Experts lift the lid on their ISA investments
As we draw closer to the end of the tax year, you may be looking for inspiration for your ISA portfolio. We speak to six industry experts to find out where they’ve invested their ISA allowance.
‘I’m willing to take high risks’
Patrick Connolly, certified financial planner at Chase de Vere: “My starting point is that I don’t pretend to know where stock markets will go in the short-term. I have some concerns about current market valuations, which is why my existing ISA holdings are diversified geographically and by asset class to spread risks.
“However, for my new ISA investments I am willing to take high risks. This is because I am investing regular premiums, which help to negate the risks of market timing, I’m taking a long-term approach and am prepared to ride out any volatility.
“My holdings are equally split between the Miton UK Smaller Companies fund and the Liontrust UK Micro Cap fund.
“Smaller companies typically out-perform in the longer-term. However, having an experienced manager or investment team is essential in this asset class. The Miton fund is managed by Gervais Williams, who is one of the most experienced and respected smaller company managers. The Liontrust fund benefits from an excellent investment team and a strong process and this particular fund invests in companies which are smaller than in their top performing UK Smaller Companies fund.”
‘The case for investing in Japan remains intact’
Maike Currie, investment director for Fidelity International: “For this tax year, I split my ISA allowance across three funds. Rather than stumping up a lump sum I have been drip-feeding money into these funds each month. Not only does this make saving into an ISA more manageable but I’m benefitting from a process known as pound-cost averaging – buying more units when prices are low and fewer when prices are high.
“In a lower for longer environment it’s important to look for a sustainable source of income so I have opted for the Invesco Perpetual European Equity Income fund. The fund is managed by Stephanie Butcher who focuses on finding dividend-paying companies with attractive valuations. She is less concerned about the sector or country in which a company resides and doesn’t shy away from the out-of-favour areas of the market where the best opportunities are often found.
“Wherever possible, I like to put my eggs in a variety of baskets and an effective way of doing this is via a global equity fund and my choice for this year is the Fidelity Global Special Situations fund, managed by veteran stock-picker Jeremy Podger. Podger’s investment approach encompasses three key pillars: ‘corporate change’, ‘exceptional value’ and ‘unique businesses’. Any holding going into his fund needs to tick one of these boxes alongside requiring a high rate of potential return. It’s an eclectic and flexible approach to investing informed by Podger’s wealth of experience. It’s also an approach that works and as such the fund has significantly outperformed the MSCI All Country World Index over time.
“Despite a few bumps along the way, the case for investing in Japan remains intact with the country’s companies benefitting from positive and improving fundamentals. Moreover Japan’s stock market continues to trade at a discount to its international peers based on the earnings companies are expected to achieve in 2018. As such, I’m investing in the Fidelity Index Japan fund.
‘I’m looking at the UK, particularly UK value stocks’
Laith Khalaf, senior analyst at Hargreaves Lansdown: “I usually open my ISA at the beginning of the tax year but was surprised when I found I hadn’t done this. So the first thing I did was subscribe to this year’s ISA. I also opened a Lifetime ISA even though I already own a house, as I’m approaching 40. Currently, adding to my pension is my preference for retirement saving, and by opening a LISA account, I have kept that option open.
“When investing my ISA subscription, I tend to look for out of favour areas because a change in sentiment can mean healthy returns. I’m looking at the UK, particularly UK value stocks, which have had a rough ride of late. These stocks also tend to come with a higher income too, because prices are depressed.
“In my view there are a number of decent companies offering a prospective yield of up to 6% because the market doesn’t like them. I’m considering topping up stocks like Lloyds and Legal & General, and adding Tesco to my portfolio. After a torrid few years it looks like it might be turning a corner, though I’m conscious the supermarket sector comes with risks.
“The lion’s share of my ISA money will go towards funds rather than individual stocks to get some other brains apart from my own delivering returns for me. I’m looking at Jupiter Income Trust, run by Ben Whitmore, which has a strict value discipline and invests in unloved UK stocks.
“I also think Europe is looking in decent shape and Richard Pease is one of my favourite fund managers, so I’ll probably put some into his Crux European Special Situations fund.
“I’ll probably leave a little bit of my ISA in cash. Markets are a bit jittery right now, and if there’s another fall in stock prices I’d like to be able to take advantage of it.”
‘Emerging markets have been ignored’
Adrian Lowcock, investment director at Architas: “I use the ISA allowance as an opportunity to address any under or over exposure in my portfolio and as such, I frequently top up my existing investments. On this occasion, I’m looking to add to these following holdings…
“50% in MI Chelverton UK Equity income fund. This fund combines the long-term benefits of investing in income and smaller companies. Businesses which can pay and grow their dividend should be well placed to support the share price growth as well. Managers, David Taylor and David Horner, select stocks by analysing the balance sheet and focus on the business model. The team are experienced, have a good, solid track record and demonstrate a thorough understanding of both the companies they invest in and the wider market environment. The fund targets a 4% yield and invests primarily in small and mid-sized companies with a minimum market capitalisation of £50m.
“25% in RWC Global Emerging Markets fund. Emerging Markets are constantly under invested in portfolios and have been ignored for several years following the financial crisis. As the global economy continues to recover and grow EM are well placed to benefit. The fund, run by John Malloy, is actively managed. At the moment they favour China on valuation grounds, but the fund can invest anywhere in EM and the team are flexible to act quickly if the outlook for China should change. This fund will be well positioned to benefit from the success of China or avoid the region if outlook sours.
“25% in Baillie Gifford Japanese fund. Japan continues to look cheap compared to other developed markets, but it is undergoing a structural change and corporate earnings are growing rapidly. The focus of this fund is very much long-term growth which can result in short-term underperformance and volatility in the fund. The current managers, Matthew Brett, Donald Farquharson and Sarah Whitney look at a company’s fundamentals, in particular a sustainable high return on capital. They are looking for companies with steady growth, special situations, cyclical stocks and secular themes. The fund has exposure to cyclical industrials, car manufacturers and technology.”
‘The team like Europe at the moment’
Darius McDermott, managing director of Chelsea Financial Services: “I’m putting my money where my mouth is! I’ve invested my ISA in the VT Chelsea Managed Balanced Growth fund – one of four multi-manager, multi-asset funds we launched last year.
“The team like Europe at the moment. It has lagged other developed markets in terms of stock market gains for some years as the continent was behind in terms of economic recovery too.
“Following the correction in February it’s still down around 8% from the peak so looks much better value. Mirabaud Equities Europe ex UK Small & Mid fund has been added. It is high conviction and invests in Europe’s small and medium-sized hidden gems, with the manager ignoring macro-economics and politics and just finding really good growth companies in charge of their own destinies.
“They have also added BlackRock Continental European Income fund, because European dividends are growing and looking healthy. The other fund that has been added is Man GLG UK Income fund. It has a value tilt but has managed to outperform still in a growth environment and, if value comes back into favour, should do extremely well. It compliments other holdings in the portfolio.”
‘I’ve branched out by investing in active funds’
James Norton, senior investment planner at Vanguard Asset Management: “I have a long-term strategic asset allocation of 80% in equities and 20% in fixed interest. I’ve achieved this by investing in our LifeStrategy 80% Equity fund for many years. This continues to be my core holding. However, this year I’ve branched out a bit. I’ve maintained my 80:20 split but I’ve invested in two of our active funds.
“My first holding is our Global Emerging Markets fund. This has increased my risk exposure, but I wanted a long-term overweight allocation to emerging markets as I believe they offer the potential for superior long-term returns. To oversee the fund, Vanguard has selected a team of three top managers, each pursuing different strategies. I hope this will help smooth the ride in what is a traditionally volatile market.
“The fixed income element is our Global Credit Bond fund. Again, being an active fund, it increases the risk slightly. I chose it because I rate Vanguard’s active fixed interest team highly. It also happens to be one of the largest in the world. They are currently positioning the fund to benefit from improving global growth, with European and emerging market economies catching up with the US. Our credit analysts and traders have a good track record in identifying opportunities in companies that should benefit from this trend the most.”