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Expert fund picks for your 2014 ISA

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We asked a panel of experts for their best fund suggestions for your ISA portfolio this year.

Investors yet to use their ISA allowance and looking for the must-have funds have just over six weeks to decide where to put their money before the tax year ends.

Millions of people fail to use their full allowance each year – currently set at £11,520. The rule from the Treasury is that if you don’t use it – you lose it.
For those that have maxed out their ISA this year will soon get a fresh allowance of £11,880.

The challenge for savers is picking the right funds. Many ISA savers are currently backing Britain with both Barclays Stockbrokers and Fidelity reporting that UK investment remained the top choice for its investors during January.

At Barclays 13 out of the top 20 most commonly bought funds had a UK focus.
The Cazenove UK Smaller Companies fund was the most popular choice for the sixth month in a row. It has returned 49% over one year.

Fidelity’s most popular fund during January was the Fidelity MoneyBuilder UK Index, while Cazenove UK Smaller Companies appeared in the top 10. The Fidelity fund has returned 12% over one year.

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Savers are encouraged to diversify and not to base their investment decisions on performance figures alone.

Patrick Connolly at Chase de Vere tipped the CF Miton Special Situations Portfolios fund which has lost 0.6% over one year.

He said: “Manager Martin Gray manages this fund in an absolute return style with an emphasis on making money rather than beating benchmarks. This approach has meant that the fund has been left behind as stock markets have raced ahead, although Gray is sticking to his guns and is still positioned very defensively.

“He is struggling to see any value in growth assets and is concerned about the withdrawal of quantitative easing and further political interference. If markets do fall, his investors should benefit from a high degree of protection.”

At Fidelity the second most popular fund bought last month was the Henderson European Special Situations fund. It returned 10.5% over one year compared to its benchmark of 16%.

Nick Peters, head of equity research for Fidelity Solutions, said: “In 2013, this fund lagged its comparative index. The market very much favoured a value style last year and in particular, economically exposed stocks with weaker cash flow generation than this fund would hold. Stocks exposed to the European periphery generally also outperformed where the fund is underweight.

“But this shorter term underperformance is not a major concern, as the manager, Richard Pease, remains true to his approach and continues to focus on quality franchises at reasonable valuations. Pease refuses simply to chase trends in the market and remains relatively less exposed to banks, indebted companies and periphery.”

Diversifying globally is recommended by Darius McDermott at Chelsea Financial Services. He said: “Rathbone Global Opportunities invests in developed markets around the world, with a bias towards smaller and medium sized companies. We prefer developed markets over emerging markets right now so this fits the bill nicely.

“More cautious investors, who think equity markets have gone a bit too far could opt for the Investec Special Situations fund. The manager has a very disciplined value approach and doesn’t get caught up in market hysteria, so it’s been very good at preserving capital in the past.” The funds have returned 32% and 16% over one year, respectively.

Tim Cockerill, investment director at Rowan Dartington said: “Fundsmith Equity is a quality global fund that will give investors exposure to some of the world’s best companies and Terry Smith’s fund has been very successful. It has a no nonsense approach to fund management and marketing which has won over a lot of investors.”

The fund seeks high quality stocks with high and sustainable returns, businesses where barriers to entry exist and where balance sheets are strong and management sound. It has returned 10% over one year.

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