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Fund picks for your new ISA allowance

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25/06/2014
Investors will able to save up to £15,000 a year of cash, funds and equities, tax free into an ISA from 1 July.

They will also have more flexibility – for example they will be able to shift funds between asset types without any restriction or penalty.

While the tax-free allowance may be the same for everyone, every investor is different. Some may prioritise returns while others will relish security in their investments.

As Maike Currie, associate director at Fidelity Personal Investing, puts it: “It is important to remember that there is no standard formula or ‘golden compass’ on how best you should invest. One investor’s financial objectives and risk appetite may differ vastly from the next and as such so will their asset allocation and the investments be suited to them.”

Here, Currie and Jason Hollands of Bestinvest pick their top funds for cautious, balanced and adventurous new ISA – or NISA – investors.

Cautious

According to Currie cautious investors should pay attention to income as they approach retirement.

With this in mind she recommends the Jupiter Distribution fund, which aims to provide a sustainable level of income, paid every month, over the long-term by investing in both equities and bonds.

Currie also recommends Fidelity’s PathFinder Freedom fund, which invests in well-performing managers across a range of providers. Currie explains: “It has a greater allocation to cash and bonds with a focus on capital preservation, while still aiming to generate modest investment returns over the long term by taking a smaller amount of risk.”

For his part, Hollands suggests the Threadneedle UK Absolute Alpha fund. With a remit to take ‘short’ and ‘long’ positions – meaning it can profit from falling and rising share prices alike – Hollands sees this fund as considerably less volatile than other funds.

He says: “This remit also means the fund has the potential to profit from a wider range of situations than a traditional fund.”

Managed by Mark Westwood and Chris Kinder, the fund’s goal is to achieve a target return of 10 per cent a year regardless of market conditions.

Hollands says: “At £267m, its small size offers the advantage of greater tactical flexibility.”

Balanced

Balanced investors – who prioritise security and growth equally – should look into “rising star” Thomas Moore at Standard Life, Hollands says.

Moore’s Standard Life UK Equity Income Unconstrained fund has done well by investing in small and medium-sized companies alongside the large FTSE 100 companies that usually dominate funds in this sector. Relatively small at £500m, Moore can pursue a more concentrated approach.

Hollands says: “That has led to higher levels of volatility, but investors have been rewarded for this additional risk with superb returns.”

Currie recommends the Henderson Cautious Managed fund, managed by Chris Burvill, John Pattullo and Jenna Barnard. She says: “The team actively adjust the weightings between different asset classes to anticipate and reflect changing conditions.”

The Investec Cautious Managed fund is Currie’s second pick. Managed by Alastair Mundy, it contains a mix of equities, bonds and cash. Mundy, who according to Currie is one of the UK’s best contrarian investors, focuses on unpopular stocks with strong potential to bounce back.

Currie says: “Against a backdrop of soaring markets, the contrarian approach lagged quite a bit last year. However, when equity markets have declined, Mundy’s fund has afforded investors better protection than many in the IMA Mixed Investment 20-60 per cent shares peer group.”

Adventurous

Equities are a good way to go if you’re out for returns, Currie says. She explains: “If you have a long investment horizon ahead of you, you can afford to take more risk as you will be able to ride the ups and downs of the market over that time period without worrying too much about the short-term volatility.”

Currie tips the Aberdeen World Growth and Income fund for investors of this type. She says Bruce Stout, one of the managers of this fund, has always advocated the stance that investors cannot chase high yields as they inevitably disappear.

She explains: “He chooses to focus on income growth while paying close attention to capital preservation and quality.”

For investors concerned about cost, which is often the case with young, adventurous investors, Currie says, the Fidelity Index World fund is a tracker fund which aims to closely match the performance of the MSCI World Index.

For Hollands, adventurous investors should be looking to emerging markets.

He says: “Emerging and Asian markets have been out of favour in recent times as the markets have become fixated on the slowdown of the Chinese economy, but as an area with the greatest long-term potential, we think the case for Asia remains compelling as these economies have young and rapidly growing populations, offering up excellent developmental potential.”

Hollands recommends accessing these markets through the Schroder Asian Alpha Plus fund, a mandate-less fund which he calls a vehicle for manager Matthew Dobbs’ best investment ideas.

He says: “With between 50 and 70 stocks in the portfolio you are trusting in Dobbs’ ability to identify potential winners. What he is looking for is companies with strong corporate governance and shareholder-focused management that have robust balance sheets and cash flows and the long-term growth prospects.”

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