THE ISA deadline is just days away, and the chancellor’s recent decision to enhance the tax wrapper’s flexibility (as well as increasing the annual allowance to £15,000 from 1 July) has heightened its attractiveness as a vehicle for long-term capital growth. We ask the experts for some last minute ideas – and funds – to suit your risk profile.
PROFILE: CAUTIOUS INVESTORS
Fixed income has been through a rough patch in the past couple of years, with record low interest rates squeezing yields on government and investment-grade corporate bonds.
But yields have improved since the US Federal Reserve began its taper, and Jason Hollands of Bestinvest says they could rise further this year. “We favour bond funds with the flexibility to invest across the credit spectrum and adjust to changing interest rate expectations.” But, he adds, this might be a good time to look at absolute return funds – which use “hedge fund-like techniques” to generate returns, regardless of market environment.
But Darius McDermott of Chelsea Financial Services says investors seeking capital growth will need to consider equities. Developed markets are his “favoured area” for 2014.
■ L&G Dynamic Bond Trust. “A truly flexible total return fund. It combines a ‘top-down’ view with ‘bottom-up’ analysis in investment-grade and high-yield bonds from around the world, ” says Tom Stevenson of Fidelity. It is currently yielding 5.3 per cent.
■ Jupiter Absolute Return. “Its manager invests in a portfolio of firms he thinks will rise, but he also takes positions to profit from those he thinks will fall. The goal is to achieve returns of 6 per cent per year (after costs), with low levels of volatility” says Hollands.
■ Schroder Managed Balanced. “It invests in equities, cash and bonds across a range of Schroders funds. Suitable as a core holding, or as a one-stop shop for investors,” says Adrian Lowcock of Hargreaves Lansdown.
PROFILE: MEDIUM-RISK INVESTORS
Medium-risk investors will tend to have a greater holding in equities, but the size of the companies they invest in is key.
“A multi-cap fund gives exposure to smaller and mid-sized companies, offering good growth potential. But it is wise to have some large cap exposure to bring the risk profile down,” says McDermott. Most developed markets are looking fair value, he adds, but the long-term outlook for Europe remains difficult. “Medium-risk investors should minimise exposure to the region.”
Telegraph research, meanwhile, has found that investing in global growth funds would have turned £10,000 into £18,000 in the past five years. “Global equities will provide long-term growth, and ensure investors don’t miss out on specific markets,” says Lowcock.
■ Rathbone Global Opportunities. “The fund has a bias towards small and medium-sized companies,” says McDermott. It has grown 11.6 per cent in the past year, compared to a 6.4 per cent sector average.
■ Baring Europe Select. “We think European shares look better value than US equities at present. This is a very diversified portfolio of around 100 smaller-sized companies,” says Hollands. It rose 21.8 per cent in 12 months.
■ Newton Global Higher Income. “Manager James Harries aims to produce long-term capital growth by investing in global equities. He aims to outperform the FTSE World Index by 1 per cent to 2 per cent per annum, ” says Lowcock. The fund has risen 3.2 per cent in 12 months.
PROFILE: ADVENTUROUS INVESTORS
Some long-term savers will opt for funds which offer big gains in exchange for greater risk. Emerging markets returned 403.9 per cent between 2003 and 2011 – and despite recent volatility, these economies could be a good long-term bet.
Hollands says: “Investors have been reminded how unstable these regions can be. But these markets also account for half of the world’s population. They will drive much higher growth in the long term than the developed world – where populations are ageing.”
Lowcock, meanwhile, points to smaller companies. They have had a good run of late, benefitting from UK recovery and a renewed appetite for risk-taking. And according to Stevenson, they provide good diversification for long-term savers.
■ BNY Mellon Long Term Global Equity. “By holding companies for the long term, the managers allow them to realise their full growth potential, as well as compound the returns they make,” says Stevenson. The fund has grown 1.2 per cent in 12 months.
■ First State Asia Pacific Leaders. “There are still good growth opportunities in Asia,” says McDermott. The portfolio is overweight Hong Kong, India and Singapore. Due to recent emerging market volatility, however, it has seen negative growth in the past year.
■ Marlborough UK Micro Cap Growth. “Manager Giles Hargreave tends to focus on Aim shares, which are less well-researched by the market,” says Lowcock. The fund has risen 39.6 per cent in the past year.