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Ideas for the Isa Season: Tilney BestInvest – part 2

Written by: Jason Hollands, managing director of investment advisory firm Tilney Bestinvest
Jason Hollands, managing director of investment advisory firm Tilney Bestinvest, provides the second part of his guidance for investors mulling their choices.

4. Consider absolute return funds as an alternative to bonds
Hollands said: “The asset class which has been most distorted by the policy actions of central banks in recent years is fixed income as the combination of record low interest rates and bond-purchase programmes have driven prices up and yields down. With value hard to find in the fixed income universe, investors who have traditionally held bonds to reduce overall volatility, but don’t currently need to draw an income, might consider targeted absolute return funds, as although higher risk they may act as an alternative.
“The correlation between different asset classes, markets and currencies has reduced over the last year, and this environment provides greater opportunities for funds that have wide remits to implement trading strategies across the globe. One such fund we like is the Invesco Perpetual Global Targeted Returns fund, launched in late 2013 following the hiring of some of the team involved in developing the now very large Standard Life Global Absolute Return Strategies fund. Although there are no guarantees, the Invesco Perpetual Global Targeted Returns fund aims to deliver a positive return in all market conditions over a rolling three-year period, with a gross return above UK interest rates but with low volatility.”

5. Scoop up emerging market value with investment trusts trading at discounts
Hollands commented: “Emerging markets have been out of favour for some time now, as China has slowed, Russia has increasingly become an international pariah over its aggressive policy towards the Ukraine and Brazil’s economy has stumbled. Among the larger emerging market economies, India is seen as the brightest spot having last year elected its first ever business-friendly, reformist Government with a resounding majority.

“While some of the challenges facing certain emerging market economies aren’t going away, such as a rising cost of capital as the US Dollar strengthens, emerging market equities do appear tantalizingly cheap. For those prepared to accept their high risk nature and invest for the long-haul, current valuations look an attractive entry-point.

“One way to scoop up even more value is through an emerging market investment trust, as these are generally trading at discounts to their Net Asset Value. The closed end structure of an investment trust has distinct advantages when investing in volatile markets compared to an open ended fund, as the latter can find that when investors panic they become forced sellers of their most liquid investments, whereas an investment trust manager can hold steady, or even use gearing (borrowing) to buy into weakness. This can, however, make investment trusts more risky than open ended funds. We like the JPMorgan Emerging Market Investment Trust, which is trading at an 11.1 per cent discount to NAV. The trust currently has a bullish position towards India, with 23.4 per cent of the portfolio invested in India compared to a benchmark weight of 7.7 per cent.”

6. If you can’t decide – open your account with cash rather than lose your precious allowance!
Hollands concluded: “If you can’t decide where to invest, need more time or are concerned about the short-term outlook for markets then don’t panic or feel pressured to invest in a hurry. You can always open your allowance now with cash and decide where to invest in later. The important thing is to secure your allowance as it is valuable. It is estimated that around 2 million more people have been drawn into the 40 per cent tax band during this parliament and depending on the outcome of May’s General Election, those earning over £150,000 could see the return of the 50 per cent tax rate. It really does make sense to get your savings ring fenced from the tax man through important allowances such as ISAs and pensions.”

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