Pension Plans with Cryptocurrencies

Monday, Jan 15

Pension Plans for Millennials

Millennial investors are not the archetypal investor that we are used to. With so much information available and with new technologies available, the new age investor is feeling empowered.

We have entered an age of ‘smart investing’, where millennials are looking for alternative options to invest in. Traditional investments have been marred by corporate interests and investors now want to participate in markets without traditional third-party interference.

Coming off the heels of the 2008 financial crisis, millennials have developed a widespread mistrust of banks. For many young adults, they witnessed their parents’ struggle through the worst recession since the Great Depression.

Millennials are interested in new markets, free of centralisation and packed with intelligence and innovation. We look at some of the key areas we believe millennials should be focusing on.



Millennials are typically in their Mid 20s to Mid/late 30s.


Cryptocurrencies

Bitcoin and associated cryptocurrencies are ideally suited to the millennial mindset, the same mindset that has seen them fed up with banks and irritated at the hegemony of the old money and the traditional investment options. Millennials have also been drawn to the cryptocurrency market due to its security — it can’t be directly devalued or confiscated by governments. That tends to bear much weight with Millennials considering their widespread distrust of governmental institutions.

Cryptocurrency’s materiality is fitting for a digital age, where technological savviness has championed technological scepticism.


Smart Beta

Smart beta defines a set of investment strategies that emphasize the use of alternative index construction rules to traditional market capitalization based indices. Essentially, Smart Beta ETFs are really anything that isn’t solely market-cap weighted. Instead, Smart Beta ETFs are weighted by Value, Growth, Dividend, Volatility, Size, etc. Smart Beta ETFs are also another way to package active management by putting it into a rules-based engine, while stripping out the capital gains and high fees.

Health

People around the world are embracing a mindset and an active approach to improving quality of life. Health is also a big deal for the Millennial. Being fit and healthy is much more important to this generation. Investment in health may also play into the mind of millennial investors. It’s one area where they’re prepared to spend more money, which makes for a decent investment case to invest in this industry. Health care costs are rising rapidly, and this is influencing changes in consumer behaviour, such as placing a greater emphasis on actively improving ones’ health through eating better food and getting more exercise.

Ethics

Recent studies suggest that Millennial investors are also more likely to focus on environmental, social and corporate governance issues (ESG). A shift towards more ethical views is evident across this generation and is something that is playing a key role in where investors are placing their money. More than a quarter of investors under the age of 45 have allocated at least 25% of their investments in socially responsible companies, according to a study by Spectrem Group and this is a trend that is growing.

Technology

With a long investment time frame, lower risk tolerance and a world of information available at their fingertips, millennials have many financial advantages. Technology and new regulations are giving the youngest generation of adults cutting-edge ways to invest their assets. There are numerous fintech start-ups ready to cater to millennials at any stage, from venture capital to chump change. Millennials have grown up with constant internet access and seemingly endless amounts information on demand. Having become so accustomed to using technology for every aspect of their lives, it only makes sense that technology plays a significant role in their investment style.


How could a Millennial focused pension look?

With all of the above in mind, we have put together a portfolio of funds and ETFs that captures the millennial mindset and values. This is not a recommendation and before investing we would recommend speaking to a professional advisor to tailor investments to your circumstances.

The breakdown of the portfolio is 30% Low Risk, 50% Medium Risk and 20% High Risk, as shown below in detail:

Low Risk - 30%

iShares € Corp Bond SRI 0-3yr UCITS ETF (SUSE) – 15%

The Fund seeks to track the performance of an index composed of Euro denominated ESG (environmental, social and governance) screened corporate bonds. Explicitly excludes companies involved in industries such as alcohol, tobacco, gambling, civilian firearms, military weapons, nuclear power, adult entertainment and genetically modified organisms (GMOs).

Lion Trust - Sustainable Future Corporate Bond Fund – 15%

Invests in a focused portfolio of corporate bonds that are attractively valued and take into consideration environmental, social and governance (ESG) factors by investing in companies that manage these exposures to minimise risk. As active managers, we believe in a high conviction approach to ensure we develop a thorough understanding of our holdings and the factors that influence their long-term value.

Medium Risk - 50%

First Trust Europe AlphaDEX® Fund (FEP) – 5%

The NASDAQ AlphaDEX® Europe Index is an "enhanced" index created and administered by Nasdaq, Inc. ("Nasdaq") which employs the AlphaDEX® stock selection methodology to select stocks from the NASDAQ Europe Index that meet certain criteria.

First Trust United Kingdom AlphaDEX® Fund (FKU) – 5%

The NASDAQ AlphaDEX® United Kingdom Index is an "enhanced" index created and administered by Nasdaq, Inc. ("Nasdaq") which employs the AlphaDEX® stock selection methodology to select stocks from the NASDAQ United Kingdom Index that meet certain criteria.

iShares Nasdaq Biotechnology ETF – 5%

The iShares Nasdaq Biotechnology ETF seeks to track the investment results of an index composed of biotechnology and pharmaceutical equities listed on the NASDAQ.

iShares Healthcare Innovation UCITS ETF – 5%

The Fund seeks to track the performance of an index composed of developed and emerging market companies which are generating significant revenues from specific sectors focused on pushing the boundaries in medical treatment and technology.

iShares Digitalisation UCITS ETF – 5%

The Fund seeks to track the performance of an index composed of developed and emerging market companies which are generating significant revenues from digitally focused services.

iShares Automation & Robotics UCITS ETF – 5%

The Fund seeks to track the performance of an index composed of developed and emerging market companies which are generating significant revenues from specific sectors associated with the development of automatic and robotic technology.

iShares Global Clean Energy UCITS ETF – 5%

The Fund seeks to track the performance of an index composed of 30 of the largest global companies involved in the clean energy sector.

Global X Healthy Lifestyle ETF – 5%

It invests in stocks of companies operating in the healthy lifestyle sector, including companies that provide services, solutions and/or products that promote physical wellness through active and healthy lifestyles such as fitness technology, athletic apparel, nutritional supplements, gyms/health facilities and organic/healthy food offerings. The fund invests in stocks of companies across all market capitalizations.

UBS (Irl) ETF plc – MSCI United Kingdom IMI Socially Responsible UCITS ETF – 5%

The fund generally invests in stocks contained in the MSCI United Kingdom IMI Socially Responsible Index. The relative weightings of the companies correspond to their weightings in the index.

UBS ETF (LU) MSCI World Socially Responsible UCITS ETF (USD) A-dis – 5%

The fund generally invests in stocks contained in the MSCI World Socially Responsible Index. The relative weightings of the companies correspond to their weightings in the index.

High Risk - 20%

Bitcoin Investment Trust – 10%

The Bitcoin Investment Trust is an open-ended grantor trust based in the U.S., sponsored by Grayscale Investments. It is invested exclusively in bitcoin and derives its value solely from the price of bitcoin. The Trust's objective is for the NAV per share to track bitcoin's market price.

SPDR® MSCI World Small Cap UCITS ETF (GBP) – 10%

The objective of the SPDR MSCI World Small Cap UCITS ETF is to track the performance of small sized companies in developed equity markets globally. It aims to do this by is to track the performance of the MSCI World Small Cap Index as closely as possible.

Portfolio Overview

This is the collective, hypothetical performance of the above portfolio YTD, benchmarked against the MSCI World Index Fund.




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