Alternative growth for your Isa

That said, you should allocate with caution as single sectors or non equity assets can be very high risk. "Specialist funds tend to suit investors more engaged with their portfolio holdings as you need to understand what you are buying and the risks," says Tim Cockerill, head of collectives research at wealth manager Rowan Dartington. "For this reason these funds should be held for the long-term, at least five to 10 years as with a theme it can take some time to play out."

He adds that these sectors should be held as a small part of a balanced, broadly diversified portfolio, perhaps accounting for around 5 per cent maximum of the overall. With single sector equity funds such as healthcare or technology, you should also bear in mind that there may be some overlap of underlying holdings with some of your more mainstream funds.

But if you are well diversified and have a long-term investment horizon, adding a bit of spice round the edges of your core holdings can pay off. We have singled out five areas to consider.

Healthcare and biotechnology

Biotechnology has been out of favour but as large pharmaceutical groups realise they need new products to replace drugs coming off patent, they may look to acquire smaller biotechnology companies, boosting their share prices prior to the acquisition. If these small companies discover an important drug meanwhile, their share price can also benefit.

Analysts at broker Killik suggest International Biotechnology Trust (IBT), an IC Top 100 Fund, which is mainly focused on small and mid-cap biotechnology companies working on drug discovery and development at the higher risk/return risk end of the healthcare sector. Investments are made in quoted public companies with an expectation that these companies will benefit from a significant re-rating in valuation when they achieve clinical trial success, receive regulatory approvals for their products, and execute mergers & acquisitions or licensing deals.

As well as listed companies, 15 per cent of this trust's assets are in unlisted assets to generate gains that represent multiples of invested cost primarily through the sale of these unquoted companies to buyers including major pharmaceutical companies or through a flotation. If its unlisted companies can be spun off at a profit, this could significantly boost the trust's returns.

This means International Biotechnology's performance will vary from indices and the unquoted companies could be a drag when markets are rallying but mitigate downside when they fall.

There was a modest and brief decline in its net asset value (NAV) at the end of last year, and although this has rebounded strongly the share price has not fully reflected this so the trust trades at a discount of 15.38 per cent, wider than its 12 month average of 13.86 per cent.

However, smaller biotech companies can run out of money affecting the profits of a fund invested in them. They're a high-risk, high-return option, so if you like this area but want something less high octane you could try Worldwide Healthcare Trust (WWH), another IC Top 100 Fund. This invests in less volatile pharmaceutical companies as well as biotech companies so is potentially less volatile. But it might not achieve the spectacular growth which could result from trusts more focused on biotech.

"This trust invests in all aspects of healthcare from biotechnology through to large pharmaceuticals," says Tim Cockerill, head of collectives research at wealth manager Rowan Dartington. "This is a good way to play the growth of emerging markets and their growing middle class, which long-term the healthcare industry is likely to do well from. The trust's managers, OrbiMed, are specialists in their field and the trust, on a discount of around 5 per cent, while not screamingly cheap is not expensive. The trust is also a good size with a market cap of £457m."

With both of these funds you are taking on sector specific risks which means they could be more volatile as well as making greater returns than broader markets.

Read more on healthcare funds

Technology

Investors have been reluctant to expose themselves to technology since the bursting of the tech bubble, but this is one area that keeps going forward and rapidly evolving, according to Mr Cockerill. You also need a good manager to stay on top of the new opportunities and Ben Rogoff, who runs IC Top 100 Fund Polar Capital Technology Trust (PCT), does this.

The trust beats its index, Dow Jones World Technology, over one, three and five years in line with its aim of long-term growth. It invests in shares from areas including information, media, communications, environmental, healthcare and renewable energy, and computing. It focuses on companies which use technology or which develop and supply technological solutions as a core part of their business models.

For an open-ended option you could try Henderson Global Technology (GB0007698847).

"This fund looks at the drivers of technology demand and seeks to grow returns from them," says Andy Parsons, head of investment research at The Share Centre. "The managers seek to identify and invest in companies that have clear growth themes, such as online advertising, connectivity, data growth, paperless payment and ecommerce. In terms of market cap spectrum, the fund will have a bias towards large cap holdings and focus on those companies with a perceived undervalued growth opportunity.

The fund benefits from a shift in demographics that is helping to drive technological adoption. In some developing countries, demand for mobile phones is far greater than that of land lines. It is also placed to benefit from changes in consumer behaviour as online shopping continues to grow and technology companies take advantage of this."

For open-ended exposure you could also consider IC Top 100 Fund GLG Technology Equity (GB00B0119H13) available on platforms such as Hargreaves Lansdown and the Share Centre.

Alternative growth funds

Source: Morningstar

Performance data as at 22 March 2013

Agriculture

Agriculture also fits into the theme of increasing population and growing wealth as emerging markets develop. A rising global population coupled with urbanisation and increasing affluence in developing markets are driving greater consumption of higher protein and more grain intensive foods.

A way to get direct exposure to some of the soft commodities for which demand should increase is via the ETFS Agriculture DJ-UBSCI exchange traded commodity (ETC) (AGAP). This tracks the Dow Jones-UBS Agriculture Subindex Total Return which comprises the nine agriculture commodities used in Dow Jones-UBS Commodity Index, reflecting the movement of the underlying designated commodity futures contracts of corn, coffee, cotton, wheat, sugar, soybean, soybean oil, Kansas Wheat and soybean meal.

"This can be quite volatile but with weather disruption there is pressure on some agricultural commodities while over the long-term this is a good way to play the long-term theme of growing populations which will eat more as they get richer," says Mr Cockerill.

The ETC is backed by contracts (fully funded swaps) with counterparties whose payment obligations are backed by collateral which is marked to market daily. The indices are composed of futures contracts on physical commodities. They can underperform the asset price because they have to roll positions over, selling futures at a specified price before they expire and reinvesting the proceeds in more futures. If underlying prices have risen in the meantime, the provider pays more for the replacements than the positions sold, and this loss is built in to the ETC's overall return.

The fund has a very reasonable charge of 0.49 per cent.

For an active equity investment option and potentially less volatility you could try IC Top 100 Fund Sarasin Agrisar (GB00B7137722). The fund aims for capital appreciation through thematic investment in the longer term trends within global food and agriculture. The fund invests across the full agricultural value chain providing diversification within the sector.

Commodities

The bank problems in Cyprus mean some market strategists are anticipating renewed interest in gold, the price of which had fallen between September and February as concerns eased about the Eurozone, and Chinese and US growth. However others remain cautious about gold's prospects to stage a significant recovery this year while there are risks from focusing on just one asset. For this reason, some commentators, including ones who are bullish on gold, suggest investing in gold mining shares rather than directly in gold. These include Investors Chronicle associate editor Dominic Picarda, who in an article last week, The Best Way Into Gold, argues that gold mining shares offer the best of both worlds – exposure to gains in the metal's price and a possible dividend stream. He adds that both for spreading your portfolio risks and for tactical purposes it is important to take a diversified approach, and a good way to do this is through a fund.

Options include IC Top 100 Fund Smith & Williamson Global Gold & Resources (GB00B04PXP62). Although the fund had a difficult 2012 it beat its benchmark and its long-term numbers are good. It has a significant allocation to smaller companies which exchange traded funds (ETFs) and generalist funds tend not to invest in as they are mostly invested in larger, slow-growing majors. But as well as the potential for greater returns, it also means the fund can be more volatile.

Read our recent update on the fund

"An opportunity has emerged in gold miners," says Tom Purdie of fund information web site FundExpert. "Gold mining shares were horrible performers in 2012 and fell 9.38 per cent. In contrast the gold price edged up and there is now the opportunity for these relative performances to reverse. This is an opportunistic trade, looking forward six to 12 months. Gold mining shares are fascinating, cheap, and an interesting punt for contrarian Isa investors at a loss for what to do this tax year."

Meanwhile some favour industrial commodities.

"Commodities and miners lost favour during the growth slowdown and have not recovered," says Simon James, founding partner at Gore Browne Investment Management. "However, the global growth rate and emerging markets investment in infrastructure and housing imply long term demand growth, while this sector is out of favour making it a contrarian call in the short term. Furthermore, while equity markets are reaching higher levels BlackRock World Mining Trust (BRWM) is trading at around 535p versus over 800p in early 2011.

Its managers have a good long-term track record and shares are on a discount of around 14 per cent.

However, investors should remember that Blackrock is a single sector fund and has a higher beta than the market. But because it has substantially underperformed in the last two years profit taking is not likely."

Private equity

Private equity investment taps into small unlisted companies with the potential for high growth. Private investors cannot buy this directly but they can invest in private equity investment trusts. During the credit crisis shares in private equity investment trusts fell sharply because of fears about balance sheets but most are now in seemingly good positions. Shares in the sector have done well this year, but there is more to go for the longer term, argues Mr James.

Some of these trusts invest directly in private equity, while others are funds of funds.

Funds which invest directly include HgCapital Trust (HGT) which is one of the better performing trusts in its sector.

Meanwhile Adam Hughes, head of managed portfolios at wealth manger Ashcourt Rowan, suggests Electra Private Equity (ELTA), which is making realisations as it has a maturing portfolio. These include the initial public offering (IPO) of esure.

"The original investment in esure of £30m made three years ago has already repaid £15m with further cash proceeds of £51.5m being received on the IPO," says Iain Scouller, head of the investment funds team at Oriel Securities. "In addition, a stake of £17.9m at the IPO price is being retained. This appears to be close to a 3x multiple on cost over three years."

However, the Electra share price has risen by around 31 per cent in the last four months, with a lot of good news being priced in, causing a dramatic tightening of the discount to 5.38 per cent, in contrast to its 12 month average of 24.37 per cent.

"We maintain a HOLD recommendation, with an increased target price of 2350p from 2300p,” adds Mr Scouller.

Electra has a good long-term track record beating the average direct private equity trust over one, three and five years.

For funds of funds, Mr James suggests Graphite Enterprise (GPE) which has delivered strong NAV returns over one, three and five years, but can still be picked up on a discount of 24 per cent. By private equity standards, this is one of the more conservatively run trusts in terms of balance sheet management and portfolio construction.

The argument for a fund of funds is that it diversifies risk because its ultimate exposure will be to hundreds or thousands of investments, though a fund of funds structure can result in higher charges as there is a double layer of fees. This is not the case with Graphite which charges a very reasonable 1.63 per cent.

Read our tip

Investors should remember that private equity is a very high risk investment and the share price movements are likely to be greater than the market, though long-term growth could be greater too. Their shares have done well recently so some of these trusts may be subject to profit taking. Some analysts such as Mr Scouller at Oriel believe that private equity trusts have had their run and has downgraded the sector.

"The good news priced in," says Mr Scouller. "Following the rise in share prices we think that a lot of good news in terms of realisation gains and short term NAV growth is now reflected in share prices. We also think the sector is vulnerable to de-rating in any market correction, with many investors viewing private equity as a geared play on equity markets. We also think there are significant profits to take for clients who are inclined to do this."

Alternative growth investment trusts

Source: Morningstar

Performance data as at 22 March 2013