Stocks and shares ISAs are a tax-efficient way to potentially grow your money by investing, so they should be an essential part of your overall wealth planning.
But, with such a wide array of investment choice, the hardest part is deciding what to put in them. To give you some food for thought, we asked a handful of professional fund researchers what they would buy today with £1,000 to put in a stocks and shares ISA. What will you put in yours?
Ben Yearsley, a director at Shore Financial Planning, says he is torn between the UK and emerging markets, as both look promising for the next few years. But, on balance, he chooses the UK, picking a small-cap investment trust – the Montanaro UK Smaller Companies trust, which is currently trading on a discount, meaning it’s a good point for investors to jump in at a cheaper cost.
“UK smaller companies had a sharp rebound last year and don’t look as good value as they once were,” says Yearsley. “However, with the economy set to rebound as the impact of vaccinations kick in, and investors looking more favourably towards the UK now that a Brexit deal has been done, the outlook looks bright. A trust such as Montanaro is ideally placed to capitalise.”
Another smaller companies pick comes from Richard Cole, fund manager at Future Money, who highlights a global fund from Aberdeen Standard Investments (ASI).
“If I had to pick just one fund to hold in an ISA right now it would be something like ASI Global Smaller Companies. If just holding one fund then I want global exposure in there for diversification but, where we are in the cycle currently, with economic recovery likely to be in place over the next few years, I would want the rapid growth exposure often inherent in smaller companies investing. Small-cap investing can often be a wild ride but, if you able to be sufficiently patient, the returns often come good in the end.”
For Shauna Bevan, director at RiverPeak Wealth, now is the time to back value stocks at home. “Without getting too carried away by the success of the vaccination rollout, my top pick for a £1,000 investment today would have to be a fund investing in UK-listed companies,” she says. While the UK stock market has underperformed other global markets for a long time, there are signs that international investors are looking at the market again. The FTSE All Share has climbed sharply since Pfizer’s November vaccine breakthrough, beating the rise in the S&P 500, although it still has a lot of relative ground to make up, Bevan notes.
“Two funds I like are Man GLG Undervalued Assets and JOHCM UK Equity Income. They would both regard themselves as value managers but JOHCM has a higher yield and there are only two common holdings within their top ten. Last year was a tough one for both funds, but the managers have remained resilient and are genuinely excited about the opportunities ahead.”
As the economy begins to reopen, holding a fund in your ISA which would benefit from a strong economic bounce-back in the second half of the year could be a good option, suggests Tom Becket, chief investment officer at Punter Southall Wealth. “I think the River and Mercantile Global Recovery fund could well be something which is suitable for stocks and shares ISAs at this point in time. The fund has a bias towards sectors which are cheaper, such as financials and industrials, and also north Asia and emerging markets which look relatively cheap in a world where valuations are getting increasingly stretched.”
And now for something completely different. While many researchers are seeing opportunities in UK stocks right now, Edison Group’s director of investment companies research Sarah Godfrey would invest her money further afield, in Vietnam. “In a year of talking about the COVID-19 pandemic, one of the biggest things that struck me was how well Vietnam had dealt with it,” she says. The country has had fewer than 2,000 cases of the virus, and only 35 deaths, owing to a strong government response and people following the rules. While it’s still a developing market, the Vietnamese government is investing heavily in infrastructure to boost the economy, which Godfrey points out was one of the few worldwide to have actually grown last year. It has also benefited from US/China trade tensions by presenting itself as an alternative manufacturing base.
To tap into this market, Godfrey suggests a Vietnamese equity investment trust, of which UK investors have three to choose from. “My personal pick would be VinaCapital Vietnam Opportunity, which invests in private as well as public equity, giving it a bigger pool to fish in. It is also the only one of the three to pay a dividend,” she says.