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Ideas for the Isa season: JP Morgan Asset Management

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Written by: Talib Sheikh, fund manager of JPM Multi-Asset Income Fund
17/02/2015
In a mini-series, Your Money rounds up the best ideas from advisers and fund providers for this year's Isa season. We start with JP Morgan Asset Management.

With the early April ISA deadline, savers face a dilemma. They can stash as much as £15,000 in the tax-free wrapper, in either cash or stocks and shares ISAs, but many are torn about whether to accept depressingly low rates in exchange for absolute safety or to take more risk in order to generate higher income. With interest rates frozen at 0.5 per cent for more than 6 years now, returns on cash ISAs are now just 1.6 per cent (down from 5.3 per cent in 2008), according to the Bank of England.

Buying multi-asset income funds in ISAs is one choice for investors who need to beat inflation but cannot afford to take concentrated risks in their portfolio. These funds invest in a diversified mix of income generating assets, providing capital appreciation as well as average yields around 4 per cent. Many have the flexibility to invest across shares and fixed interest in search of the best income ideas, including harder-to-access securities like preference shares and convertible bonds.

If you had invested £10,000 in cash a decade ago, you would be sitting on nearly £2,000 in losses in real terms, when you account for inflation eroding your purchasing power. Compare that with any balanced portfolio of diversified investments, which on average has generated nearly 7 per cent annualized in total returns over the same period. It makes sense to widen your income horizons without having to put all of your eggs in one proverbial basket.

For example, buying UK equity income might seem attractive at an average 3.4 per cent yield, but last quarter just three companies made up more than three fifths of all UK dividends paid out. In other words, simply buying shares leaves you vulnerable to dividend cuts. By the same token, fixed interest might seem like a safe place to put your cash, but 10 year UK gilts are yielding a measly 1.5 per cent. And, after a long bull run, bonds may soon be vulnerable to price losses if the US Federal reserve hikes rates this year, setting off volatility in the market.

By investing in a multi-asset income fund that looks globally for investment ideas, you can tap into the fund managers’ flexibility to look across regions, asset classes and levels of the capital structure to find returns and income, without overreliance on any single source.

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