Ideas for your ISA: six fund picks
AXA Framlington Biotech fund – if you want a very sector-specific investment and can stomach volatility
By the very nature of being a sector specific investment, investors should be prepared for potential volatility as witnessed in recent months. Both the biotech and healthcare sectors have seen a strong sell off but we are still of the opinion that the overall investment theme has strength and longevity despite the recent underperformance. Given the uncertainty already experienced in markets in 2016 and with the potential for further rate rises in the US and a presidential election, markets are likely to remain volatile, however our needs and desire for advancements in treatments are not abating. An ideal potential long term investment if you can stomach the volatility.
CF Miton UK Value Opportunities fund – if you want UK growth exposure
Fund managers George Godber and Georgina Hamilton seek to identify UK companies that they believe are trading at a significant discount to their intrinsic value, through a robust bottom-up stock selection process. They select companies with strong balance sheets and good cash flow, from across the market cap spectrum – although the majority of underlying investments will often come from mid- to small- cap companies.
Despite a relatively short investment history, this team has already proven their stock- picking ability and we believe they have the attributes and approach to continue doing so going forward. There are a number of funds that strive to adopt a deep-value investment strategy, and this fund is one that we feel truly delivers.
Fundsmith Equity fund – if you want a high conviction manager
Managed by one of the industry’s most respected leading managers and founder of the business, Terry Smith, this highly concentrated fund is a shining example of high-conviction investing, unlike many others which aspire to this investment philosophy.
The fund has a preference for defensive companies that are resilient to change, technological innovation and who have existing advantages that are difficult to replicate. To feature in the fund, companies must have conviction in growth from reinvestment of cash flows and must not require significant leverage to generate returns. Due to the fund’s global nature and its focus on defensive companies, investors should not be surprised to find it contains a strong US presence and a raft of household company names.
Legg Mason Japan Equity fund – if you want Japan exposure via a top performer
The fund, which has the accolade of being the top performing fund in 2015, seeks to benefit from the economic and structural changes that Japan faces, as the promises and directives of Prime Minister Shinzo Abe’s ‘Abenomics’ policies continue to take hold.
The fund has the flexibility to invest across the entire market cap spectrum, although generally focuses on those between £330m and £1bn. Investors should be prepared to accept a higher degree of volatility with this fund, but for those seeking the potential for strong growth, this fund may well be suitable for 2016.
Liontrust UK Smaller Companies fund – if you want small cap exposure
The investment process is driven by what highly respect managers Anthony Cross and Julian Fosh term the ‘Economic Advantage’. This involves a rigorous appraisal of prospective investments against a number of intangible criteria, which include ‘intellectual property’, ’distribution channels’ and ’repeat business’. The fund managers believe these measures form the bedrock of a company’s strength, and competitors will struggle to replicate this, creating high barriers to entry.
They also seek to identify and evaluate other key intangible strengths such as ‘franchises and licences’, ‘customer databases and relationships’, ‘procedures and formats’, ‘culture’ and ‘brand’. Given the nature of the market cap spectrum the fund faces into, the managers will only invest in companies for which there is a minimum director ownership of at least 3%.
Schroder European Alpha Income fund – if you want exposure to Europe and regular income stream
Europe is another region we believe will continue to benefit from supportive monetary policy during 2016. Manager James Sym adopts a cyclical approach to investing. As the economy progresses through the phases of recovery, expansion, slowdown and recession, the fund’s holdings will subsequently be aligned with those that perform best within these areas.
With the benefit of quarterly income distributions, this may well appeal to investors seeking to diversify their income streams.