This time of year is usually the peak of an investment frenzy known as ‘ISA season’ as retail money races to make use of the government tax wrapper for the year before it is gone forever.
Investors have less than a month to make use of their £15,240 allowance for their 2015/16 Individual Savings Account (ISA) which ends with the beginning of the new tax year.
However, to secure units in a fund or funds there is only two or three weeks to ensure the 1 April deadline is not missed.
While this is an incentive to get moving with investments in cash, funds, trusts or shares you could be forgiven from being a little sceptical about the safety of markets and the chance of another sell off.
However, many markets have staged a recovery of sorts in the past few weeks and yesterday saw the biggest single jump for iron ore prices – a bellwether for global demand – in living memory.
In this article, we hear from professional fund pickers from the likes of Hawksmoor and Old Mutual Global Investors as to the funds they are buying for their own ISAs that are making them feel very bullish.
BlackRock Frontiers Investment Trust
Ben Conway, co-manager of the PFS Hawksmoor Distribution fund, says the BlackRock Frontiers Investment Trust makes an excellent ISA choice for both income and growth investors.
“The traditional view of frontier markets is that they are the set of economies that are expected to provide the emerging markets of the future. In reality they are much more than that. As most investors will know, emerging markets as an asset class have performed very poorly relative to developed markets for some years now and have de-rated by some 20 per cent since 2010,” he said.
“Much of this is deserved with many companies still poorly run and profitability having suffered. What is less well-known is that Frontier Markets have de-rated by some 40 per cent over the same period. This de-rating appears entirely unjustified given the superior earnings growth of companies in the universe and, often, superior corporate governance,” he added.
The £197m trust has been managed by Sam Vecht since it launched in 2010 with Emily Fletcher co-manager since 2013. It has returned 18.5 since launch, beating its MSCI Frontier Markets benchmark and hugely outperforming its peer group composite.
Performance of trust, sector and index since launch
Source: FE Analytics
Frontier markets – which include the likes of Kuwait, Kazakhstan, Pakistan, Nigeria and Kenya –delivered strong gains for investors up until the tail-end of 2014 but have been hard hit since.
Conway says there are currently many opportunities in these countries owing to the bearishness that has characterised the broader emerging market space in recent years.
“It would be a mistake to assume all companies listed on frontier markets exchanges are necessarily risky ventures run by corrupt businessmen. The reality is quite different and indeed in many ways superior on average to emerging markets.”
“Most importantly, current valuations are very cheap thanks to strong historic earnings growth and healthy dividend growth, making this asset class among the most misunderstood in global financial markets.”
“As is always difficult with such heterogeneous asset classes, generalisations are dangerous. But what it clear is that a portfolio of good frontier markets companies adds superb diversification to portfolios: in aggregate the asset class is far less correlated to global equity markets than other regional equity markets.”
He thinks Vecht and Fletcher’s portfolio is the appropriate vehicle to access them and the pair both skilled managers.
“The investment trust structure gives the managers a fixed pool of capital so they don't need to worry about redemptions and subscriptions and can therefore invest in any stock they choose without restricting themselves to the more liquid parts of the market.”
“Indeed, many frontier stock markets can be very illiquid at times making the fund structure of utmost importance. Secondly, frontier markets involve economies as diverse as those in the Middle East, former Soviet Union, parts of South America and Africa.”
He also adds that with a current yield of 4 per cent, the trust provides a decent level of income to go along with capital growth.
“The trust gives its investors a very healthy income stream in addition to the excellent capital growth prospects, making this an ideal investment for an ISA.”
The trust has an OCF of 1.51 per cent and also charges a performance fee. It is on a 1 per cent premium and is 3 per cent geared.
Next up Adrian Lowcock (pictured), head of investing at AXA Wealth, tips this £780m fund, having recently bought it for his own ISA for the first time believing the Asia Pacific region to be overly sold in the past year and this fund to be a top beneficiary of a long-term recovery. 
“Asia is out of favour at the moment, however valuations are already attractive compared to developed markets with some excellent long term opportunities,” he said.
”Investing in this region requires patience and a cautious approach. I consider this a holding not for 2016 but for more like 2026 and as such am adding small amounts on a regular basis.”
Schroder Asian Income has been managed by Richard Sennitt since 2001. The fund is the top decile over five years, top quartile over 10 years. In the past year it has lost money but is still in the top quartile for performance in the IA Asia Pacific ex Japan sector.
Performance of trust, sector and index under Sennitt
Source: FE Analytics
After a disappointing period during the period before the financial crisis, when the fund made less than its peers, Schroder Asian Income has beaten both the sector and its MSCI AC Pacific ex Japan benchmark in five of the seven subsequent years including 2008. It is also ahead so far in 2016.
Lowcock said: “Sennitt is a very experienced manager and has been investing in Asia for over 21 years. He has a strong value discipline and won’t buy at any price.”
“He is a stock picker and runs a concentrated portfolio of 60-80 stocks. The fund invests in companies which are financially sound, profitable, with proven management focused on shareholder returns.”
The fund yields 3.9 per cent and has clean OCF of 0.93 per cent.
Last up Paul Craig, manager of the Old Mutual Cirilium range of fund of funds at Old Mutual Global Investors, has recently been buying the £1.4bn Mercantile Investment Trust and says it makes an ideal bullish bet for his ISA.
Craig, who has headed the Cirilium range since 2008 is a big fan of buying investment trusts at a discount, having done well from this strategy in the post financial crisis recovery.
“The fund, which is managed by Guy Anderson, Martin Hudson and Anthony Lynch of JP Morgan, is one of the largest investment trusts in the UK. It’s a diversified UK portfolio with a small/mid-cap bias that has moved to a wide discount to net asset value in the past year [of 13.4 per cent],” he said.
The fund has its largest exposure to financials, domestically focused consumer names and industrials with small exposure to oil, gas and healthcare as well as 12.6 per cent in cash.
The trust has beaten the FTSE All Share over one, three, five and 10 year periods. Over the past 20 years it has more than tripled the FTSE.
Performance of trust, sector and index over 20yrs
Source: FE Analytics
Top holdings include currently include Betfair, Domino’s Pizza and Bellway.
The trust has an OCF of 0.50 per cent, isn’t geared and has a current yield of 2.93 per cent.