It’s human nature to leave things to the last minute, and the same goes with using up your tax allowance in an ISA.
However, private wealth adviser Steven Sutherland points out that getting yourself organised early on not only lifts a weight off your shoulders, but also has direct benefits from an investment point of view.
“There’s an obsession about ISA season and the tax deadline, but the tax advantages come in on the very first day of the tax year,” said Sutherland, who is also author of a new book titled How to Make Money in ISAs and SIPPs.
“If you invest at the beginning of the tax year you can benefit from the advantages of an ISA for a longer period, with more potential advantage for generating returns.”
“Of course everyone has different circumstances and you can’t always put everything in at the beginning, but there is a culture of delaying.”
Sutherland adds that using a monthly savings plan enables investors who don’t have the luxury of investing their full allowance at one time to get all their admin done at the beginning of the tax year.
“The advantage of pound cost averaging also comes into play,” he added. “Prices rise and fall and this way of investing smoothes out the ride. It’s helpful from a psychological point of view, encouraging investors to buy the dips which it’s always hard to do.”
Here are three options for those looking to strike while the iron’s hot, and set up a monthly savings plan for the current tax year.
The cautious choice
For those investors with a relatively short time horizon – say less than five years, for example – a multi-asset fund with an emphasis on capital protection is a good option.
Rob Gleeson and the FE Research team rate a number of funds across the multi-asset sectors, but for particularly cautious investors they rate the five crown-rated Henderson Multi Manager Diversified portfolio.
“It has the lowest equity content of all of Henderson’s multi-manager range, and is therefore most suited to cautious investors, or those with a short time horizon of between three and five years,” said analyst Charles Younes.
“Henderson Multi-Manager Diversified seeks to produce a combination of growth and income through investing in a mixture of funds and other investments from a wide range of providers, rather than Henderson products alone.”
“It sits in the IMA Mixed Investment 0-35% sector, meaning that it can hold a maximum of 35 per cent in equities, with the bulk of assets in bonds, cash, property and alternative investments.”
“One of the biggest strengths of holding fund of funds is their ability to give investors exposure to portfolios they otherwise wouldn’t have access to. Manager Bill McQuaker and Paul Craig select a large number of specialist funds, with major positions at present including RWC Enhanced Income, Majedie UK Income and the Alternative Asset Opportunity fund.”
“The duo invests in both open and closed-ended funds, including the RIT Capital Partners trust as a top-10 holding.”
According to FE data, Henderson Multi-Manager Diversified is number one in its sector over five years with returns in excess of 100 per cent. It is also ahead of its peers over one, three and 10 years.
Performance of fund and sector over 5yrs
Source: FE Analytics
Younes points out that the fund has been more volatile than its sector over a three and five year period, but the managers’ decision to take on more of an absolute return focus should see this change. Indeed, the change in approach is already paying off; our data shows that fund has been less volatile over the past 12 months.
The fund is suitable for a monthly savings plan, with a minimum top-up typically of £50 on recognised platforms. It has clean share class ongoing charges of 0.79 per cent, which makes it one of the cheaper unfettered fund of funds available to investors.
The balanced choice
Equity income is a very popular area for investors at the moment, and generally suited to those with a 10 year time horizon.
While equities are one of the riskier asset classes with a history of steep declines, in general companies with a strong dividend culture tend to hold up better during periods of market turbulence.
Among those with a proven track record at protecting investors’ capital includes Francis Brooke’s £1.5bn Trojan Income fund, which though officially soft-closed remains available on certain platforms, for a minimum monthly top-up of £50.
The five-crown rated fund is a standout performer in times of market sell-offs, losing 17.79 percentage points less than its FTSE All Share benchmark in 2008 and 9.74 percentage points less in 2011. It still has a decent record in up markets however, delivering double digit returns in 2009, 2010, 2012 and 2013.
This has translated into very strong cumulative returns; FE data shows that fund is a top-quartile performer in its IMA UK Equity Income sector since its launch in September 2004 with returns of 135.79 per cent. It’s also been the least volatile fund of all its peers over the period.
Performance of fund, sector and index since launch
Source: FE Analytics
“Brooke says that the fund is a bit boring, which is not a problem if it means steady returns and low volatility,” said analyst Amandine Thierree (pictured).
“He does not look for tremendous performance in market rallies, but is more concerned about preserving investors’ capital in real terms, adjusted for inflation – a foundation of Troy’s investment process.” “On the income side, the payout is in line with the sector’s average and keeps growing in sterling terms.”
“The only worry would come from a change in the global economic climate, as the manager would have to alter his stance to benefit from a strong recovery. Brooke does not think this is likely to happen soon, however, and he is not alone in this regard.”
Trojan Income is currently yielding 4 per cent, and has clean share class ongoing charges of 1.04 per cent.
The aggressive choice
For investors with a much longer time horizon, emerging markets are the standout area – even more so at this point in time as many managers are pointing to attractive valuations following two years of underperformance.
Many of the major players in this area – namely Aberdeen and First State – have had to close their funds to new money, but Thierree highlights a lesser-known fund that deserves attention from investors: Schroder Asian Alpha Plus.
According to FE data, Schroder Asian Alpha Plus has returned almost 60 per cent since its launch in 2007, more than doubling its MSCI AC Far East ex Japan benchmark.
“Matthew Dobbs’ fund benefits from the established analyst team settled in the Asia Pacific, which provides easy access to companies’ managers thanks to Schroders’ strong reputation,” she said.
“The fund was launched at the beginning of the 2008 financial crisis. This dragged it down immediately but the difficult start was forgotten in 2009 when it beat its benchmark and sector by more than 20 percentage points. The following years have been successful, with the fund continually outperforming. It has proved to be as resilient in falling markets as reactive in rising ones.”
Performance of fund, sector and benchmark since launch
Source: FE Analytics
Dobbs currently favours China, particularly via Hong Kong-listed shares. Mainland China, Hong Kong, Singapore and Taiwan currently have a combined weighting of over 60 per cent. The manager is also positive about companies in Thailand and India, though South Korea and Indonesia are both underweights.
The £417m Schroder fund has five FE crowns, and clean share class ongoing charges of 0.96 per cent. Again, typically it has minimum monthly top-ups of £50.
