Investors have until 5 April to use up their ISA allowance of £11,520, and Wise says this year he is backing the UK recovery with this highly volatile fund.The £1.02bn Standard Life UK Equity Unconstrained fund is the best performer of 240 funds in its IMA UK All Companies sector over five years, and Wise thinks it has further to run.
“The fund has got good exposure to financials, resources and industrials – reflecting a more optimistic outlook for the UK economy,” he said.
“In my diversified portfolio I’m prepared to take a bit more risk now after taking into account the combination of positive housing statistics, purchasing managers’ index results and generally good GDP and CPI numbers.”
“This optimism suggests we can include a fund that doesn’t have an income yield but that can deliver a yield through capital appreciation.”
The fund, managed by Ed Leggett, aims to buy up undervalued stocks when the market is doing poorly and wait for their medium-term cyclical appreciation.
Following the financial crisis, Standard Life UK Equity Unconstrained has had an excellent track record, due to Legget's decision to buy into the higher risk, often out-of-favour areas of the market.
Data from FE Analytics shows it is a top-quartile performer over five years, returning 356.62 per cent to investors compared with 122.16 per cent from its IMA UK All Companies sector.
Performance of fund vs sector and index over 5yrs
Source: FE Analytics
The fund has also delivered strong performance in the short-term, returning 30.42 and 60.66 per cent over the past one and three years, compared with 18.33 and 30.98 per cent from its sector.
However, it made a loss through the first of half this period as it was battered by capital flight from stocks to safer investments during the unfolding of the eurozone crisis in 2011.
Performance of fund vs sector over 3yrs
Source: FE Analytics
This is entirely typical of the fund and nothing to worry about, according to Wise.
“In periods of volatility it’s going to underperform, but conversely it outperforms when confidence returns to the market,” he said.
“The fund’s volatility is greater than others, we recognise there’s more risk. But we’ve got the risk budget that allows us to do this.”
“The environment was quite different a year ago. It was supporting more equity income and a bit of diversified growth with income.”
“You can’t say that everything looks rosy but more of the indices are giving a positive signal and while not putting all your eggs in one basket betting on a speedy recovery, you don’t want to get left behind either.”
Wise is not alone. According to data from FE Analytics, the fund has doubled in size in just 12 months, with a current value of £1.01bn, prompting Leggett to tell FE Trustnet in an interview in January that it may be the last year that investors may be able to access it.
“It [the capacity] is something we monitor pretty closely. We have some pretty firm views that a bigger a fund gets, the more limited you become,” Leggett said.
Wise also has his eye on the fund’s rapid growth in AUM, but says its current size doesn’t cause him alarm.
“Fund capacity is a question we ask and monitor and while it has increased significantly, I don’t think it is yet of a size that it will hamper performance,” he said.
“However, it is one of the areas we would monitor going forward, post any investment.”
Wise does advise caution in buying the fund for anyone who is new to ISA investing and doesn't have a diversified portfolio.
“I wouldn’t say this would be your first choice if you’re new to investing,” he said.
“It’s more for an established portfolio that can incorporate more risk that already carries safer investments.”
For someone starting to invest their ISAs in funds, he advises Cazenove Diversity Income as a cornerstone to any new portfolio.
“Cazenove Diversity Income is a very good starting point for a new investor. It gives you a consistent income, it carries a third in UK equities, a third in fixed interest and a third in alternatives and has an inflation-plus mandate.
Performance of fund vs sector over 5yrs
Source: FE Analytics
Data from FE Analytics shows that the fund has returned 28.88 per cent to investors over five years, compared with 17.45 per cent from its sector. However this is just 8 per cent of the returns managed by Standard Life UK Equity Unconstrained over the same period.
Standard Life UK Equity Unconstrained has ongoing charges of 1.9 per cent and Cazenove Diversity 1.75 per cent.
