Under the new system, investors can invest all of their allowance in cash or go for funds, investment trusts and shares instead.
We asked our readers to tell us what they’re buying for their NISA; here are the three most popular choices.
Standard Life UK Equity Income Unconstrained
Standard Life’s Thomas Moore is building a very strong reputation for himself, delivering stellar returns in the highly competitive IMA UK Equity Income sector since taking over UK Equity Income Unconstrained in 2009.
Our data shows the fund has returned 176.79 per cent since he was appointed, putting him in the top decile of the IMA UK Equity Income sector.
The fund is also a top-quartile performer over one, three and five years.
Performance of fund, sector and index since Jan 2009
Source: FE Analytics
The strong performance of the fund has led to large inflows, and four of our readers highlighted it as one they are thinking about buying.
Moore has benefited from a significant overweight in small and mid caps, which he says allows managers to add much more value compared with their more traditional large cap-focused rivals.
Historically high valuations in this area have led Moore (pictured) to reduce his overweight position in recent months in favour of large caps, though he still has more than 50 per cent of his assets in FTSE 250 and FTSE Small Cap companies.Ben Willis, head of research at Whitechurch Securities, thinks there is an element of risk when it comes to buying a fund that has performed so well in recent years, but is encouraged that Moore has been active in his index allocations.
“There is a danger of buying in at the top, but Moore has the flexibility to move out of small and mid caps,” he said.
“This is where his skill lies and so it’s been something of a sweet spot for him in recent years. However, as a long-term holding I think that it’s still a decent choice, as long as he stays flexible.”
“He’s had a nice backdrop to work with in recent years, but now we really need to see earnings come through. Now is the time for him to prove just how good he is.”
Standard Life UK Equity Income Unconstrained has ongoing charges of 1.16 per cent, making it more expensive than the average fund in its sector.
FP Argonaut European Alpha
The proposed introduction of quantitative easing in Europe has led a number of investors to become more bullish on the region.
QE certainly did the trick for the US and UK, but Willis doesn’t think a European fund should be picked just on this basis.
That said, he sees it as one of the more attractive equity markets at present, and rates Barry Norris and his Argonaut team – who were mentioned on a number of occasions by our readers – very highly.
“It’s dangerous to do it just on the basis of QE. If you look at the performance of Europe this year [since QE was first announced] it has been pretty dire,” he said.
“I almost think the market is a bit bored by QE these days. We’ve had so much of it that it doesn’t have as much of an effect.”
“From a valuation perspective, it’s still in a good place though, and behind the curve in terms of the recovery compared with the US and UK.”
FE Alpha Manager Barry Norris’s FP Argonaut Enhanced European Alpha portfolio is a popular choice with our readers, and is also rated very highly by the FE Research team, who include it in the FE Select 100.
“Norris’s assessment of the economy allows him to determine how to position his concentrated portfolio, between what he sees as value or growth stocks, taking into account market momentum,” they said.
“Norris has been consistent in applying his strategy, despite not returning as much as the index in certain periods.”
Performance of fund and sector since launch
Source: FE Analytics
“However, over the longer-term he has been very effective, leading the fund to extensive outperformance.”
Willis is a big fan of equity income funds, and prefers using Oliver Russ’s £59m FP Argonaut European Enhanced Income fund, which uses covered call options to deliver a yield in excess of 4 per cent.
As well as having an attractive yield, Willis points out that the fund is significantly less volatile than the Alpha one, and hedges back returns into sterling.
“This means it benefits from either a weakening in the euro or a stronger pound, which has boosted performance recently,” he added.
FP Argonaut European Alpha has ongoing charges of 0.89 per cent, while the income fund charges 0.98 per cent.
Standard Life Global Emerging Markets Equity
In spite of improved performance since March, emerging markets have vastly underperformed developed markets in recent years.
This has been blamed on historically high valuations at the back end of 2010 and a slowdown in Chinese growth.
Adrian Lowcock, previously of Hargreaves Lansdown but now an independent financial adviser, believes that emerging markets remain a good long-term bet.
“Asia and emerging markets have been unpopular in 2014 but could prove to be attractive for patient long-term investors willing to take the risk,” he said.
“Drip-feeding your money into these markets would be the most sensible approach.”
With Aberdeen and First State closing their flagship emerging markets funds to new money, investors have been given the difficult task of finding a replacement.
M&G Global Emerging Markets, Fidelity Emerging Markets and others have proved popular, but many of our readers have highlighted the recently launched Standard Life Global Emerging Markets fund as one they are interested in.
Willis says he has been impressed by the start made by manager Alistair Way, who has led the £150m fund to vast outperformance versus its peer group since its launch in May 2012.
He points out that the fund has managed to eke out positive returns even though emerging markets have fallen as a whole – something Aberdeen and First State are well-known for.
“They haven’t been running it for very long but the performance has been very impressive,” said Willis.
Performance of fund and sector since launch
Source: FE Analytics
“The fund held up really well in 2013 and actually made a positive return. Standard Life has a good team and investors are in a safe pair of hands. They came in to see us and spoke a lot of sense.”
“They’ve proved they can manoeuvre the fund in down markets, but I’d like to see what they’re like in an up market as well. I’d have to give them a bit more time.”
Willis uses another dividend-producing fund – JPM Emerging Markets Income – for his core emerging market exposure, as well as the Templeton Emerging Markets IT for more adventurous clients.
Daniel Lockyer and Richard Scott at Hawksmoor are big fans of the Standard Life global emerging markets team, but prefer their income-focused product.
Standard Life Global Emerging Markets Income has returned 9.98 per cent since it was launched in December 2012, putting it marginally ahead of its growth-focused rival.
It is currently yielding 2.7 per cent and tends to have a lower annualised volatility than its counterpart.
Standard Life Global Emerging Markets has ongoing charges of 0.99 per cent, as does Standard Life Global Emerging Markets Income.
An article later today will look at the investment trusts that are popular with our readers.