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Deverell: The funds I’m buying to max out my ISA

11 February 2015

Equilibrium’s Mike Deverell reveals to FE Trustnet how he is going to allocate funds and cash this year in his tax wrapped investments.

By Daniel Lanyon,

Reporter, FE Trustnet

The time of year when investors frantically look to allocate the allowance in their ISA is imminent.

While there is still the best part of eight weeks to go, and investors could be forgiven for leaving things to the last minute, it makes sense to start planning where to allocate their hard-earned cash.

This year investors who are using their full ISA allocation will see the largest increase in their maximum allowance, a jump from £11,880 to £15,000, meaning a greater flexibility to move between cash and stocks.

The extra tax-free capacity appears to have a strong take-up amongst investors with a poll of more than 1,000 FE Trustnet readers showing that 53 per cent are planning to use it all.

However, with more capacity this – arguably – requires greater thought, unless investors just scale up from other years’ portfolios rather than use the extra space to build a more diversified allocation.

Here, Equilibrium’s Mike Deverell reveals how he is going to use up his full ISA allocation before the deadline runs out.

The discretionary fund manager says he has a similar portfolio already in his pension, but is taking less risk in his ISA and making greater use of cash to buy on market dips.

“I have a more speculative model in my pension because I don’t expect to retire for a long time – 20 years or so. It’s a lot more aggressive and mainly in equities. However, in this ISA I have an adventurous but not as aggressive [portfolio] because I might want to take some out in the next few years,” Deverell said.

“I have just over 50 per cent of the portfolio in equities funds, a big mixture although half that is UK. I also really like Asia, mostly China and Japan,” he added.

Also, there is a reasonably large allocation to ‘alternatives’ in the form of the Odey Absolute Return, Invesco Perpetual Global Targeted Returns and Old Mutual Global Equity Absolute Return funds.

The three, which sit in the IA Targeted Absolute Return sector, are all up since September 2013 – when the Odey fund was launched – and stayed ahead of the average return in the sector although, as shown in the graph below, the Odey fund has been more volatile.

Performance of funds and sector since September 2013

   
Source: FE Analytics

“I have been holding these funds elsewhere for about 18 months but I am topping them up in this ISA,” Deverell said.

For exposure to Asia, Deverell is using four main funds: Schroder Asian Alpha for the broader region and Invesco Perpetual Hong Kong and China, Baillie Gifford Japanese and Schroder Tokyo for country specific allocation.

Andrew Rose heads up Schroder Tokyo, while Sarah Whitley and Matthew Brett co-manage Baillie Gifford Japanese.

Over the past five years the two funds are top quartile in the IA Japan sector having retuned 49.22 per cent and 67.57 per cent respectively. By comparison the average fund made 31.19 and the Topix gained 38.01.


Performance of funds, sector and index over 5yrs



Source: FE Analytics

Deverell is also making use of several tracker funds for Asia and the US, choosing the Vanguard Emerging Market index and the Vanguard US index

For UK equity exposure his largest holding is also passive with a collective 7 per cent of his ISA split between the Vanguard FTSE All Share index and Vanguard UK Equity Income index.

He also has five actively managed funds in the UK space: Royal London UK Equity Income, Miton UK Multi Cap Income, Artemis UK Special Situations, Miton UK Value Opportunities and Marlborough Special Situations.

The other main asset class in the fund is property, which Deverell has tilted almost 25 per cent to by an equal split between Aviva Property, Henderson UK Property, Ignis UK Property, Standard Life UK Property, the Aberdeen Property Trust and, to a lesser extent, the M&G Property Portfolio.

As shown below, the past five years have been a productive period for investors in property funds.

Performance of funds over 5yrs



Source: FE Analytics


Deverell says he is also keeping 5 per cent in cash in anticipation of market dips.

“It is a short term and, what I describe as, a tactical position. When the market [the FTSE 100] goes down to about 6,500 I will put this to work – a volatility trade whereby I’d put it into a tracker and sell at 6,800. It just helps to add a little bit of value when markets are not really going anywhere,” he said.

“I have been making use of structured products using the Credit Suisse Defined Return fund, which has actually just ended and so I am looking to put that cash to work when it comes back in.”

 

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