In an article last month, FE Research head Rob Gleeson shunned the marketing frenzy of ISA season, claiming that panic-buying to utilise the £15,000 tax-free limit is not a good way to put your money to work. 
He wasn’t alone, as the likes of Informed Choice’s Martin Bamford and Chase de Vere’s Patrick Connolly agreed that the hype should be ignored in favour of funds that are best suited to the individual investor.
“The industry tries to whip up a buying frenzy in order to push products, and actually, if you had a well-thought-out portfolio beforehand, there’s no need to add to it just because it’s ISA season,” Gleeson said.
“The whole idea of pushing funds on people, ‘what should you buy, what should you buy, what should you buy’, isn’t the way I would be advising my customers if I were an advisor.”
As part of a new series, BRI Wealth Management’s Daniel Boardman-Weston (pictured) gives FE Trustnet his top five ISA picks to invest in on a monthly basis and not just weeks before the deadline.
There’s no doubt that this fund has performed well since its launch in November 2013, achieving a total return of 20.3 per cent, which is 7.09 percentage points more than its average peer and 7.34 percentage points more than the FTSE All Share index.
Fund performance vs sector and benchmark since launch
Source: FE Analytics
“The fund, which is run by Henry Dixon, targets stocks that are either trading below their replacement cost and are cash generative or those where the market is undervaluing the profit stream,” Boardman-Weston said.
“Dixon is disciplined with his value approach and we are firm believers that, in a reasonably expensive market, having an active focus on value is likely to deliver superior returns.”
The fund, which has a Square Mile rating of ‘A’, invests in small and mid-cap companies as well as larger stocks and holds unloved companies which have the potential to improve their performance over time.
As the name suggests, Dixon adopts a solely bottom-up investment approach and picks stocks based on a company’s balance sheet, their assets, their cash holding and the strength of their cash flows.
This method appears to work, as the fund has achieved top-decile risk-adjusted returns, as measured by the Sharpe ratio, of 0.8 since launch. This is more than double that of both its sector and benchmark over the same time period.
“The manager has also tended to perform well in rising gilt yield environments, which we believe is a plausible scenario in the not too distant future,” Boardman-Weston added.
GLG Undervalued Assets has a clean ongoing charges figure (OCF) of 0.96 per cent and yields 1.83 per cent.
The CF Miton UK Multi Cap Income fund also adopts a bottom-up investment approach and invests in companies of varying sizes, with only 11 per cent of assets currently invested in the FTSE 100.
“The fund, which is run by small-cap veteran Gervais Williams, looks to provide ‘good and growing’ income with the prospect for capital growth. As the fund takes a multi-cap approach, the manager is able to take advantage of income opportunities irrespective of the size of the company,” Boardman-Weston explained.
Since the fund was launched in 2011, it has achieved total returns of 94.87 per cent, which is almost a third more than its peer average in the IA UK Equity Income sector.
Fund performance vs sector since launch
Source: FE Analytics
However, as to be expected with a fund heavily weighted in small-caps, the fund’s maximum drawdown is bottom decile since launch at 4.59 per cent, which may be difficult for investors with lower risk thresholds to stomach.
Despite this, the fund boasts top-decile annualised volatility of 6.03 per cent and a top-decile Sharpe ratio of 0.86 per cent over the same time period.
“The bottom-up approach employed is sensible in what appears to be the closing stages of a six-year bull market,” Boardman-Weston continued.
“The 3.5 per cent historic yield compares favourably with other equity income funds and with small and mid-cap earnings looking to be more resilient, the prospects for meaningful dividend growth look likely.”
The fund has a clean OCF of 0.8 per cent.
The Artemis Global Income fund is ranked highly among various analysts, holding four FE Crowns and a Square Mile rating of ‘A’.
This is unsurprising when taking its performance into account. According to FE Analytics, the fund, which is managed by Jacob de Tusch-Lec, has significantly outperformed its benchmark and its peers, achieving total returns of 94.87 per cent over three years.
This is almost double the average return of the IA Global Equity Income sector and 31.6 percentage points more than the MSCI AC World index.
Fund performance vs sector and benchmark over 3yrs
Source: FE Analytics
Boardman-Weston said: “De Tusch-Lec looks at companies that have a good free cash flow yield which can feed into growing dividend payments. Sources of yield are diversified by cyclical, value and quality yield.”
“Stocks that are likely to be present in the fund are ones that trade on a yield premium to the market, can show dividend sustainability and have good earnings/free cash flow potential. A macro-economic overlay is added to the bottom-up process to ensure suitable sector and geographical exposures.”
The £2.1bn fund holds an overweight 38.69 per cent in Europe excluding the UK and also has a 26.49 per cent weighting in the US. Its largest sector weightings are real estate, telecom, media & technology and financials.
Artemis Global Income has a clean OCF of 0.84 and yields 3.3 per cent.
Property funds have done well recently and have proved popular among investors. Over the last 12 months, the IA Property sector has achieved returns of 15.23 per cent, outperforming the FTSE All Share by 4.4 percentage points.
Sector vs index over 1yr
Source: FE Analytics
However, there have been fears that the market has become over-saturated – since the start of the year, the sector has underperformed the FTSE All Share by more than half.
Despite Kames Property Income fund’s underperformance compared to its peer average, it has a top decile volatility rating of 1.11 per cent over a 12-month period, which is less than a fifth that of the IA Property sector.
“The Kames fund offers investors exposure to UK commercial property through the manager’s ‘active value’ strategy,” Boardman-Weston said.
“About 50 per cent of the fund is invested in this way, which tries to enhance value through change of use, new lettings, refurbishment or extending leases. The remainder of the fund is invested in core/prime property and REITS/cash, which offers greater liquidity and more stable income streams than secondary.”
The fund, which is co-managed by Alex Walker and David Wise, targets a 5.5 per cent yield and aims to find capital growth prospects via its active value strategy.
Kame Property Income has a clean OCF of 0.96 per cent.
The five FE Crown-rated fund, which has been managed by Paul Smith since its launch in 2010, is Boardman-Weston’s final ISA choice.
“[Premier Defensive Growth] utilises a multi-investment approach and has an emphasis on low volatility and absolute return,” he explained.
“Paul Smith focuses on fixed life and fixed entitlement investments, a defined start/end date and a defined return respectively. This fund plays a pivotal role in portfolios by aiming to preserve capital when markets suffer periods of weakness and should dampen overall portfolio volatility whilst producing cash plus returns.”
This is shown through the fund’s annualised volatility of 1.34 per cent over the last 12 months, which is 0.38 percentage points lower than its peer average.
As shown in the graph below, the fund has also achieved total returns of 15.57 per cent over the last three years, which is 1.28 percentage points more than its sector average.
Fund performance vs sector over 3yrs
Source: FE Analytics
Premier Defensive Growth has a clean OCF of 1.15 per cent.