ISA fund picks for high, medium and low-risk investors
Investing is far from a one-size-fits-all proposition. Luckily, there are plenty of funds for investors to pick from, no matter what level of risk they want to take.
Your Money asked the experts for their top ISA fund picks for high, medium and low risk investors.
The adventurous investor
For investors with strong stomachs-and high return expectations- emerging markets are one area to investigate.
Emerging markets have had a difficult time lately. However, according to Jason Hollands, managing director of Bestinvest, buying at a point of weakness opens up the potential for a bargain.
“Long-term investors should note that emerging markets account for most of the world’s population. That will drive much higher growth in the long term,” Hollands sais.
He tips the Lazard Emerging Markets fund.
Ben Yearsley, head of research at Charles Stanley, likes JM Finn Global Opportunities, managed by Anthony Eaton.
Yearsley explained: “The philosophy behind the fund is to harness the growth of the emerging world, wherever it can be best found without necessarily buying companies listed there. The portfolio is full of interesting stocks.” The manager invests in Nestle and Colgate Palmolive, for example.
Adrian Lowcock, senior investment manager at Hargreaves Lansdown, views Newton Asian Income, managed by Jason Pidcock, as an excellent way to gain access to developing markets.
Lowcock said: “Pidcock considers company management the most important element when investing in a business. Sentiment for Asia may well get worse, but Pidcock sees potential for further dividend growth.”
Tom Stevenson, investment director of Fidelity Personal Investing, chose Rathbone Global Opportunities for the courageous investor. Managed by James Thomson, the fund pulls on a wide network of broker contacts to generate ideas and invest in “unloved growth companies”.
Stevenson explained: “Thomson looks for companies that are easy to understand, have entrepreneurial management, strong demand, competitive positions and sustainable growth.”
The cautiously optimistic
The experts suggest investors with a medium-risk profile look to equity income funds.
Stevenson said those looking for safety of income at a reasonable price should consider Fidelity MoneyBuilder Dividend. The fund is managed by Michael Clark, who believes that companies that consistently deliver dividend growth will outperform in the long-term. Companies must be well-financed and cash generative to make the cut.
Hollands also advocates equity income funds, specifically those which target companies with good cash flow. One of the funds he rates most highly in this space is Cazenove UK Equity Income, managed by Matt Hudson at Schroders.
“He has a flexible approach of adapting the portfolio to each phase of the economic cycle,” Hollands said.
Yearsley highlighted Trojan Income as another UK equity income fund to look into. He said: “This fund often treads its own path as capital preservation is a key consideration; however, the long term numbers are great.”
Lowcock, meanwhile, tips a global equity offering for medium-risk investors, specifically Lindsell Train Global Equity managed by Michael Train and Nick Lindsell. Train and Lindsell focus on a concentrated portfolio of companies able to produce high and stable returns over long periods.
Lowcock said: “Their investments will move in and out of favour over time but they will likely remain invested; this could result in periods of dull or under-performance and would be more suitable for moderate risk investors.”
The cautious investor
Cautious investors have traditionally gravitated towards bond funds, however following a volatile period for the asset class Hollands has turned his attention to absolute return funds.
These funds aim to produce a positive return each year, regardless of how well or badly markets are performing.
His pick is Jupiter Absolute Return, recently handed over to former Edinburgh University professor and ex-SWIP fund manager James Clunie. The goal of his long/short investing strategy is to achieve returns of 6 percent after costs with low levels of volatility.
While Yearsley is not a fan of the term ‘cautious’, his pick for a consistent investment is Standard Life Global Absolute Return Strategies. He said: “It is a fairly complicated fund that looks to benefit from multiple investment strategies, but it has been a consistent long term performer.”
Stevenson, meanwhile, thinks cautious investors should look at M&G Optimal Income, run by Richard Woolnough since 2006. He explained: “This fund has a particular focus on income, which means it holds a higher proportion of high-yield bonds than similar funds in its sector. It has a low exposure to bonds issued by banks and other financial institutions, which may appeal to cautious savers who wish to stay away from these investments.”
According to Lowcock, Newton Real Return is a good option for the cautious investor. Manager Iain Stewart primarily invests in global equities and fixed interest securities, though he’ll use other asset classes to keep risk levels acceptable.
Lowcock said: “Stewart has a cautious outlook on the economic recovery in the UK and US and remains focused on protecting investors’ capital. Investors should expect this fund to underperform in a strongly rising equity market, but it should protect capital if there are any sell-offs.”