The early bird caught the worm last tax year. Investors using their 2017/18 ISA allowance early could have generated strong returns with global stock markets made good progress. Positive economic news outweighed political uncertainties until late on in the year, and the top performing sectors were Japanese Smaller Companies, China, UK Smaller Companies and Technology.
The 'New Japan'
The top-performing fund, Legg Mason Japan Equity, would have turned the full ISA allowance of £20,000 into £28,520 – though bear in mind past performance is not a guide to the future, the value of all investments can fall as well as rise and some funds sustained losses over this period.
The manager, Hideo Shiozumi, focuses on growth companies positioned to benefit from the development of the ‘New Japan’ – firms able to exploit opportunities relating to Japan’s advanced elderly society, changes in consumer spending and lifestyles, and a broadening internet-based economy. The resulting high-conviction portfolio of small and medium-sized companies bears little resemblance to the index or its peers.
Other Japanese smaller company funds feature prominently, especially those oriented towards technology and other growth stocks. This was a winning strategy for a number of global funds too, such as Baillie Gifford Positive Change and Baillie Gifford Global Discovery, which also benefited from exposure to Asia, China in particular.
Defying Brexit gloom
A focus on growth served the top-performing UK fund, Jupiter UK Smaller Companies, well, defying the spectre of a looming Brexit and uncertainty over the direction of negotiations between the UK and European Union. In fact, a number of UK smaller companies rose strongly over the period, notably those with significant exposure to companies with overseas earnings, and to businesses whose performance is dictated more by their own progress than that of the UK economy.
For FP Argonaut Absolute Return it was a case of an experienced fund manager, Barry Norris, bouncing back following a poor run. The fund endured a difficult 2016 when the manager’s aggressive, higher risk approach in this sector combined with poor stock and sector positioning, but he has since recovered most of the previous losses.
Does being an early bird always pay off?
Some investors leave investing in an ISA until the end of the tax year, but it can be best to use your allowance as soon as possible. Investments are sheltered from tax right away and the earlier you invest the longer you have to generate returns. However, every year is different in terms of the performance of markets and individual funds. In the longer term the duration of your investment tends to have greater influence on returns than the timing of them; but it can make a difference, especially in the shorter term.
Although investors should be aware past performance is not a reliable indicator of future results, here are the top ten Investment Association funds for the 2017/18 tax year:
Past performance is not a reliable indicator of future returns. Figures are shown on a total return basis, bid to bid price with net income reinvested; Source: FE Analytics, data for 2017/18 tax year: 06/04/2017 to 05/04/2018. Onshore and retail open-ended funds only.
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