Last-minute ISA fund picks for income, growth and value investors
By adding to your ISA pot each year, you can build up a considerable tax-free shelter around your investment portfolio. Over time, this could mean higher returns. Time is running out for investors wishing to use this year’s £15,240 allowance, and it is lost forever if you do not use it.
Many investors know which investments they want to choose for their ISA, but if you are looking for inspiration here are three funds you may want to consider. Each represents a different investment approach and level of risk, and they are provided for your interest but are not a guide to how you should invest.
Income-producing, defensive option – Investec Diversified Income
The challenge of securing a reliable income from investments has never been more challenging. As the ‘baby boom’ generation moves into retirement, assets that offer a regular income have been highly sought after, yet at the same time yields on virtually all asset classes have been falling as interest rates around the world have been cut to historic lows. Yet there are still opportunities to produce a healthy income, especially for those prepared to be flexible about their asset allocation and invest in a ‘multi-asset’ fund such as Investec Diversified Income fund.
The fund is managed by John Stopford, and draws upon the combined knowledge of the bond and equity teams at Investec aiming to produce a sustainably high income (presently it yields 3.8%, variable, not guaranteed) while providing some modest capital growth. Stopford blends what he sees as the most attractive opportunities in equities, high yield bonds, emerging market debt and, at times, listed property and infrastructure. He also seeks to reduce risk by ensuring there is a diverse range of assets, and historically the fund has experienced less than half the volatility of UK equities. We believe this is a well-managed income fund overseen by an experienced and committed team.
Aiming for dividend growth – M&G Global Dividend
Dividends have historically been the most important feature of investing in equities, but they are sometimes overlooked. Not only do they form an integral part of overall return, but companies whose earnings and dividends rise over time will likely have strongly performing share prices too. In contrast, those that disappoint investors with stagnating or falling dividends often see their share prices punished.
Identifying companies with growing dividends is the goal of equity income fund managers, yet some such as Stuart Rhodes of M&G Global Dividend fund prefer not to adhere to the constraints of an equity income sector. This would dictate funds that his fund yields above a certain amount. He prefers the freedom of selecting companies with lower yields but the capacity to grow them quickly, aiming for greater overall returns over the long-term. Rhodes holds a well-diversified portfolio, combining stable multinational businesses with those in more economically-sensitive industries, and we believe it has the scope to add value in various market conditions while providing an attractive and growing income to investors.
An adventurous option – Invesco Perpetual Asian
Following a turbulent few years for Asian stock markets, 2016 saw a reversal of fortunes. Yet they continue to look good value in our view, and long-term growth prospects should remain underpinned by an increasingly wealthy and well-educated population boosting consumption.
Although sometimes overshadowed by concerns about the sustainability of high growth rates in China, there will always be companies across this diverse area that will prosper, and currently investors have the opportunity to buy shares in this higher-risk region at attractive prices.
One of our favourite investments for exposure is Invesco Perpetual Asian fund managed by Stuart Parks and William Lam. Their approach combines global economic views with careful research into individual companies. Parks believes a business’ operating conditions are largely determined by the broader economic and political environment and retains a flexible and pragmatic approach not driven by a particular investing ‘style’. He does, however, favour companies with strong cash flows, sound balance sheets, good-quality management and a stable market position.
Rob Morgan is a pensions and investments analyst at Charles Stanley Direct