10 fabulous funds for your Isa

Below are 10 recommendations from wealth advisers focused on five areas: growth, income, wealth preservation, diversification and contrarian opportunities.

GROWTH

Liontrust Special Situations (GB00B57H4F11)

Jason Hollands, managing director at Tilney Group, says: "This is one of my longstanding favourite funds. It has everything you could want from an actively managed fund. It has a clear process and has delivered consistent outperformance of its benchmark, the FTSE All-Share index, with less volatility, which in my book is win-win.

"The fund's managers, Anthony Cross and Julian Fosh, invest across the full spectrum of the UK equity markets, backing large, medium-sized and smaller companies that possess qualities that fit their criteria. They call their investment philosophy the 'economic advantage' approach, which involves identifying companies with durable competitive advantages that will be able to keep growing across the economic cycle. Such businesses typically have at least one of three categories of intangible assets: intellectual property that provides a barrier to competition, hard-to-replicate distribution channels, or a significant part of their revenue stream is recurring in nature. This provides such businesses with resilient earnings and low exposure to price-based competition.

"Liontrust Special Situations is fairly concentrated with around 50 holdings. About 40 per cent of its assets are in large companies, with 31 per cent in mid-caps and 21 per cent in smaller companies, including Alternative Investment Market shares."

M&G Recovery (GB00B4X1L373)

Sam Lees, head of research at FundExpert.co.uk, says: "There was a very marked swing from growth to value styles in 2016 as evidenced by comparing some of the top and bottom funds in 2016 with those in 2015. M&G Recovery, a renowned value fund, finished fifth out of 265 UK stock market funds in 2016. This is in stark contrast to 2015 when the fund was 246th - an extraordinary turnaround.

"So far, this switch into value has only lasted for a few months. This is certainly not enough time to reverse a trend that persisted for the past eight years - there is still a huge amount of money to switch from a growth to a value strategy, let alone the money that will be coming out of bonds if interest rates edge up further in the US, so the fund could have further to run."

INCOME

MI Chelverton UK Equity Income (GB00B1FD6467)

Adrian Lowcock, investment director at Architas, says: "This fund's managers, David Taylor and David Horner, select stocks by analysing their balance sheets and focusing on their business models. Mr Taylor and Mr Horner are experienced, have a good, solid track record, and demonstrate a thorough understanding of both the companies they invest in and the wider market environment.

"The fund targets a 4 per cent yield and invests primarily in small and midsized companies with a minimum market capitalisation of £50m. As such, it is likely to be more volatile than others in its peer group but, due to its focus on stable earnings and high cash flows, it is likely to be less volatile than a typical mid-cap fund. The focus on the lower end of the market should provide plenty of opportunity for dividends to grow."

Evenlode Income (GB00B40Y5R17)

Mr Hollands says: "This fund takes a long-term buy-and-hold approach to investing and has a concentrated portfolio [of 37 holdings] of mostly large and mid-cap UK companies, which its managers describe as "cash compounders". These are businesses with strong free cash flow generation that are able to deliver high returns on capital and consequently grow their dividends in real terms. The fund's managers, Hugh Yarrow and Ben Peters, avoid businesses bogged down with lots of capital assets, such as plant and machinery.

"Although this is a UK equity fund, about 16 per cent of the portfolio is currently invested in non-UK listed shares such as Microsoft (MSFT:NSQ), Johnson & Johnson (JNJ:NYQ) and Procter & Gamble (PG:NYQ). Although the approach is pretty scalable because of the focus on larger companies, the managers have previously indicated that they see the optimum size for the fund at around £1.5bn, at which point it could be a candidate for soft closure. With the fund now about £1.18bn in size, as its superb performance has put it on ever more radars, the opportunity to invest in it may not be around indefinitely."

WEALTH PRESERVATION

Jupiter Distribution (GB00B4WDT300)

Darius McDermott, managing director at Chelsea Financial Services, says: "This fund has an approximate 70:30 ratio between holdings in fixed income and equities, with the allocation actively managed. It targets a sustainable income, and has a focus on risk control and capital preservation.

"Historically, this fund is one of the most cautious within its Investment Association (IA) sector, Mixed Investment 0-35% Shares. We really like that its managers, Alastair Gunn and Rhys Petheram, attend company meetings together and decide not only whether or not to invest, but also if the investment would be best made via the company's equity or debt. While exercising caution and diversification, the fund has a record of consistently outperforming its sector average and is a strong contender for cautious investors."

TM Fulcrum Diversified Core Absolute Return (GB00BRTNY847)

TM Fulcrum Diversified Core Absolute Return aims for a positive return in excess of inflation over the medium term with lower risk than equity markets, via a diversified portfolio invested globally across equities, fixed income, currencies and commodities.

Michelle McGrade, chief investment officer of TD Direct Investing, says: "This fund has a diversified portfolio, which uses both long and short positions: if its management team is positive on something they go long, and if negative they go short. It is run by a small team of very smart people.

"We also like this fund because it's relatively new - it has been running since November 2014, but the strategy via which it invests has run since 2008. Some of the bigger funds in this space have arguably become too large, which makes them a bit slow. But TM Fulcrum Diversified Core Absolute Return is nimble with a size of £637m and its managers are still working to prove themselves. So far we are really impressed by them."

DIVERSIFICATION

First State Global Listed Infrastructure (GB00B24HJL45)

Mr Lowcock says: "Infrastructure is not an asset class most investors think of for their Isa. But this fund invests in companies around the world involved in infrastructure, and aims to deliver long-term capital growth and income.

"Its manager, Peter Meany, focuses on quality companies that are trading at attractive prices, primarily in developed countries. Mr Meany adopts a contrarian approach to stock selection, so investors should be prepared for periods of underperformance over the short term. His commitment to companies that are undergoing structural growth, however, could lead to excellent long-term performance. Mr Meany has a keen eye for value and the discipline to sell companies that look expensive.

"First State Global Listed Infrastructure is more defensive than some of its IA Global sector peers due to its exposure to companies with long-term cash generating assets that have little sensitivity to the wider market cycle."

Rathbone Multi Asset Strategic Growth Portfolio (GB00B86QF242)

Mr McDermott says: "This is one of the new breed of funds that target risk and then look to maximise returns. Manager David Coombs and his team employ a forward-looking strategic asset allocation process, which focuses not only on returns, but also on risk and correlation of assets, so they try to select what they describe as 'best of breed' funds or passives to express that view.

"The fund invests in all sorts of funds and investment trusts, and Mr Coombs has a great knack of finding funds run by relatively unknown investment boutiques, which are real hidden gems. The fund also invests across the asset spectrum, including global equities, developed and emerging market debt, property, private equity and alternatives. It is a truly diversified portfolio."

CONTRARIAN

Schroder Income (GB00BDD2DX75)

Ms McGrade says: "The managers of this fund, Kevin Murphy and Nick Kirrage, have got a good long-term track record and deliberately try to be different. Their investment style is 'deep value', which basically means they buy cheap unloved shares in sectors that nobody else is looking at because they look too scary. But Mr Murphy and Mr Kirrage are prepared to lift up the lid, and work out whether all the bad news is priced in and if there are opportunities.

"They tend to fish in areas that are most unloved at the given time. So at the moment they have about 30 per cent of their portfolio in banks, and about 12 per cent in oil and gas - they are really contrarian in that sense."

Smith & Williamson Global Gold & Resources (GB00B3RJHY30)

Mr Lees says: "Sentiment on gold is still poor and there is upside potential when something is widely unloved. Past rallies in the gold price suggest that you will generate bigger returns via a fund investing in gold mining companies, than via one that invests in gold directly. Basic technical analysis suggests 10 per cent of upside for gold, so perhaps [investors can expect] 20 per cent for a fund focused on gold miners such as Smith & Williamson Global Gold & Resources."

Fund performance

Source: Morningstar as at 21/02/17

Read all 50 of our Isa ideas for 2017 in our special guides:

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