With less than a month to go before the deadline, an increasing number of big investment decisions are being made by people hurriedly looking to utilise their ISA allowance.
With this in mind, The Share Centre head of research Andy Parsons (pictured) gave some cautionary ISA advice.
“Just because we’re coming to the end of the tax year, don’t forget that the new one starts the following day,” he said.
“Don’t leave it until this time next year to utilise 2015/16, start immediately and drip-feed your money in, because no-one knows where the markets are going to be and through pound-cost averaging, you might buy a few less units one month but buy a few more the following month, because the markets may have dropped a bit.”
“But, in the long term, the average cost of your unit will be far more beneficial than putting £15,000 on the 6 April, or putting £15,000 in now.”
In light of this FE Trustnet explores Parsons’ top ISA picks for the following tax year, giving investors plenty of time to get organised.
Invesco Perpetual UK Strategic Income
Parsons’ first fund pick is for investors who are seeking to supplement income.
He said: “The concern we have is that we’re going into a general election. First and foremost, I’m looking to have a fund where I believe there is stability and less likelihood of volatility within its holdings.”
The fund, which has been managed by FE Alpha Manager Mark Barnett since 2006, boasts a top-quartile annualised volatility of 11.8 per cent over seven years, which is 4.13 percentage points lower than its sector average.
What’s more, Parsons likes the fact that Barnett’s fund holds fewer stocks than his other Invesco Perpetual funds, allowing the manager greater flexibility.
Parsons said: “Mark has been at the helm for many years and we’ve always liked this fund as an alternative, even in the old days. Purely because it was much, much smaller and a bit more focused on investment decisions. So I think that provides a good grounding and bedrock.”
The £1bn fund has 35.35 per cent of its portfolio in its top ten holdings, showing that Barnett isn’t afraid to make bold and punchy decisions.
“This fund would be the income stream in your ISA,” Parsons added.
Source: FE Analytics
CF Miton UK Value Opportunities
This is the other UK fund that Parsons particularly likes, due to its emphasis on rising stars and fresh investment ideas.
He said: “George Godber and Georgina Hamilton are real value investors, and that’s been proven through their processes and how the fund has delivered over the last couple of years – they’re looking for real deep-value companies.”
Since it was founded in March 2013, the fund has delivered top quartile returns of 18.34 per cent, which is 7.6 percentage points higher than the IA UK All Companies sector average.
The investment objective of George Godber and Georgina Hamilton is to invest in a wide range of companies that they consider to be undervalued by the market.
This includes investing across a range of cap sizes, which means a greater manoeuvrability across the market.
Parsons said: “It provides the investor with the knowledge that the managers will move as and where they see the value across the market caps.”
“I also like their two-man, tag-team approach to management and the ability to bounce ideas off of each other.”
Parsons believes that CF Miton UK Value Opportunities should be used as the growth fund in an investor’s ISA, providing an element of capital appreciation.
Source: FE Analytics
Rathbone Global Opportunities
Parsons thinks that it’s important for investors to make space for a global portfolio in their ISA as a means of diversification.
“You’ll find that you’ve actually got presence diversified around the world, so instead of having to find a country or a region or a sector-specific fund, you have a far broader coverage,” he explained.
Parsons believes the Rathbone Global Opportunities fund is favourable as its manager, FE Alpha Manager James Thomson (pictured), is able to identify promising companies with a capacity to drive earnings.
He said: “James has been at the helm since its inception and he invests in companies which have real merit, strong balance sheets and high barriers to entry. However, importantly, he will only invest in areas that he understands, so he won’t touch emerging markets. He won’t go to areas that he doesn’t like.”
Thomson’s £523.1m fund mostly consists of small and mid-cap companies. Some 60.64 per cent of the fund is invested in North America, 18.96 per cent is in the UK, and 6.76 per cent in Europe.
Source: FE Analytics
Legg Mason ClearBridge US Aggressive Growth
Parsons believes that managing duo Evan Bauman and Richie Freeman have demonstrated a true ability to stockpick, despite many investors shying away from actively-managed US funds.
“Much has been written over many years about whether or not US managers can outperform,” he said. “A lot of people will still say they prefer trackers but I’m firmly in the camp that there are managers out there, such as this team, who have the ability to deliver over time and outperform the market.”
The Sharpe ratio of the fund, which measures a fund’s risk-adjusted returns, is top quartile at 0.72.
Parsons said: “[Bauman and Freeman] are real long-term holders. More importantly, they run an aggressive fund so they’ll take some punchy opportunities.”
“If you look back over time, this is a fund that I believe has demonstrated an ability to stockpick. Yes, markets go through cycles, but I do believe that in my portfolio I would prefer to have an actively-managed US fund.”
Source: FE Analytics
Polar Capital Healthcare Opportunities
“I do believe specialist funds can have an opportunity,” Parsons said. “When I look at a specialist fund in a portfolio I see them as a satellite holding, so not as the core nucleus of all of our holdings. It’s one that can bring the added excitement and potential opportunity.”
Parsons is particularly drawn to the five FE Crown-rated Polar Capital Healthcare Opportunities fund because it invests heavily in healthcare and technology.
Relative to its index, the fund is overweight in healthcare equipment and health facilities, and is currently underweight in managed healthcare and pharmaceuticals.
Parsons said: “The way that the world is evolving is around healthcare and technology. Within healthcare, we’d then expand that to biotech as well. But I’ve picked this healthcare fund purely because we’re going through a phenomenal evolutionary and cultural change in how technology revolutionises and changes our lifestyle.”
“I’m firmly of the belief that we will, at some point in my lifetime, get to the point where illnesses and diseases which historically would have meant the end of our lives will become manageable and treatable. Within a portfolio, I’d really like to try and benefit from some of that opportunity.”
Source: FE Analytics
First State Global Listed Infrastructure
Parsons says infrastructure should be invested in to bring less volatility to a portfolio and to provide a supplementary income from a global presence.
“Big infrastructural developments have good strong government backing around them,” he said.
“When an economy has gone through a difficult growth phase, one of the best ways to get your country going again and to generate growth is to undertake infrastructure spending because it provides such a vast supply of different businesses and services, and it generates employment.”
“More importantly, a vast number of those businesses, when we talk about utility companies, have very strong pricing power. They have massive high barriers to entry, so it’s not like competitors can just come along and develop something. They generally have very strong regulatory presence around it their pricings.”
Source: FE Analytics