New rules implemented in July saw the ISA allowance rise from £11,520 to £15,000, and allows investors to invest entirely in cash or stocks & shares.
Wise (pictured) has bought M&G Global Dividend, Fidelity Emerging Markets and Schroder Asian Income, and also bought a US tracker for the first time in the shape of the HSBC S&P 500 ETF.He says he is buying Asia and emerging markets as they look cheap on a historical basis and have finally shaken off the negative momentum that plagued them in 2013 and the beginning of 2014.
Wise expects them to outperform developed markets for at least the next 18 months, but is using a global and US fund to dampen volatility.
M&G Global Dividend and the HSBC S&P 500 tracker make up approximately 60 per cent of Wise’s ISA, with the remaining 40 per cent split equally between Fidelity Emerging Markets and Schroder Asian Income.
Here we take a look at Wise’s choices in more detail.
M&G Global Dividend
Wise bought this £9.2bn fund, managed by FE Alpha Manager Stuart Rhodes, to hedge against single country risk.
“Whether you are looking at geopolitical risk or the Scottish referendum – whatever it might be – the global remit allows the manager to go where they see the best opportunities,” he said.
Wise rates Rhodes and his process highly and also likes his regional exposure.
M&G Global Dividend has 57 per cent in the US, with the UK and Europe making up around 30 per cent apiece.
The fund has been a top quartile performer over five years, returning 82.35 per cent.
This compares to 56.18 per cent from the IMA Global sector average and 66.17 per cent from the MSCI AC World index.
Performance of fund, sector and index over 5yrs
Source: FE Analytics
Rhodes’ stellar record has been tested this year, however. He is down versus the sector and index since the start of 2014, and over a one year period.
Rhodes says the best chance of making money is finding companies that can deliver sustainable dividend growth.
“If a company increases its dividend every year, it’s a mathematical certainty that its share price is going to increase,” he said.
M&G Global Dividend doesn’t target a yield and therefore sits in the IMA Global sector rather than the IMA Global Equity Income.
The manager says stock specific issues have been responsible for the softer period of performance, pointing to Australian mining services group ALS and energy firm Fugro as big detractors. Both were forced to cut their dividends earlier this year.
However, he is holding onto most of the underperforming stocks, and in many cases has topped up his holdings.
Rhodes says he is more “excited” about the outlook for his fund than for some time because it is unusually on a discount to the wider market. Wise agrees.
"The valuation of the fund's holdings versus the market is at the lowest level since 2009, and that makes me excited in terms of the dividend increases we might see from the companies we own," added Rhodes.
M&G Global Dividend has an OCF of 0.91 per cent and is currently yielding 3.05 per cent.
HSBC S&P 500
Wise is buying a US tracker for exposure to the US principally because he is positive on the region, but also because he thinks it’s becoming increasingly difficult for active managers to add value to the S&P.
A recent FE Trustnet article showed that 75 per cent of US funds have underperformed the S&P 500 over the past five years, with the picture similarly bleak over one, three and 10 years.
Wise bought the $1.5bn HSBC S&P 500 ETF in place of an active fund run by Jenny Jones.
“Previously, I have used the Schroder US Mid Cap fund but wanted to go passive, although I will be keeping it under review,” he said.
According to FE Analytics, the fund has actually outperformed the S&P since its launch in June 2010, returning 91.28 per cent compared to 84.56 per cent from the index.
Performance of fund, sector and index since June 2010
Source: FE Analytics
The fund has a tracking error of 4.4 per cent over the period, significantly higher than the likes of the iShares S&P 500 UCITS ETF, which scored 0.3 per cent.
The ETF has ongoing charges of just 0.09 per cent.
Fidelity Emerging Markets
This £672m fund has been managed by FE Alpha Manager Nick Price since March 2010.
Wise says the potential growth from the US and attractive valuations are a good combination for emerging markets.
Emerging markets have had a much more positive 2014 following underperformance in 2012 and 2013, but Wise expects another re-rating.
“The one weakness is the recent strength of the dollar. If it comes under pressure it might be a further issue for emerging markets,” added Wise.
Price has fared much better than his rivals and the MSCI EM index over a difficult past few years, managing 20.98 per cent over three years compared to 12.25 per cent from the IMA Global Emerging Markets sector average.
Performance of fund, sector and index over 3yrs
Source: FE Analytics
His relative outperformance may be partly accounted for by his overweight positons to the Middle East and North Africa – a region that few managers in the sector tread.
Fidelity Emerging Markets has an OCF of per cent 1.03 per cent.
Schroder Asian Income
Once again, Wise thinks that valuations in Asia are at attractive levels, but is keen to hold a defensive manager with a proven record of protecting on the downside.
Richard Sennitt has been at the helm of this £517m fund since November 2001.
He has built up a strong reputation for outperformance and capital preservation over the period, which is attributable to his preference for quality dividend paying companies.
The fund has been top quartile in four out of the past six years and is also currently top quartile for 2014.
It has a particularly good record in down markets, though has still made good money when markets rise.
Sennitt has returned 76.47 per cent over the past five years compared to 44.66 per cent from the sector and 48.29 per cent from the index.
Performance of fund, sector and index over 5yrs
Source: FE Analytics
The manager has an overweight position in Australasia with companies such as Amcor and Woodside Petroleum in his top-10.
Schroder Asian Income has an OCF of per cent 0.94 per cent.
Wise told FE Trustnet earlier this year that he moved all of his 2013/2014 ISA into the Standard Life UK Equity Unconstrained fund, due to his optimistic outlook for UK equities.
He retains a high weighting to the fund, believing that manager Ed Legget can continue to outperform despite a shaky start to the year.
