Top ISA funds: what the experts say…
Max King, manager, Investec Managed Growth fund
“In the topsy-turvy world of quantitative easing, investment strategies at the cautious end of the spectrum guarantee real losses, while strategies normally regarded as “adventurous” are the only ones likely to protect investors from persistent inflation and devaluation.
“That means a heavy focus on equities but there is no need to be reckless; a well-diversified portfolio is better than a big bet in any one area – for example, constructing a portfolio where no holding makes up more than 5% of the fund, in a broad range of investment funds.
“A model portfolio might see around 10%-15% invested in general global funds and 45% in regional specialists. Findlay Park American is one such regional specialist. Our view is that an allocation is also made to regional small-cap funds to capture the long term outperformance of funds in that area.
“Then, the remaining allocation might be invested in sector funds, notably healthcare – for example the World Healthcare trust – resources, technology, property and private equity, such as Electra Private Equity. Holdings in investment trusts or other closed-end companies offer lower costs, better corporate governance and better performance than open-ended funds run by the same managers.”
Patrick Connolly, certified financial planner, AWD Chase de Vere
“Old Mutual UK Select Smaller Companies benefits from a proven investment team which adopts quite an aggressive approach. The manager looks particularly for companies which are benefiting from structural growth and those with exposure to emerging markets.
“JPM Natural Resources invests primarily in gold and other mining shares and has had a torrid couple of years. This is largely because many investors have shunned the perceived high risks of these stocks, which has left many now at attractive valuations and potentially poised to perform well if sentiment improves.”
Gary Potter and Rob Burdett, co-managers, Thames River Balanced Managed fund
“The Mixed Investment 40-85% Shares sector is currently one of the best performing sectors in absolute terms. While we are in a period where markets are on the up, its larger allocation to equities and riskier assets in general reaps rewards for those investors able to take that little bit more risk, but do not want full exposure to equity markets.
“There is a wide variety of asset allocation across the sector and some funds are more biased to sterling assets than others.
“We are fans of the Odey Odessy fund, run by Tim Bond, and the JP Morgan Global Consumer Trends fund, which taps into the thematic approach to the consumer on a global basis. We also like the recently launched Blue Capital Global Reinsurance fund, as a non-correlated asset.
“In an underweight fixed income allocation we like Stewart Cowley’s Old Mutual Global Dynamic Bond fund but also feel a full allocation to good quality stock pickers will serve investors well.”
Darius McDermott, managing director of Chelsea Financial Services
“Rathbone’s Global Opportunities fund, run by James Thomson, is an out-and-out growth fund which will also invest in a number of mid- and smaller-companies.
“This fund has a consistent track record and has improved its performance in more difficult markets. It is a good choice for investors looking for a core global growth fund.”
Tim Gardner, co-manager, Legal and General’s Multi Manager funds
“The biggest risk to an investor’s returns over the long-term is overpaying for an asset, hence one must pay particular attention to valuation rather than simply focusing on expected volatility of future returns.
“At present, valuations of the traditional asset types invested in by more cautious investors, notably developed market government bonds and cash, do not look particularly attractive, offering negative real returns.
“With this in mind, even a cautious investor should consider having some degree of exposure to other assets that arguably carry less ‘valuation risk’ (provided they have a sufficiently long-term view to ride out any shorter-term volatility).
“Within the fixed income space, this might include high yield bonds, which still offer reasonable spreads over government bonds, albeit to a lesser extent than this time last year.
“One fund we like here is the Nordea Global High Yield Bond fund, managed by New York-based firm MacKay Shields. They are a highly-experienced team of investors in this segment of the market and are able to successfully combine disciplined and rigorous fundamental credit analysis with a strong macro overlay. Income-focused equity funds are also worth considering given valuations look more favourable than government bonds.
“A solid pick here would be Veritas Global Equity Income, whose ‘real return’ approach to investing focuses on identifying stocks that have sufficient margin of safety in their valuation and which are likely to benefit from identified long-term themes and structural trends.”
Mike Deverell, investment manager, Equilibrium Asset Management
“Typically, low risk investors opt for bonds or gilt funds. However, with inflation persistently higher than the Bank of England target, and bonds looking very expensive relative to history, there is a chance of losses in this asset class.
“A good alternative would be the M&G UK Inflation Linked Corporate Bond fund. It can benefit from rising inflation yet is less sensitive to interest rates than many other funds. We also prefer this option to a traditional index linked gilt fund, which we think could actually produce below inflation returns.