Advisers pick favourites

income or growth

PICKING the right PEP from the hundreds on offer is not easy. Although PEPs are on offer throughout the year, there is an inevitable rush to invest shortly before the end of the tax year, so the advertising by PEP fund managers tends to be concentrated at this time of the year.

All the ads claim a magic key to income and performance, but clearly they cannot all be right. Many investors turn to independent financial advisers (IFAs) for advice. So which PEPs are the advisers recommending?

Mason Ball & Associates are IFAs in Bagshot, Surrey. They are members of the Countrywide IFA network of more than 550 member firms. Countrywide issues an approved list of products that offer low charges, flexibility and good performance.

The two fund managers from that list which Ernest Noad, financial services manager at Mason Ball, recommends are M&G and Perpetual.

"Perpetual offers a 2 per cent discount at present on both their income and their growth funds, which effectively negates most of the up-front charges," Mr Noad says. "It's a long-established company with an excellent track record in producing returns."

The M&G PEPs he recommends are the Managed Income PEP and the Growth PEP. The first, launched a year ago, had attracted £750m by the end of December, making it one of the largest M&G funds. Its key attraction is that it does not levy charges on investments as they come in; instead it makes a charge when the units are cashed. This charge reduces each year that the PEP is held, disappearing altogether after five years.

"This means that every pound the investor puts in is invested straight away," says Mr Noad. "It also pays a good monthly income, tax free. If investors do not need the income, they can leave it in the PEP."

However, if the investor is specifically looking for growth, Mr Noad would recommend M&G's Growth PEP. It works on exactly the same basis as the Income PEP, but the selection of M&G unit trusts is geared towards growth - it invests in smaller company and international funds, for example. The fund was launched in October 1994 and had attracted nearly £60m in investment by the end of December.

For those who want to invest in shares rather than unit trusts, Mr Noad recommends the new Johnson Fry Hy5 PEP. "This is based on an unusual system of investing only in shares that are in the FT30 index. Each year the 10 highest yielding shares out of the 30 are identified. From those 10, the five with the lowest share price in pence are chosen for investment. The idea is that these shares should have the greatest scope for capital growth."

The Johnson Fry Hy5 PEP was also picked by Terence Brealey, an IFA in Potters Bar, Hertfordshire. He is a member of the DBS Financial Management network of IFAs, with more than 1,250 member firms nation-wide. Although the Hy5 PEP is not on the DBS recommended list, Mr Brealey says he still likes it. "The system they use would have outperformed most PEPs in the past few years," he says. "Because they are only picking from the FT30, they are selecting from the best of the blue chips and their criteria should pick those most likely to grow in the coming year."

He also likes the charging structure used by Johnson Fry, which is similar to that of M&G - no charge on entry but a charge on withdrawals. This was also an attraction for Mr Noad, but he warns that investors should look at PEPs as at least a five-year investment.

"If investors are not happy to tie up their capital for that length of time," says Mr Noad, "they should not be investing in a PEP at all."

Another scheme Mr Brealey likes is a split-capital investment trust PEP from Henderson. In their simplest form, split-capital investment trusts have two different classes of shares, one of which takes all the income generated by the fund, and the other which takes all the capital growth but no income. Henderson offers the PEP with income or growth shares.

"I like the way that the investor can make a clear choice between income and capital growth," says Mr Brealey.

In general Mr Brealey feels there are a lot of PEPs around which look good. "It is a cut-throat market at present, and fund managers are competing heavily for business. They are coming up with more and more innovative products with lower charges, and that can only be good for the customer."

Voices
On the last day of campaigning before the polling booths open, the SNP leader has written to voters in a final attempt to convince them to vote for independence
voicesIs a huge gamble on oil keeping the First Minister up at night?
Arts and Entertainment
Rosalind Buckland, the inspiration for Cider with Rosie died this week
booksBut what is it like to be the person who inspires a classic work of art?
Life and Style
techApple has just launched its latest mobile operating software – so what should you do first?
News
A male driver reverses his Vauxhall Astra from a tow truck
newsThe 'extremely dangerous' attempt to avoid being impounded has been heavily criticised
PROMOTED VIDEO
Arts and Entertainment
Lionel Messi in action for Barcelona
filmWhat makes the little man tick?
Arts and Entertainment
tvReview: An undercooked end (spoiler alert)
News
i100
News
ebooksAn unforgettable anthology of contemporary reportage
Arts and Entertainment
Pharrell dismissed the controversy surrounding
musicThe singer said 'the last thing I want to do is degrade'
Sport
Cesc Fabregas celebrates his first Chelsea goal
footballChelsea vs Schalke match report
Arts and Entertainment
Toby Jones (left) and Mackenzie Crook in BBC4’s new comedy The Detectorists
tvMackenzie Crook's 'Detectorists' makes hobby look 'dysfunctional'
Life and Style
fashion

Olympic diver has made his modelling debut for Adidas

News
i100
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Trainee Recruitment Consultant Birmingham

£18000 - £23000 per annum + Comission: SThree: The SThree group is a world lea...

Trainee Recruitment Consultant - Birmingham - Real Staffing

£18000 - £23000 per annum + Commission: SThree: Real Staffing are currently lo...

Recruitment Consultant - Soho - IT, Pharma, Public Sector

£20000 - £25000 per annum + OTE £35,000 first year: SThree: The SThree group i...

Sales Executive

£20 - 24k (Uncapped Commission - £35k Year 1 OTE): Guru Careers: We are seekin...

Day In a Page

Mystery of the Ground Zero wedding photo

A shot in the dark

Mystery of the wedding photo from Ground Zero
His life, the universe and everything

His life, the universe and everything

New biography sheds light on comic genius of Douglas Adams
Save us from small screen superheroes

Save us from small screen superheroes

Shows like Agents of S.H.I.E.L.D are little more than marketing tools
Reach for the skies

Reach for the skies

From pools to football pitches, rooftop living is looking up
These are the 12 best hotel spas in the UK

12 best hotel spas in the UK

Some hotels go all out on facilities; others stand out for the sheer quality of treatments
These Iranian-controlled Shia militias used to specialise in killing American soldiers. Now they are fighting Isis, backed up by US airstrikes

Widespread fear of Isis is producing strange bedfellows

Iranian-controlled Shia militias that used to kill American soldiers are now fighting Isis, helped by US airstrikes
Topshop goes part Athena poster, part last spring Prada

Topshop goes part Athena poster, part last spring Prada

Shoppers don't come to Topshop for the unique
How to make a Lego masterpiece

How to make a Lego masterpiece

Toy breaks out of the nursery and heads for the gallery
Meet the ‘Endies’ – city dwellers who are too poor to have fun

Meet the ‘Endies’ – city dwellers who are too poor to have fun

Urbanites are cursed with an acronym pointing to Employed but No Disposable Income or Savings
Paisley’s decision to make peace with IRA enemies might remind the Arabs of Sadat

Ian Paisley’s decision to make peace with his IRA enemies

His Save Ulster from Sodomy campaign would surely have been supported by many a Sunni imam
'She was a singer, a superstar, an addict, but to me, her mother, she is simply Amy'

'She was a singer, a superstar, an addict, but to me, her mother, she is simply Amy'

Exclusive extract from Janis Winehouse's poignant new memoir
Is this the role to win Cumberbatch an Oscar?

Is this the role to win Cumberbatch an Oscar?

The Imitation Game, film review
England and Roy Hodgson take a joint step towards redemption in Basel

England and Hodgson take a joint step towards redemption

Welbeck double puts England on the road to Euro 2016
Relatives fight over Vivian Maier’s rare photos

Relatives fight over Vivian Maier’s rare photos

Pictures removed from public view as courts decide ownership
‘Fashion has to be fun. It’s a big business, not a cure for cancer’

‘Fashion has to be fun. It’s a big business, not a cure for cancer’

Donatella Versace at New York Fashion Week