THE ISA deadline is a little over a week away, so now is the time to maximise your allowance (up to £11,520 in a stocks and shares Isa in 2013-14). It is also a good time to review your portfolio and consider new investment opportunities. In the latest in our series on Isa ideas, City A.M. examines three more investment themes – and asks the experts for their top fund picks – for 2014.
PROFILE: EUROPEAN FUNDS
European stock markets have been the top performers of the major equity markets in the last 12 months. In the year to March, the FTSE Europe ex-UK index returned 12.85 per cent compared to 12.6 per cent for the S&P 500.
Tony Lanning of JP Morgan says: “European market valuations don’t look demanding, and the region is finally expected to show profit growth after three years (supported by improving economic conditions).”
But Tom Stevenson of Fidelity warns that the long-term outlook for Europe remains difficult. “Poor demographics and, potentially, a resurgent competitive threat from Japan and the US (thanks to shale), add to the negative case against Europe. The region as a whole does not look particularly compelling after last year’s gains.”
TT International Europe ex-UK. “It is one of our highest conviction funds, and offers exposure to companies geared towards a European recovery,” says Manning. It has grown 19.14 per cent in the past 12 months, compared to a 12.51 per cent sector average.
BlackRock Continental European. “It has strong awareness of broader economic themes and a strong track record,” says Stevenson. It has risen 16.8 per cent in the past year.
Henderson European Focus. “We like this fund for larger company exposure,” says Jason Hollands of Bestinvest. “It has a strong value-style bias, and currently has a major play on pharmaceutical companies.” It has grown 18.7 per cent in the past year.
PROFILE: TRACKER FUNDS
It is, of course, just as important for passive investors to maximise their Isa allowance as it is for active investors. And tracker funds can be useful for those wanting an easy and inexpensive way to invest. “The downside is that, after charges, they will relatively underperform the market they track,” says Mark Till, head of Fidelity Personal Investing.
Hollands thinks they can work well in certain very liquid parts of the market, such as US large-cap equities. But he adds: “I am less convinced about investing in these types of funds at the moment. Overall, we are relatively cautious on equity markets, given stretched valuations on a number of exchanges. So this may not be the right time to invest in index funds, which will slavishly track downwards in the event of a sell-off.”
Fidelity Index UK. “It tracks the FTSE All Share, which comprises approximately 600 of the largest UK companies,” says Till. It has seen 7.2 per cent one-year growth.
Legal & General International Index Trust. One for the more adventurous investor. The fund is “one of the most straightforward ways to invest globally,” says Laird. It tracks the FTSE 100 World (ex-UK) Index, and invests in over 2,000 companies worldwide. The fund has seen 6.2 per cent growth in the past year.
PROFILE: INVESTMENT TRUSTS
Investment trusts offer choice and often cover some very niche sectors.
But according to Adrian Lowcock of Hargreaves Lansdown, “they are more complicated, so require a lot more research. They are best suited for investors in illiquid assets, like infrastructure, where a long-term horizon is necessary.” And while Hollands thinks they should “definitely be on investors’ radars,” he also says that there are few bargains to be had as discounts have narrowed to all-time lows.
One appealing feature, however, is that managers can borrow to boost gains. This does carry added risk – losses will be magnified if investments don’t perform. “It can make them riskier than a unit trust investing in the same underlying companies,” says Darius McDermott of Chelsea Financial Services.
Witan Investment Trust. “A more generalist trust which has been a good core holding over the years,” says McDermott. It has grown 14.7 per cent in 12 months.
RIT Capital Partners. “The investment trust aims to achieve long-term capital growth, while preserving the shareholders’ capital,” says Mick Gilligan of Killik. It rose 9.3 per cent in one year.
JP Morgan Emerging Market IT. “Right now, investors could consider using investment trusts to build exposure to out-of-favour emerging markets (EMs), as there are discounts to be found,” says Hollands. The fund is currently trading on an 11 per cent discount. But due to EM volatility, it has seen negative growth in the past year.