will look at Asia and think of the region as a homogeneous, I don't know if that's how you pronounce it, asset class, but actually there's so much difference across each of the markets.
00:07:46 Gabriel Sacks
So you've seen very disparate performance.
00:07:49 Gabriel Sacks
from an India, from a China, from Southeast Asia, from Taiwan, which as you say, is more linked to AI.
00:07:55 Gabriel Sacks
So even within the sort of Asia small cap remit that we have, we are extremely diversified.
00:08:03 Gabriel Sacks
And you know, the cash flows that you get from a retailer in Vietnam will be very different from the cash flows or uncorrelated to the cash flows you get from an industrial automation business in China.
00:08:14 Gabriel Sacks
And you know, you play a lot of
00:08:16 Gabriel Sacks
domestic growth themes in these markets, the domestic growth of the consumer, but also a lot of global themes, including things like AI, where the supply chain in Taiwan and Korea is really enabling companies like Nvidia, like the hyperscalers in the US to
00:08:36 Gabriel Sacks
to bring AI to reality, really with the chip manufacturing, et cetera.
00:08:40 Gabriel Sacks
You can play the infrastructure theme and the energy transition theme where a lot of the renewable supply chain is in Asia.
00:08:48 Gabriel Sacks
You know, over 70% of solar, wind, electric batteries is in Asia.
00:08:52 Gabriel Sacks
So, you know, there's a lot there alongside things like when we talk about China, again, the industrial automation theme.
00:09:02 Gabriel Sacks
with robotics, which, they're very advanced in that space.
00:09:05 Gabriel Sacks
It might be early days now, but, in five years time, we might be talking about the emergence of humanoid robots.
00:09:13 Gabriel Sacks
I think we still think it's a bit early days, but, you know, those things are actually creeping up on us.
00:09:18 Gabriel Sacks
And there's a lot of interesting thematics that we can tap into, which are really exciting.
00:09:24 Gabriel Sacks
And, you know, again, always having to, I'd recommend playing
00:09:29 Gabriel Sacks
these themes through a fund rather than single stocks, because that will help you diversify and minimize risk.
00:09:37 Gabriel Sacks
you don't want to put all your eggs in one basket, I would say.
00:09:41 Gabriel Sacks
So, I'm being a bit self-serving here in talking about Asia Focus, but I think it applies to other strategies as well.
00:09:49 Cherry Reynard
Yeah, there was a wonderful Chinese robot Olympics, which if anyone can catch up on that on YouTube, it's truly a wonderful thing.
00:10:00 Cherry Reynard
Now, Rebecca, I think, obviously, when investing for children, some people are more comfortable just sticking to their domestic market and sticking to the UK.
00:10:12 Cherry Reynard
I wonder if you can kind of make the case for the UK after what's been a slightly difficult period and just sort of highlight some of the themes that you can get exposure to within the UK.
00:10:26 Rebecca Maclean
Yes, the UK equity market has been out of favor for some time.
00:10:30 Rebecca Maclean
So if you look at capital flows, so that's how people are investing in a country.
00:10:36 Rebecca Maclean
Actually, the UK market has been in outflows for a couple of years now, where people have been allocating away from the UK, haven't been investing, well, mostly in the United States, but in other markets as well.
00:10:49 Rebecca Maclean
So I'd say I'd characterize the UK market as quite unloved.
00:10:53 Rebecca Maclean
Having said that though, the performance has been good this year.
00:10:56 Rebecca Maclean
So actually year to date, the UK market is up over 20% and it's beaten the US market, which may come as a surprise to some people because they're maybe not thinking about the UK so much in their portfolios and their context there.
00:11:11 Rebecca Maclean
But yes, the UK market has done quite well.
00:11:14 Rebecca Maclean
And there really are some excellent businesses listed in the UK market.
00:11:18 S Rebecca Maclean
You know, it's got a wealth of different companies serving
00:11:23 Rebecca Maclean
different sectors which you can harness by investing in the UK.
00:11:26 Rebecca Maclean
So I'd say, it's definitely worth a look.
00:11:29 Rebecca Maclean
But it's important to note that the UK market isn't the UK economy.
00:11:33 Rebecca Maclean
And actually, it's a very global market.
00:11:36 Rebecca Maclean
So only 25% of the revenues of the UK equity market are in the UK, domestic revenues, and yeah, 75% are overseas.
00:11:45 Rebecca Maclean
So these are global businesses and in many cases, global leaders.
00:11:49 Rebecca Maclean
So I think there's lots of opportunities in terms of what we
00:11:53 Rebecca Maclean
we've been looking at.
00:11:54 Rebecca Maclean
So Dunedin Income Groweth can invest in the UK, but also overseas up 25%.
00:11:58 Rebecca Maclean
We've currently got 17% of the assets in Europe.
00:12:01 Rebecca Maclean
We're seeing lots of opportunities in the UK.
00:12:04 Rebecca Maclean
And we're looking for quality companies that deliver resilient income.
00:12:08 Rebecca Maclean
So a company like RELX, which is a data and analytics business that serves scientists, lawyers, businesses on a daily basis with their offering.
00:12:19 Rebecca Maclean
You know, that's a real sort of crucial service for those customers.
00:12:23 Rebecca Maclean
that business has performed well.
00:12:26 Rebecca Maclean
They're actually benefiting from AI too.
00:12:28 Rebecca Maclean
So lawyers are increasingly using Relex's products, which use AI to help lawyers save time when it comes to contract writing or researching cases.
00:12:39 Rebecca Maclean
And that's translating into better revenue growth for the company.
00:12:42 Rebecca Maclean
So I think that's an example of like a truly excellent global business that we've got listed in the UK market.
00:12:49 Rebecca Maclean
And I think, you know, from being an asset class, which is quite unloved,
00:12:53 Rebecca Maclean
Performance has been good of late and it's probably time for people to be looking again at their UK allocation.
00:13:00 Cherry Reynard
And then Samantha, just finally, I wonder if you could talk about some of the kind of themes you've got going on in Murray International at the moment.
00:13:07 Samantha Fitzpatrick
Well, there's such a mix.
00:13:09 Samantha Fitzpatrick
Honestly, there's 50 companies, but
00:13:12 Samantha Fitzpatrick
As I said, we're invested in, I think, every main market sector that is out there.
00:13:17 Samantha Fitzpatrick
So we do have the luxury of being able to go wherever we just see the best opportunities.
00:13:25 Samantha Fitzpatrick
Gabriel mentioned AI is absolutely a theme, we can play that.
00:13:29 Samantha Fitzpatrick
But also some of the ones that have been around for a long time are still relevant.
00:13:33 Samantha Fitzpatrick
So things like an aging population, people just need more medical, you know, whether it be equipment or more drugs just to keep them healthy as they get older.
00:13:42 Samantha Fitzpatrick
So that's all very much still part of, you know, long-term growth trends that we can tap into given the global remit.
00:13:51 Samantha Fitzpatrick
And even within
00:13:52 Samantha Fitzpatrick
sectors, things don't stay the same.
00:13:54 Samantha Fitzpatrick
So we've been having a lot of debate within some of the consumer companies, if people are going to be using weight loss drugs, for example, how does that affect tastes going forward?
00:14:06 Samantha Fitzpatrick
How does that affect lifestyle choices going forward?
00:14:09 Samantha Fitzpatrick
So you can't ever stay still, but it's fascinating when you talk to businesses over time and just get to tap into that.
00:14:17 Samantha Fitzpatrick
expertise of these very smart people running the businesses to get a feel for how things are changing and to try and pick companies that over time will benefit from these changes.
00:14:28 Cherry Reynard
So obviously compounding is the thing that when you're investing for children, that's what you've really got on your side.
00:14:35 Cherry Reynard
That's what you've really have to harness to sort of build wealth over time.
00:14:41 Cherry Reynard
Rebecca, I wonder if you can talk about why it's so important and also how you bring it into your
00:14:47 Cherry Reynard
investment strategy, because presumably that's what you're looking for from companies as well.
00:14:53 Rebecca Maclean
Yeah, so maybe to start about what is compounding and why it's so powerful.
00:14:57 Rebecca Maclean
So if you, for example, were to invest every year consistently 1000 pounds over 18 years of a child's life, and if you've got a 5% return annually from that investment at the end of those 18 years, you've got about 30,000 pounds.
00:15:13 Rebecca Maclean
If instead, that's sort of one first scenario.
00:15:15 Rebecca Maclean
If instead you were to do actually just two tranches, one when they're nine of 9,000 and one when they're 18 of 9,000, your end result's going to be more about 23,000.
00:15:27 Rebecca Maclean
So you're getting a 30% uplift to your investments from that consistent investing over time because you're able to benefit from the time invested at the beginning.
00:15:37 Rebecca Maclean
So that's a sort of how powerful it can be in terms of what compounding can mean.
00:15:42 Rebecca Maclean
In terms of our investment process and how we think about companies, we're looking for quality businesses that can deliver resilient income.
00:15:51 Rebecca Maclean
And 30% of the portion of the NAV is looking to invest in companies that are going to generate income for the trust.
00:15:59 Rebecca Maclean
But we invest 70% of the bulk of the NAV is in what we call quality compounders.
00:16:04 Rebecca Maclean
These are high quality businesses which are facing markets which are structurally growing.
00:16:11 Rebecca Maclean
They've got a strong
00:16:12 Rebecca Maclean
competitive position in their markets, they've got strong balance sheets and management teams which were able to navigate that uncertainty.
00:16:19 Rebecca Maclean
So that's
00:16:20 Rebecca Maclean
That's sort of how we're looking for those investments over time because if you get a company which is able to deliver strong returns and grow consistently over time, that's often underappreciated by the market and it can be quite a powerful thing in terms of investment as well.
00:16:36 Rebecca Maclean
So I suppose that's an example of like what compounding means from a, you know, we're putting money in and thinking about your investments, you know, for your children, but also it translates also into how we think about investing
00:16:50 Rebecca Maclean
in Dunedin income growth.
00:16:52 Cherry Reynard
Great.
00:16:52 Cherry Reynard
And then Gabriel, as the manager on probably the highest growth strategy amongst the three of you, I wonder if you can talk about minimising sort of losses to make sure you keep getting that sort of compounding effect and how you go about doing that in the portfolio?
00:17:13 Gabriel Sacks
Yeah, look, I think you do.
00:17:16 Gabriel Sacks
have to take some risk at the end of the day.
00:17:19 Gabriel Sacks
And the reality is with a long-term time horizon, I wouldn’t really try and time markets.
00:17:26 Gabriel Sacks
I think that's one of the key mistakes people try to do is I'll just wait until valuations are cheap.
00:17:32 Gabriel Sacks
We've seen the market crash and then I'll go big and allocate a lot to this growth area.
00:17:38 Gabriel Sacks
But actually the reality, it's really, really difficult to do.
00:17:41 Gabriel Sacks
So, if you're just not too comfortable putting
00:17:45 Gabriel Sacks
large amounts of money, I think most people will, won't be in that position.
00:17:51 Gabriel Sacks
just invest a small amount consistently, as Rebecca was saying early on, and then just let that compounding do the work for you.
00:18:00 Gabriel Sacks
I think a lot of people will get into that trap of thinking, actually, you know, I'll wait or I'll do a bit more of this later on.
00:18:10 Gabriel Sacks
But, you know, just
00:18:11 Gabriel Sacks
Think about asset allocation that you're comfortable with based on your objectives.
00:18:17 Gabriel Sacks
Invest early and then don't think about it too much is what I would say.
00:18:22 Gabriel Sacks
So you're not going to avoid some big drawdowns, but they are few and far between.
00:18:28 Gabriel Sacks
There'll be some big drawdowns which will scare you, but markets tend to rebound after that and then reach new highs.
00:18:35 Gabriel Sacks
So use the time to your advantage.
00:18:38 Cherry Reynard
I guess it never feels like quite the right time to get into markets.
00:18:43 Cherry Reynard
It either feels terribly risky, even when markets are cheap, or it feels when times are good, everything feels too expensive.
00:18:51 Cherry Reynard
So yeah, you sort of have to hold your nose whenever you do it.
00:18:55 Cherry Reynard
Samantha, I wonder if you can talk a bit about active management and why that can be an advantage?
00:19:02 Samantha Fitzpatrick
Yeah, it just provides something different.
00:19:04 Samantha Fitzpatrick
So I think
00:19:07 Samantha Fitzpatrick
If people are setting themselves out as being active managers, make sure they are, because there are so many very low-cost ways to get general exposure to equity markets, if that's what you want to do.
00:19:19 Samantha Fitzpatrick
So if then you're going to pay for a service, just make sure you're not having the same thing.
00:19:25 Samantha Fitzpatrick
And I think right here, right now, that's more important than ever.
00:19:28 Samantha Fitzpatrick
So people, you know, might think they're diversified by having
00:19:32 Samantha Fitzpatrick
an allocation to a tracker fund, for example, and then change to a global equity fund.
00:19:37 Samantha Fitzpatrick
They might like the US, so let's have a bit of US.
00:19:39 Samtha Fitzpatrick
But if you actually look to see what the holdings are, you know, 9 times out of 10, it'll be the same, you know, 8 stocks or whatever that you're exposed to over and over again.
00:19:49 Samantha Fitzpatrick
So just be really careful and make sure
00:19:53 Samantha Fitzpatrick
But they don't all perform the same way.
00:19:55 Samantha Fitzpatrick
that's a bit of a giveaway.
00:19:56 Samantha Fitzpatrick
If you're seeing that all these different products that are maybe marketed slightly differently, called something different, but they're all performing the same way, then, you know, I would argue that you're taking on more risk in the true sense of the word than you think you are.
00:20:11 Samantha Fitzpatrick
So just make sure that if you're paying an active manager, you know, they are actually taking
00:20:16 Samantha Fitzpatrick
independent decisions and they're going to provide you with a different type of exposure, then you can probably get very cheaply if you would rather have a tracker or have some exposure to that way of investing.
00:20:27 Cherry Reynard
I think that leads us on quite nicely to some of the kind of potential mistakes investors make when they're investing for their children.
00:20:37 Cherry Reynard
And certainly, that idea of being optically diversified, but actually just
00:20:43 Cherry Reynard
having a portfolio stuffed with a single sector or a single region is definitely a big risk and definitely a big risk at the moment.
00:20:52 Cherry Reynard
Gabriel, I wonder if you could give us your thoughts on some of the potential mistakes investors make when they're investing for children?
00:21:01 Gabriel Sacks
Yes, of course.
00:21:02 Gabriel Sacks
You know, I think I highlighted a couple of the earlier question around not investing early enough and trying to time markets.
00:21:10 Gabriel Sacks
I think some of the other
00:21:12 Gabriel Sacks
risks perhaps would be linked to what Samantha was saying, maybe not getting what you're expecting.
00:21:20 Gabriel Sacks
So, I think doing a bit of homework on the style of a manager and which market conditions they might perform.
00:21:28 Gabriel Sacks
And then possibly having two managers in a particular asset class that behave differently could be an interesting way of getting exposure to particular asset class and, you know, avoiding
00:21:41 Gabriel Sacks
periods of extended underperformance if a style is out of favor.
00:21:45 Gabriel Sacks
that would be perhaps a more sophisticated way, let's say, of trying to diversify your managers, but it's something that I think is worth thinking about as well.
00:21:57 Gabriel Sacks
And just the point around diversification in general, you know, by country and asset class, I think is an important one.
00:22:04 Gabriel Sacks
I think markets are incredibly concentrated at the moment.
00:22:08 Gabriel Sacks
probably one of the highest levels of concentration ever, which I think both Samantha and Rebecca were mentioning there.
00:22:13 Gabriel Sacks
I think US is 70% of global equities, the MAG 7, 15%.
00:22:19 Gabriel Sacks
And you know, MAG 7 can maybe continue to do well, but you know, diversification is an important concept that maybe people are overlooking at this point.
00:22:29 Cherry Reynard
And finally, to you, Samantha, anything you'd add on those
00:22:33 Cherry Reynard
mistakes to avoid.
00:22:35 Samantha Fitzpatrick
I think it's been covered really well, and a lot of it does come down to that, not putting everything in the one basket.
00:22:42 Samantha Fitzpatrick
And even if you like it, why have 10 different versions of the same thing, essentially?
00:22:46 Samantha Fitzpatrick
You know, it's very easy to have, a bad period and think, oh, I've got this wrong, let's change, let's take my money out.
00:22:52 Samantha Fitzpatrick
But we do this with individual stocks.
00:22:55 Samantha Fitzpatrick
You know, you reanalyse, well, why was it in this in the first place?
00:22:59 Samantha Fitzpatrick
Has something fundamentally changed with my view or is it a timing issue?
00:23:04 Samantha Fitzpatrick
And if you can, be strong enough to just keep, that steady inflow, if it's like, a monthly subscription or whatever it may be, then over time, as Rebecca highlighted, that really just gradual, keep topping up over time can have a really powerful impact.
00:23:22 Samantha Fitzpatrick
So diversification and patience is absolutely key.
00:23:26 Cherry Reynard
Yeah, I mean, one thing we haven't mentioned yet particularly is inflation.
00:23:31 Cherry Reynard
I mean, Rebecca, I wonder if you could talk a bit about that and why stock market investment helps protect against that?
00:23:41 Rebecca Maclean
So inflation is the increase in prices.
00:23:44 Rebecca Maclean
And what you're looking for when you are investing is to generate a return, which is in excess of inflation.
00:23:50 Rebecca Maclean
That will mean that the value of the money that you have at the end will be more valuable, adjusting for those price increases.
00:23:58 Rebecca Maclean
And I think when you're looking at different asset classes, you're not necessarily getting protection from inflation.
00:24:04 Rebecca Maclean
So if you've got cash, for example, the real value of that cash is going to decrease over time with inflation.
00:24:11 Rebecca Maclean
So it's not going to protect you.
00:24:13 Rebecca Maclean
But one of the benefits of equities is that it does provide a bit of an inflation hedge, particularly when you're investing in companies which have got pricing power.
00:24:22 Rebecca Maclean
So that means that the companies may be feeling inflation themselves in terms of their input costs or wage inflation that they need to run their business.
00:24:32 Rebecca Maclean
But if they've got pricing power, it means that they are able to pass that on through the price of their products.
00:24:38 Rebecca Maclean
And so their profits, their revenues will also
00:24:41 Rebecca Maclean
also increase in value too.
00:24:44 Rebecca Maclean
So equities, it's not all driven by that because valuation is important as well and the value of the stock market can go up and down, but actually in many ways equities can give you that hedge that you're looking for in order to protect the purchasing power of your money.
00:25:03 Rebecca Maclean
So yes, certainly it's an important consideration for investors when they're thinking about how they should diversify their portfolios into different
00:25:11 Rebecca Maclean
asset classes.
00:25:11 Rebecca Maclean
And it's one of the one of the benefits of equity investing.
00:25:16 Cherry Reynard
Now, we can't claim any neutrality here because you all run investment trusts.
00:25:23 Cherry Reynard
But I wonder if we can also take a look at why investment trusts are potentially a good vehicle for parents or grandparents sort of investing for children.
00:25:33 Cherry Reynard
So Rebecca, your thoughts on that?
00:25:36 Rebecca Maclean
Yeah.
00:25:37 Rebecca Maclean
I mean, it's not a sector that I knew much about until I started running an investment trust, which is really, quite surprising.
00:25:46 Rebecca Maclean
I feel that there is not enough awareness across the general public about it, but it really is a great sector.
00:25:53 Rebecca Maclean
It gives you a wealth of different options of different types of investment strategies to invest in, particularly in the UK, different asset classes, different regions with different mandates.
00:26:03 Rebecca Maclean
So, you know, it's a wealth of diverse
00:26:07 Rebecca Maclean
investment opportunities in the investment trust sector.
00:26:10 Rebecca Maclean
And then there are numerous benefits as well too.
00:26:12 Rebecca Maclean
I mean, just to sort of start to highlight that Dunedin income growth is 153 years old.
00:26:19 Rebecca Maclean
It's the second oldest investment trust - which I just find incredible.
00:26:24 Rebecca Maclean
It's managed to evolve and navigate different economic environments and different political environments and cycles and evolved to remain relevant to shareholders
00:26:37 Rebecca Maclean
And I think that's just, a real testament to the structure.
00:26:41 Rebecca Maclean
We've got an independent board and their mandate is to, make sure that the trust is doing right by shareholders.
00:26:48 Rebecca Maclean
And so that's something that really does like keep the manager on the toes, but make sure that the mandate's relevant as well.
00:26:54 Rebecca Maclean
But there really are incredible opportunities across the investment trust sector.
00:26:58 Rebecca Maclean
I really encourage people to go out and have a look at the opportunities which are on offer.
00:27:03 Cherry Reynard
And then,
00:27:05 Cherry Reynard
Gabriel, I wonder if you can talk about how the structure sort of helps with long-term decision making?
00:27:12 Gabriel Sacks
Yeah, so the structure is really suited to long-term investing because it is a fixed amount of capital, you know, that you don't see inflows and outflows into the trust, you know, it is a listed vehicle.
00:27:27 Gabriel Sacks
where you can buy and sell units of the company.
00:27:31 Gabriel Sacks
So from that perspective, it's really well suited to take that long-term perspective and also to invest in other asset classes.
00:27:38 Gabriel Sacks
So I'd echo what Rebecca says is, you know, I think they're fantastic ways of investing, not just for children, but also for children given that long-term perspective.
00:27:47 Gabriel Sacks
And a couple of things that I would highlight there, you know, because of that fixed capital structure and lack of flows,
00:27:53 Gabriel Sacks
It also gives the manager the opportunity to invest counter-cyclically.
00:27:58 Gabriel Sacks
So, typically when markets are out of favour, you'll see redemptions from a fund.
00:28:03 Gabriel Sacks
But actually, because you've got this fixed capital, you have that capital to invest when times are difficult and when share prices are cheap.
00:28:12 Cherry Reynard
Samantha, last word to you on that.
00:28:14 Samantha Fitzpatrick
Yeah, I think it's a really powerful structure.
Samantha Fitzpatrick Samantha Fitzpatrick
And the fact that I mentioned earlier just about that smoothing ability of income is crucial.
00:28:22 Samantha Fitzpatrick
So
00:28:23 Samantha Fitzpatrick
For example, in the COVID years, there was a lot of underlying investments that didn't even have a choice.
00:28:29 Samantha Fitzpatrick
they were told to stop their dividends.
00:28:32 Samantha Fitzpatrick
Some of the financials in Europe and the UK, just for prudent reasons, were told they weren't allowed to pay dividends to shareholders.
00:28:39 Samantha Fitzpatrick
And if we hadn't had the ability to dip into reserves, then that would have meant a dividend cut for our shareholders, but that was not the case.
00:28:46 Samantha Fitzpatrick
So it meant that we were able to use reserves and keep our dividends growing, even if the underlying investments were going through a tricky period.
00:28:55 Samantha Fitzpatrick
And then the converse of that is true.
00:28:58 Samantha Fitzpatrick
So when we have better years, we can replenish those reserves.
00:29:01 Samantha Fitzpatrick
So it just gives you that ability to smooth income if that is what's important to our shareholders.
00:29:07 Cherry Reynard
Yeah, definitely.
00:29:08 Cherry Reynard
And I guess that's kind of important for things like educational costs and that sort of thing.
00:29:14 Cherry Reynard
Now, just finally, any tips from your own experience?
00:29:19 Cherry Reynard
Samantha, I know you've got teenagers.
00:29:23 Cherry Reynard
Any thoughts there?
00:29:24 Samantha Fitzpatrick
Yeah, I think, I mean, in an ideal world, I wish this was all taught better at schools.
00:29:30 Samantha Fitzpatrick
Because I think even looking back, all the things that you were taught, it might have been quite interesting, but it had really zero impact on your ability to live as an adult.
00:29:38 Samantha Fitzpatrick
So, explain.
00:29:40 Samantha Fitzpatrick
I wish people could explain better, maybe at schools, or maybe it's more on the parents to do it.
00:29:44 Samantha Fitzpatrick
So I would be guilty of maybe not doing this so well.
00:29:48 Samantha Fitzpatrick
But, you know, if you can just introduce at some point that concept of, you know, what is a mortgage, what's an interest rate, that power of compounding.
00:29:57 Samantha Fitzpatrick
is extremely important, but I had a positive experience fairly recently because my daughter was part of that cohort that was lucky enough to have a child trust fund.
00:30:09 Samantha Fitzpatrick
So this was something people may remember the government set up for anyone born between 2002 and 2011.
00:30:16 Samantha Fitzpatrick
And basically you got a pot of money, it was 250 pounds,
00:30:20 Samantha Fitzpatrick
that was invested.
00:30:21 Samantha Fitzpatrick
And then there was the ability for family members to contribute to that.
00:30:26 Samantha Fitzpatrick
You didn't have to, there was no set amount.
00:30:28 Samantha Fitzpatrick
But my in-laws actually decided to invest just a small amount for my daughter every month.
00:30:35 Samantha Fitzpatrick
So over the course of 18 years,
00:30:39 Samantha Fitzpatrick
that power of compounding has really come through.
00:30:42 Samantha Fitzpatrick
So it meant that my daughter didn't know anything about this until she was 18.
00:30:46 Samantha Fitzpatrick
And then you have the choice at that point either to take the cash out, whatever you've got in your pot, or you can transfer it into an ISA, for example.
00:30:54 Samantha Fitzpatrick
So she had no clue that she had this money being put away by her grandparents.
00:30:59 Samantha Fitzpatrick
And now she's got a lovely wee nest egg that will hopefully be put towards our first car.
00:31:04 Samantha Fitzpatrick
So I think for things like that,
00:31:06 Samantha Fitzpatrick
to actually get people interested and start a conversation and, just be aware that it doesn't have to be a big scary world.
00:31:14 Samantha Fitzpatrick
If you use the right kind of language, it can be really interesting and it should be something I think that we should teach our children better about over time.
00:31:24 Cherry Reynard
Great, okay, we will wrap up there and we'll hope for some investment trusts in our stocking this year.
00:31:30 Cherry Reynard
So many thanks to Gabriel, Samantha and Rebecca and thanks to everyone for joining.
00:31:43
This podcast is provided for general information only and assumes a certain level of knowledge of financial markets.
00:31:50
It is provided for informational purposes only and should not be considered as an offer, investment recommendation or.
00:31:56
Solicitation to deal in any of the investments or products mentioned herein, and does not constitute investment research.
00:32:03
The views in this podcast are those of the contributors at the time of publication, and do not necessarily reflect those of Aberdeen.
00:32:10
The companies discussed in this podcast have been selected for illustrative purposes only, or to demonstrate our investment management style and not as an investment recommendation or indication of their future performance.
00:32:22
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00:32:29
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00:32:32
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