While many expect 2017 to be full of uncertainty, those investors looking towards the longer term may wish to consider a more aggressive approach to their ISAs this year.
This time of year sees investors routinely rushing to make use of the tax-wrapper allowance before the deadline which ends on 5 April, meaning investors have less than a month use their £15,240 ISA allowance for 2016/17.
And with more people living (and working) longer, an adventurous approach to saving could reap rewards over the long-term.
Having previously looked at cautious and balanced fund picks, the below recommendations therefore are for the investor who is willing to experience the volatility that comes with investing in equity markets and potentially higher risk equities such as emerging markets or smaller companies.
They typically appeal to those with longer term time horizons and those who don’t need access to the money soon, such as younger investors with some experience of investing.
However, with longer retirements increasingly common, adventurous funds may also hold some appeal for older investors.
Baillie Gifford Shin Nippon Trust
While the Japanese markets may be unloved by some investors with equities having traded sideways for several decades, the market recently broke highs last seen at the end of the 1980s.
Darius McDermott, managing director at Chelsea Financial Services suggests Baillie Gifford Shin Nippon Trust.
He says the trust focuses on emerging or disrupted sectors where the manager sees innovative growth opportunities.
“The team are prepared to bide their time while these companies reach their full potential and, while the trust can be highly volatile, patient investors have been richly rewarded,” said McDermott.
The five crown-rated, £261m trust has been run by Praveen Kumar since the end of 2015 having previously been managed individually by John MacDougall, Alistair Way and Mark Urquhart at various periods since 2001.
“It invests in smaller and medium-sized companies and, in the last 10 years, the trust has been geared every year in a range between 9 per cent and 18 per cent, which can increase the risk further,” McDermott said.
However, over the last decade the trust has returned 212.29 per cent – the highest in the IT Japanese Smaller Companies sector and 91.22 percentage points ahead of the MSCI Japan Smaller Companies index.
Performance of fund vs sector and benchmark over 10yrs
Source: FE Analytics
McDermott added: “The quality of Baillie Gifford’s in-house research and its specialist Japan equity team are two factors hugely in this trust’s favour though.
“The team delve into the small-cap area of the market where many other firms fear to tread, giving them ample opportunity to uncover hidden gems.”
The trust is currently on a 7.3 per cent premium, is 8 per cent geared and has a clean ongoing charges figure (OCF) of 1.02 per cent, according to the latest data from the AIC.
Marlborough Nano Cap Growth
“For aggressive investors it’s always tempting to go for more specialisation, maybe a single country fund,” said Mark Dampier, investment director at Hargreaves Lansdown. “But instead I’m suggesting a holding I have myself: Marlborough Nano Cap Growth, led by [FE Alpha Manager] Giles Hargreaves.
“Giles has a great team backing him up, and they have long proven track record in UK small caps,” he added.
The fund, which is co-managed by David Walton and Guy Feld, looks to buy into the really small companies in the UK – usually under £100m market capitalisation.
Performance of fund vs sector since launch
Source: FE Analytics
The fund has been a top quartile performer in the IA UK Smaller Companies sector over the past year, returning 26.79 per cent, but has been a mid-table performer since its launch in 2013.
As the above graph shows, the fund struggled at the beginning but picked up steam in 2016 and is now ahead of the sector average by 1.24 percentage points since launch.
The £121m fund has 86.6 per cent invested companies with a market capitalisation of less than £250m and owns no holdings with a market capitalisation of more than £1bn.
The portfolio’s largest sector weighting is in technology, with Amino Technologies, Proactis Holdings and D4T4 Solutions among its top 10 holdings.
The Marlborough Nano Cap Growth fund has an OCF of 1.56 per cent.
Fidelity Index World
An option for those looking to take on passive exposure is Fidelity Index World, according to Informed Choice managing director Martin Bamford.
“For ISA investors who are prepared to take a much higher level of risk and take a long-term view, I would opt for a low-cost global equity index tracker,” he said.
“Fidelity Index World is available through their ISA wrapper for ongoing charges of 0.15 per cent. It aims to closely track the MSCI World Index and is one of the cheapest ways of gaining exposure to this large basket of global companies.”
Indeed, the MSCI World index is up 99.32 per cent, while the Fidelity Index World has returned 100.36 per cent over the last five years.
For other passive ideas, we have previously looked at other passive options investors may look to buy this ISA season, with themes such as an ageing population, robotics and small-caps included.
Jupiter Global Emerging Markets
Back to active management and Adrian Lowcock, investment director at Architas, suggests investors might look to emerging markets to add risk to their portfolios and the Jupiter Global Emerging Markets fund.
“Manager Ross Teverson lives and breathes the unconstrained approach to investing,” Lowcock said.
“He is a high conviction manager with a focus on stock selection with each holding having to justify its position in the portfolio. This is a growth fund and as such suits investors with a longer time horizon.”
The £73.2m fund has been a top quartile performer in the IA Global Emerging Markets sector over one, three and five years, returning 48.79 per cent over the last half-decade.
Performance of fund vs sector and benchmark over 5yrs
Source: FE Analytics
The four crown-rated fund currently holds 48 stocks and is split 21.3 per cent in large-caps, 30.9 per cent in mid-caps and 43.1 per cent in small-caps.
It has a high weighting to financials (22.5 per cent) technology (12.5 per cent) and healthcare (12.3 per cent) and is predominantly invested in the Asia Pacific ex Japan region.
Jupiter Global Emerging Markets has an OCF of 1.38 per cent.
L&G UK Special Situations
Finally, Richard Penny’s L&G UK Special Situations was suggested by The Share Centre investment research analyst Sheridan Admans for aggressive investors.
“For investors uncertain over the direction the UK market will take as Brexit negotiations proceed but who want a broad UK fund this may be suitable,” he said.
“The manager seeks to identify a catalyst or some meaningful exogenous event that may cause the market to revaluate the fundamentals of a company whether that be from refinancing, M&A activity, secular growth opportunities or event driven strategies such as an IPO or placing of shares.
“The fund is managed by Richard Penny, an experienced fund manager with a strong long-term track record. Richard also manages the L&G UK Alpha fund.
“Richard aims to provide the potential for long term growth by investing in a concentrated portfolio of UK and European equities, of which 80 per cent at least will be invested in UK businesses.
Admans added: “Richard takes a fundamental approach to investing but with an awareness of the broader economic backdrop.
“The fund will invest in companies considered to be undervalued, mispriced by investors or suffering from indifferent performance, that are in recovery mode, that may have valuation anomalies or previously fallen short of expectations.”
The £256m fund has been a top quartile performer over the last five years, returning 87.64 per cent, 28.31 and 32.57 percentage points ahead of the IA UK All Companies sector and FTSE All Share benchmark respectively.
The four crown-rated fund has an OCF of 0.94 per cent.