The Big Theme
Cautious: M&G UK Inflation Linked Corporate Bond
The rise in inflation to 4 per cent means you will need to factor some protection into the fixed-income portion of your portfolio. Index-linked bonds are a good option, but UK index-linked gilts are expensive. An alternative is corporate inflation-linked bonds, and one of the few fund options available is M&G UK Inflation Linked Corporate Bond, which Bestinvest has awarded four out of a possible five stars.
M&G UK Inflation Linked Corporate Bond seeks a return consistent with or greater than UK inflation. As the majority of total returns will be in the form of capital returns from indexation, however, income yield is low.
You can buy it via Alliance Trust Savings' Isa for no initial charge and a 0.6 per cent AMC after rebate. However, Alliance Trust Savings charges a £25 plus value-added tax (VAT) annual administration fee. You get two free trades and thereafter pay £12.50 for every trade, although if you hold Alliance Trust shares you can trade from as little as £6.25. If you invest on a monthly basis the cost is reduced to only £1.50 per security traded.
If you buy this fund from broker ClubFinance, which invests through the Skandia Investment Solutions platform, there is no initial charge. Plus, with a ClubFinance rebate, the annual fee falls to 0.8125 per cent. ClubFinance rebates 75 per cent of the commission it receives from Skandia to the investor. There is also no set-up charge and no charges for switches within this Isa. But the annual fee for using the Skandia platform is £52.32 and set to increase to £68.50 a year.
Chelsea Financial Services offers fund supermarket Cofunds' Isa and waives all initial charges on most of the funds available, so you just pay the AMC; in the case of M&G UK Inflation Linked Corporate Bond, 1 per cent. With this Isa there is no set-up fee, although Cofunds charges a 0.25 per cent transfer fee if you switch from another provider. Trades are also free.
Hargreaves Lansdown Vantage Isa, Bestinvest’s white-label Isa and the Fidelity Isa remove the initial charge so you just pay the 1 per cent AMC. Neither takes a set-up or transfer in fee. However, Bestinvest charges 0.25 per cent for switching, but fund dealing is free in the Hargreaves Lansdown Isa, and in the Fidelity Isa if you do it online.
Aggressive: First State Asia Pacific Leaders
If you have a longer-term investment horizon you cannot ignore the Asian growth story. First State Asia Pacific Leaders is one of the best-performing Asian funds and is in the top quartile of its sector, Asia Pacific ex-Japan, over one, three and five years. Although the fund invests in a higher-risk region this is somewhat mitigated by its focus on high-quality shareholder-friendly companies.
The fund is also managed by one of the most experienced Asian investment teams headed by Angus Tulloch.
You can buy the fund via Bestinvest minus the initial 4 per cent charge with a 1.5 per cent AMC. You could also purchase it via ClubFinance for an AMC of 1.125 per cent after rebate, or Hargreaves Lansdown for an AMC of 1.35 per cent.
HARGREAVES LANSDOWN'S RECOMMENDATIONS
Cautious: Invesco Perpetual Distribution
This cautious-managed fund currently has around 64 per cent of its assets in bonds, including high yield, helping it offer a generous yield in excess of 6 per cent. It is balanced with a portion of high-yielding equities run by Neil Woodford, considered to be one of the best UK equity income managers, and his holdings include resilient defensive businesses such as pharmaceuticals and utilities. This makes the fund a good yield option in a time of high inflation as it is not just reliant on bonds for its income.
You can buy Invesco Perpetual Distribution via the Alliance Trust Savings Isa with no initial charge and an AMC of 0.875 per cent after your rebate, or 1.005 per cent via ClubFinance. With the Hargreaves Lansdown Vantage Isa you pay an AMC of 1.182 per cent after rebate.
Aggressive: Neptune Russia and Greater Russia
This fund could be a good option for investors prepared to take on emerging markets risk with, at times, considerable volatility. Around half the Russian stock market is accounted for by oil, gas and mining companies, and should continue to do well if prices of these continue to streak ahead. As UK inflation is largely fuelled by the rises of prices in these commodities, Russian stocks should also act as a good diversifier. Neptune Russia and Greater Russia is also more diversified than a commodities fund, with around 26 per cent of its assets exposed to consumer-facing stocks, which are fuelled by this fast-growing part of the Russian economy. The fund also invests outside Russia in some of the surrounding economies.
You can buy this fund via Alliance Trust for a 0.875 per cent AMC, or a 1.375 per cent AMC from ClubFinance.
Hargreaves Lansdown Vantage Isa charges a 1.6 per cent AMC.
CHELSEA FINANCIAL SERVICES' RECOMMENDATIONS
Cautious: CF Miton Special Situations
This multi-asset fund gives exposure to global equities, bonds, cash and collective investment schemes and proved its worth delivering positive returns as the average fund in its sector lost money during 2007 and 2008. Although CF Miton Special Situations sometimes lags the average fund in better years it has always delivered positive returns, as the fund's managers seek to stabilise it by investing around 30 per cent of its assets in more defensive areas.
You can buy this fund via ClubFinance after rebate with a 1.125 per cent AMC. You can also buy it in the Hargreaves Lansdown Vantage Isa with an AMC of 1.35 per cent after rebate. If you buy it via the Chelsea Financial Services Isa, you just pay the 1.5 per cent AMC.
Aggressive: M&G Global Basics
M&G Global Basics is a global equity fund that invests in companies considered to be the building blocks of the world's economy, and as a global fund it could help to iron out currency movements as it has diverse exposure. While the fund seeks to take advantage of global structural themes such as rising incomes in developing economies, its manager also has an eye on asset-rich companies and those that can grow independently of the economic environment.
M&G Global Basics has delivered strong total returns for its investors over one and five years.
After rebate, with the Alliance Trust Isa you pay a 0.9 per cent AMC, while ClubFinance offers it for a 1.125 per cent AMC.
Hargreaves Lansdown Isa offers it for a 1.25 per cent AMC, and Chelsea offers it for a 1.5 per cent AMC.
KILLIK & CO'S RECOMMENDATIONS
Cautious: RIT Capital Partners investment trust
RIT Capital Partners investment trust is a multi-asset fund that diversifies its portfolio across private equity, hedge funds, fixed income and listed equity. It has a consistent track record and maintains good discount control, though currently trades at a premium to its NAV of around 2 per cent, making it a more expensive option.
This investment trust has delivered positive returns in most years and even during 2008 its NAV fell just over 11 per cent compared with 30 per cent-plus for some equity markets.
Aggressive: Impax Environmental Markets investment trust
In the current high inflationary environment, investing in a wide variety of asset classes such as equities, funds and commodities is a good way to try to beat inflation. Killik & Co says areas such as alternative energy could provide attractive returns and yields for Isa investors over the coming years. Concerns over oil prices and oil security are likely to lead to a greater focus on alternative energy via green technology, and you can get exposure to this via Impax Environmental Markets investment trust.
The trust is a good portfolio diversifier relative to mainstream holdings and an obvious choice if you are interested in green investments.
Impax Environmental Markets has delivered good net asset value (NAV) returns over one, three and five years relative to other green-focused investment trusts, but investors should bear in mind that on a yearly basis both its NAV and share price are very volatile.
At the time of writing the trust was trading at a discount to NAV of more than 12 per cent.
|The right Isa platform|
Investment trusts trade on the stock market, so you can trade them through any online stockbroker that offers self-select Isas. However, if you want to hold them within the same wrapper as unit trusts and Oeics, the calculation gets more complex.
Among the fund supermarkets, both Hargreaves Lansdown and Alliance Trust allow you to hold listed investments (which include shares and exchange-traded funds too), but HL charges 0.5 per cent a year (capped at £200) because it does not receive trail commission from listed investments.
All the major online stockbrokers have expanded their offerings to include managed funds, and their transaction charges on listed investments are very similar – typically around £12 per trade, less if you trade frequently. The table below shows some typical charges.
While there are usually no transaction charges on fund purchases, discounts on upfront charges and annual management charges may vary, and the universe of available funds may be smaller than that offered by a fund supermarket. Also, charges for things like personal Crest membership, dividend reinvestment, account closure and transfers out may vary widely from one provider to another.
Some providers levy steep charges if you transfer your Isa to another provider, so the Share Centre’s pledge to cover up to £300 of any transfer-out fee may come in useful if you are moving a big fund from an existing Isa. It charges a quarterly administration fee of 0.125 per cent of the value of the account, plus VAT. One per cent commission is charged per trade, with a minimum of £7.50.
|Provider||Product||Admin (ex VAT)||Per share deal|
|TD Waterhouse||Trading Isa||nil**||£12.50|
|Alliance Trust||i.nvest Isa||£25||£12.50|
Per-share deal rates are standard rates for online deals. Lower charges may be available for frequent traders. SelfTrade and Alliance Trust administration charges include some free trades.
*£30 if balance is under £7,500, £50 if more.
**Provided balance is over £5,100; otherwise £30.
■ Bestinvest, www.bestinvest.co.uk, Tel: 020 7189 9999
■ Hargreaves Lansdown, www.h-l.co.uk, Tel: 0117 900 9000
■ Chelsea Financial Services, www.chelseafs.co.uk, Tel: 020 7384 7300
■ Killik & Co, www.killik.com, 020 7337 0777
■ Fidelity International, www.fidelity.co.uk/investor, Tel: 0800 41 41 61
■ Alliance Trust Savings, www.alliancetrustsavings.co.uk, Tel: 01382 573 737
■ Clubfinance, www.clubfinance.co.uk, Tel: 01442 217 287
■ Share Centre, www.share.com, Tel: 01296 41 41 41
■ Selftrade, www.selftrade.co.uk, Tel: 0845 0700 720
Back to part one: Top broker recommendations for your Isa