Three fund ideas for using your ISA allowance

If you are looking for inspiration for your ISA allowance here are three fund options to consider.

This content is more than 6 months old now, please visit the news area of this site for more recent content

  1. Rob Morgan

By adding to your ISA pot each year you can build up a considerable tax-efficient shelter around your investment portfolio. Over time, this could mean higher returns.

Time is running out for investors wishing to use the 2018/19 tax year’s £20,000 allowance, and it is lost forever if you do not use it. While it is possible to invest in a Charles Stanley Direct Stocks & Shares ISA using a debit card up until midnight on 5th April 2019, we recommend you don’t leave any subscriptions too late in case of any problems.

For the five main considerations at the end of the tax year see our previous article here.

Many investors already know which investments they want to choose, but it’s also possible to open or top up a Charles Stanley Direct ISA with cash and leave the decision about where to invest to a later date. Please note there is no interest currently paid on cash balances.

If you are looking for inspiration here are three fund options you might consider, which our research team have identified as offering the potential for outperformance in their respective areas.

Each represents a different investment approach and level of risk, and they are provided for your information but are not a guide to how you should invest. Before investing in any fund please read the fund’s Key Investor Information Document or Key Information Document, and Prospectus.

UK shares – unloved but good value?

In the midst of the current political uncertainty UK stock market valuations are depressed. It is possible to secure a very generous yield with the prospect of growth in income and capital on top – the best of both worlds. Some of our favourite UK equity income funds are yielding well in excess of 4% with the potential for this to grow over time. Yields are variable and not guaranteed. It seems a difficult nettle to grasp right now with a fractious political climate – things could always get worse before they get better – but for those with a longer term view it could represent a geat opportunity.

Perpetual Income & Growth investment trust in particular stands out to us. The manager, Invesco’s Mark Barnett, has taken the contrarian stance of backing a number of domestically-orientated companies in areas such as financials and industrials. So far this strategy hasn’t gone well, but any improvement in sentiment could lead to strong gains. A bonus is that shares in the Trust trade at a 11% discount to net asset value (at the time of writing), which serves to provide investors with additional value and a higher yield than an equivalent unit trust.

India – the star of emerging markets?

There's lots of change happening in India. The nation’s stock market experienced a difficult 2018 owing to trade war fears and worries in the financial sector. Political uncertainty and corruption have also hampered progress, highlighting the higher-risk nature of investing in an emerging market. More recently tensions with Pakistan resulted in a further dip.

Yet looking to the longer term we believe India stands out relative to other markets due to its young population and strong growth profile, which could be on the cusp of meaningful acceleration after the implementation of reforms.

With elections later this year there could be further volatility, but for more adventurous investors comfortable with the risks it could be an opportune time to buy. One option in this specialist area is Goldman Sachs India Equity Fund. The management team benefits from considerable resources and on-the-ground presence in Mumbai. They have demonstrated an ability to add value in medium-sized and smaller companies where thorough research is vital.

The US – still room for optimism?

We continue to have a positive outlook on US shares. The Federal Reserve looks likely to err on the side of caution when it comes to raising interest rates, which implies relatively benign conditions, Meanwhile, growth remains solid and tax cuts have helped company earnings. Shares are generally more expensive than in other markets but we believe the dynamic nature of US companies justifies the premium.

More value-orientated managers who seek out bargain shares have had a tough time keeping up in recent years. The best returns have come from more expensive growth stocks, notably the tech giants. Going forward we expect a different set of companies may take up the lead. Fidelity American Special Situations is one such find that has been fighting a stylistic headwind, but we think it is worth keeping the faith in its contrarian style and active approach.

Manager Angel Agudo targets companies that have gone through a recent period of underperformance where he believes little value is ascribed to recovery potential. His philosophy is that the stock market is inefficient at pricing companies that have gone through a troubled period and are out of favour. By backing the right business he aims to bank gains as investors increasingly understand the true prospects. The fund could be an interesting counterweight to more growth or tech-orientated US funds, or indeed a passive approach in the region centred just on the largest firms.

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.

More from author

  1. Rob Morgan

    End of tax year planning: investing for children with a Junior ISA

    Fund Research - 4th Mar 2019 17:15pm

    Rob Morgan outlines the basic considerations when investing for the children in your ...

  2. Rob Morgan

    End of tax year planning: the power of pensions

    Fund Research - 4th Mar 2019 17:15pm

    Unlike ISAs, income tax relief is available on your pension contributions. This can b...

  3. Rob Morgan

    Bed & ISA: shelter existing shares from tax

    Fund Research - 4th Mar 2019 17:15pm

    A Bed & ISA is a neat way of helping you to use your ISA allowance while making your ...

Most read articles

  1. Three fund ideas for using your ISA allowance

    Three fund ideas for using your ISA allowance

    Fund Research - 4th Mar 2019 17:15pm

    If you are looking for inspiration for your ISA allowance here are three fund options...

  2. Three fund ideas for using your ISA allowance

    The top performing funds since the depths of the global financial crisis

    Fund Research - 4th Mar 2019 17:15pm

    Shares have recovered strongly since the market trough a decade ago. Rob Morgan looks...

  3. Three fund ideas for using your ISA allowance

    February’s top and bottom performing funds

    Fund Research - 4th Mar 2019 17:15pm

    Rob Morgan rounds up the notable fund sector trends in February as share markets cont...

Investment involves risk. You may get back less than invested.