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The best funds for your Isa

We speak to wealth advisers to see which funds they are recommending for their clients' Isas this year.
March 6, 2015

An actively managed fund is a great option for an individual savings account (Isa) because with one holding you can access a diversified portfolio of hundreds of assets. The investments are then managed by a professional fund manager. And with funds covering all manner of investments you might find hard to access individually, they can be a great way to access more unusual areas such as emerging markets, commodities and global smaller companies.

Below are nine fund recommendations from wealth advisers focused on five areas: growth, income, wealth preservation, diversification and contrarian.

 

GROWTH

Threadneedle Global Select (GB00B3L11K96)

Adrian Lowcock, head of investing at AXA Wealth, says: "Threadneedle Global Select’s manager William Davies believes fundamental stock picking is the main driver of performance but combines this with global economic trends to provide perspective. The fund has a completely unconstrained investment mandate which allows it to be more nimble than many of its peers."

The fund’s investment approach means it can invest significantly in particular companies, industries and countries, so it will typically hold fewer investments than other funds.

 

CF Lindsell Train UK Equity (GB00BJFLM156)

Robert Pemberton, investment director, HFM Columbus Asset Management, says: "This fund is a focused portfolio of around 25 companies which invests for the long term in durable, cash generative companies with a sustainable competitive advantage and a long-term record of growing their dividend yield. Typically these will be companies in sectors such as consumer staples and financials, as cyclical sectors tend to be avoided. The fund has an excellent record of outperforming the FTSE All Share Index and other UK equity funds over many years."

 

INCOME

Fidelity Enhanced Income (GB00B87HPZ94)

Darius McDermott, managing director, Chelsea Financial Services, says: "Income is extremely difficult to get as bonds are low yielding and even property is not offering as much as it was. If you want a decent income you should consider Fidelity Enhanced Income – it has a covered call strategy on top of its investments to give it a yield premium – the fund aims to produce a yield of 150 per cent to 200 per cent of the FTSE All-Share Yield and currently yields nearly 7 per cent.

"It also performs well in difficult markets: its manager Michael Clarke has a large-cap defensive strategy. This fund offers a good premium income and has a large-cap defensive focus, and if you do not want much volatility in your capital this could be a good choice."

 

Marlborough Multi-Cap Income Fund (GB00B908BY75)

Laith Khalaf, senior analyst, Hargreaves Lansdown, says: "This fund takes a different approach to traditional income funds, focusing on small and mid-cap companies as opposed to the big blue-chips favoured by more conventional income funds. This higher octane area of the market can mean more volatility, but the rewards are potentially plentiful, and it is run by talented stock pickers Siddarth Chand Lall and Giles Hargreave."

 

WEALTH PRESERVATION

Newton Real Return (GB00B8GG4B61)

Mr Lowcock says: "Newton Real Return [an IC Top 100 Fund] focuses both on capital preservation and producing a real return over the longer term. The portfolio is built in two parts. There is a core element which consists of UK and international shares, and corporate bonds. The manager, Iain Stewart takes a long-term view with this. Around this core, the fund invests in cash, government bonds and derivatives. This reduces risk and aims to protect capital."

Mr Pemberton also selects Newton Real Return. He says: "This fund is included in the Investment Association Targeted Absolute Return sector but is essentially a conservatively managed multi-asset fund, which achieves the difficult task of balancing upside capture with capital preservation. It can have significant equity exposure on occasion but skilfully uses index futures to control downside risk, as illustrated when it produced a positive return of 4 per cent in the calamitous year of 2008."

 

DIVERSIFICATION

Invesco Perpetual Global Targeted Returns Fund (GB00BJ04HL49)

Jason Hollands, managing director, Tilney Bestinvest, says: "I think as we’re starting to see less correlation between markets as some central banks are edging towards monetary tightening while others remain engaged in quantitative easing. This is creating an environment likely to be more conducive to absolute return funds that can allocate across a range of trading strategies. For investors seeking access to a low volatility holding, these funds should also hold appeal as an alternative to fixed income, given the prospect of an eventual change in the yield curve once the interest rate cycle turns.

"I like the Invesco Perpetual Global Targeted Returns Fund which launched at the end of 2013, having poached some of the key movers and shakers involved with the hugely successful but now very large Standard Life Global Absolute Return Strategies fund (GB00B7K3T226). The Invesco Perpetual Global Targeted Returns fund encompasses 25 to 30 underlying trading strategies, with an overarching goal of generating a gross return of 5 per cent per annum over UK interest rates, but with less than half the volatility of global equities over a rolling three year period."

 

Troy Trojan (GB00B01BP952)

Mr Khalaf says: "Choosing a fund to give exposure to alternatives is tricky because funds in this area tend to be very specific, so you tend to need a fund for each area. You also need to have a firm view on these specific asset classes. No one has a view on the direction for alternatives as a whole because it is such a diverse rag tag of different assets. For investors simply wanting a diversifying, more conservative fund in their portfolio, I would suggest Troy Trojan, which has a core of traditional equities and bonds but supplements these with other diversifying strategies such as commodities and currencies."

 

CONTRARIAN BET

BlackRock Gold & General (GB00B5ZNJ896)

Mr McDermott says: "I have said for a number of years that gold could be a contrarian bet and so far have been wrong. But it might be a good bet given political uncertainty which could affect markets: for example Greece and the Euro, and the UK election in which there is a decent chance there will be a mixed outcome with at least two parties in coalition.

"Equities are also not cheap, but over the past few years there has been a disconnect between gold and gold equities – the latter have done worse.

"I would suggest BlackRock Gold & General Fund which invests in mining company shares, is run by a very well resourced team and has a good and experienced manager in Evy Hambro. The fund also has a good track record.

"This is not one for the faint hearted but it is a very unloved area, so when gold has its year this fund will probably have a very good year."

 

Unicorn UK Income (GB00B00Z1R87)

Mr Hollands says: "For a contrarian bet I would focus on UK small and mid-caps, areas which suffered last year from a sharp rotation into large-cap stocks and where there are lingering concerns over the uncertain outcome of the UK election. You could try Unicorn UK Income which focuses on higher yield small and mid-cap stocks. It’s had a torrid 12 months but has otherwise an impeccable record with less volatility than the overall market."

 

Click here for more Isa investment ideas, including funds, investment trusts, shares and passives.

 

IMPORTANT NOTE: We have tried to give the lowest cost version of each fund recommended, as identified by the ISIN number in brackets. However, whether this is available will depend on your DIY investment platform or stockbroker. Also, make sure that you select the right share class to meet your needs. Growth investors who do not need income and want dividends reinvested should select the accumulation share class, usually shown as 'Acc' in the fund name. Investors who want their fund to pay an income should select the distributing share class, usually shown as 'Inc'. If in doubt, check with your Isa provider to make sure you are buying the cheapest share class of the fund - and the right version to suit your income or growth needs.