Revealed: The top performing ISA funds last tax year

Using an ISA allowance early last tax year generally paid off – especially for those who selected technology and US funds.

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  1. Rob Morgan

Investors using their 2018/19 ISA allowance early last tax year could have generated strong returns. Global stock markets generally made decent progress – despite a wobble at the end of 2018.

Positive economic news outweighed political uncertainties until late on in the year, but the best performance was heavily weighted to certain areas such as the technology sector. Geographically, US funds fared well, especially those with a large amount in tech stocks, or broader companies perceived as having strong and reliable growth,  such as VISA, Microsoft, Amazon and Alphabet.

Many such shares come with high valuations attached, and although historically investing in companies with high valuations has not been a winning strategy the reverse has been true since the Global Financial Crisis.

Other sectors such as Europe and Japan struggled, however, partly due to fears of a slowdown in global trade. These export-orientated markets would likely suffer from any escalation of the trade tensions between the US and China. UK Smaller Companies funds were also generally poor performers as Brexit uncertainty weighed on the shares of many companies.

The top-performing fund, MFM Techinvest Technology , would have turned the full ISA allowance of £20,000 into £26,471 – though bear in mind past performance is not a guide to the future, the value of all investments can fall as well as rise and some funds sustained losses over this period. The fund invests in smaller technology firms, mainly in the US.

The best performer outside the Technology sector also contained significant exposure to tech stocks. Baillie Gifford American Fund has a high-conviction portfolio concentrated with relatively few positions, which increases risk.

An orientation towards technology and other growth stocks was also a winning strategy for a number of global funds, such as Baillie Gifford Global Discovery and LF Blue Whale Growth. Run by Stephen Yiu, formerly of Artemis and New Star, Blue Whale was launched in September 2017 but is already making a name for itself in a sector dominated by well-known funds from Lindsell Train and Fundsmith. Technology giants such as Amazon, Adobe and Salesforce.com have helped performance.

Specialist equity income fund, Legg Mason IF RARE Global Infrastructure Income, also made the top ten. Although often seen as relatively stable and reliable, infrastructure has recently been one of the more volatile sectors of the market, susceptible to changes in government bond yields as well as global growth expectations, and regulatory or political changes such as US tax reforms. This fund invests in companies operating utilities, roads, airports, ports, railways and communications networks.

Does being an early bird always pay off?

Some investors leave investing in an ISA until the end of the tax year, but it can be best to use your allowance as soon as possible. Investments are sheltered from tax right away and the earlier you invest the longer you have to generate returns. However, every year is different in terms of the performance of markets and individual funds. In the longer term the duration of your investment tends to have greater influence on returns than the timing of them; but it can make a difference, especially in the shorter term.

Although investors should be aware past performance is not a reliable indicator of future results, here are the top ten performing Investment Association funds for the 2018/19 tax year:

Past performance is not a reliable indicator of future returns. Figures are shown on a total return basis, bid to bid price with net income reinvested; Source: FE Analytics, data for 2017/18 tax year: 06/04/2018 to 05/04/2019. Onshore and retail open-ended funds only.

Past performance is not a reliable guide to future returns. This website is not personal advice based on your circumstances. No news or research item is a personal recommendation to deal. Investment decisions in fund and other collective investments should only be made after reading the Key Investor Information Document or Key Information Document, Supplementary Information Document and Prospectus. If you are unsure of the suitability of your investment please seek professional advice.

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