Where are members of our editorial team planning to invest their Isa allowances for the current tax year?
The final six weeks of the tax year is the busiest period for stockbrokers and platforms, as retail investors scramble to make the most of their annual £20,000 Isa allowance. Our writers will also be busy fine-tuning their portfolios, which may involve some rebalancing after a strong year overall for global stock markets and the pick-up in volatility in early February.
Below, our contributors run through where they are planning to invest, whether it be in individual shares, investment trusts, active funds, tracker funds, ETFs or even alternative investments such as cryptocurrency. Given the diversity of the choices, we hope there’s food for thought for investors of all persuasions.
Buying a ‘doomsday’ fund increasingly looks a good bet
‘If the US sneezes, the world catches a cold’ is an old investment adage that it is important to remember at a time when nothing is cheap. When the US market does finally crack, as it has recently threatened to do, the contagion will spread quicker than Aussie flu in an overcrowded GP’s surgery.
Younger investors have more time to ride out what I expect to be further volatility in the year ahead. But I’m thinking more about capital preservation than wealth enhancement in these conditions, so I will be increasing my holding in Capital Gearing Trust. The trust’s managers are overtly value- and capital preservation-oriented. That said, it does have a slug of assets – around 17 per cent – in Europe and Japan equities. While not cheap, these markets offer better relative value than other developed stock markets.
In a highly indebted world that is acutely susceptible to higher real interest rates, the managers contend that central banks will be happy to allow inflation to remain higher than nominal interest rates, rather than risk a 1930s Depression-style recession. This a theme that could take years to play out, but the trust’s significant holdings in index-linked securities and other inflation-linked assets will go a long way to preserving the real value of capital and, hopefully, some growth when real value does eventually return. Andrew Pitts
Land of the rising returns?
When I inspected my Isa portfolio recently, I realised that it isa bit of a dog’s breakfast. I have a couple of big, reliable global holdings, a small slice in Aberdeen New Thai and some very sorry-looking legacy Pearson shares. A spot of tidying up is clearly necessary.
When I’ve done that, I will look for a small amount of UK-oriented investment for the cash I have in my account, on the grounds that despite widespread uncertainty over the UK’s growth prospects in the face of Brexit negotiations, I should have at least some focused exposure to it. The 2018 Rated Funds UK Growth choices (see supplement) include MI Chelverton UK Equity Growth. I like the managers’ rigorous stock selection process, smaller company expertise and strong focus on technology stocks.
But I am also intrigued by Japan’s improving economic outlook. I would have been happy with any of the 2018 Rated investment trusts; but in the wake of several days of market upheaval at the start of February, I discovered the share price of my preferred choice, Baillie Gifford Shin Nippon, had fallen from a 10 per cent premium to just above par, so I seized the moment. The price subsequently fell further, but I can wait for recovery. This smaller companies trust focuses on progressive businesses epitomising the ‘New Japan’, and has produced outstanding long-term and recent returns, so I am happy to own it. Faith Glasgow
Small but mighty
This year I am feeling the pressure, as I am setting up my son’s first Junior Isa and investing on his behalf. I chose Tilney Bestinvest as the platform as it charges on a percentage basis (0.4 per cent a year), which makes it suitable for the smaller pot sizes typical for Junior Isas (which have a maximum subscription limit of £4,128 a year). There are cheaper providers, but I like the navigation of the website, as it is easy to use.
The bigger dilemma was deciding where to invest the money. Given that my son is only four months old and will not be able to get his hands on the cash until he is 18, for me it makes sense to invest in emerging market or Asian economies, which are growing much faster than their western counterparts.
I prefer investment trusts, as I think their managers are more accountable for performance because they have board members to answer to. But I don’t like to overpay, and a couple of trusts I had in mind were on big premiums. In the end I settled on Aberdeen Asian Smaller Companies investment trust, overseen by Hugh Young, which was on an 11 per cent discount at the end of January. Over the long term small companies tend to outperform large ones, and my son has the time on his side to allow this phenomenon to play out. Kyle Caldwell
Global growth play
I know this may be the lazy option, but I’m going to choose a global equity index tracker for my Isa this year. In 2007 Warren Buffett bet $1 million (£718,000) that an index tracker would outperform a collection of hedge funds over the course of 10 years. He won that bet.
Of course, an index fund, by its nature, won’t outperform the index. But over one year, Vanguard FTSE All World returned 13.5 per cent, Fidelity Index World delivered 12.3 per cent and Vanguard LifeStrategy 100% Equity returned 14.4 per cent. The average fund in the Investment Association global sector returned slightly more, 15.4 per cent over one year, but that’s assuming you chose a decent fund.
Meanwhile, global indices invest largely in developed markets. This means they’ll only drop if a big part of the world economy stumbles, and especially if the US does, as it accounts for more than half of a global index. Despite recent volatility, the global economy looks reasonably robust, so an index that’s simply going with it is likely to grow over the longer term. Marina Gerner
Looking east for higher returns
Japan had a storming year in 2017. With prime minister Shinzo Abe continuing on his path of economic reform and corporate governance in Japan continuing to improve, the Asia Pacific powerhouse should do well again this year. However, many investment trusts focused on the region are not cheap. Atlantis Japan Growth has caught my eye, having improved its performance following a change in management in May 2016. The discount, at 7 per cent, looks attractive.
My other investment is more exotic, and not one I would suggest to my grandad. It’s the VinaCapital Vietnam Opportunity fund, a closed-ended fund listed on the London Stock Exchange. Vietnam, still classed as a frontier market, is taking a liberalisation path, similar to the route pioneered by China, as its nominally communist government continues to ease foreign ownership and investment rules.
Record exports raised Vietnam’s economic growth rate in 2017 to 6.8 per cent, and it is expected to achieve a similar growth rate this year. Now seems like a good time to buy into the country, as it looks set to be another Asian economic development success story. Tom Bailey
Seeking out alternatives
Volatility was at historic lows until very recently. Therefore, on the assumption that the only way is up for the CBOE Volatility Index (Vix), I plump for the ProShares Vix Mid-Term Futures ETF, which provides returns from exposure to increased volatility in equity markets.
The cyclically adjusted price/earnings ratio is at its highest level since 1929 and interest rates are rising. With that in mind, I also fancy MI Miton Cautious Monthly Income, a balanced fund with half its portfolio invested in corporate and some government bonds and the other half in global equities. It combines safety with a measure of growth.
For something a bit racier, the Ark Web x.0 ETF is a specialist technology pick. It holds 22 per cent of its assets in cloud computing and cyber security, two non-cyclical areas that should perform across the business cycle, 21 per cent in e-commerce and 19 per cent in Big Data and machine learning. There’s also a little blockchain exposure.
Speaking of blockchain, bitcoin is a highly speculative bet on the future of money, but given the steep pull back in its price of late, this is arguably a good entry point for an investment in the XBT Provider AB Bitcoin Tracker exchange traded note and its cousin the XBT Provider AB Ethereum Tracker. The latter invests in the Ethereum blockchain platform. Gary McFarlane
I’m adding some risk to my Isa this year. Rather than pick one of the stock market heavyweights we all already own in our pensions, I’ve gone for the commercial law firm Gateley. I’ve had an eye on this ambitious company since it floated on the Junior Aim market in 2015, and, infuriatingly, its shares have doubled in value in the interim. But with its track record as a listed company, rapid growth, strong cash generation and a substantial, well-covered dividend, Gateley is still an attractive investment with great potential.
Before Christmas, the market was told that trading is robust and that the boom in business should spill over into the second half of the financial year. Given that revenue and profit are both tipped to grow by a modest 8 per cent in the year to April, I’m hoping for a positive surprise either in a trading update in May or when final results are published in September.
Gateley is trading on a reasonable 16 times forward earnings and yielding 4 per cent, so I’m backing it to deliver the goods now and over the longer term. Lee Wild
Keep up to date with all the latest financial news and investment tips by signing up to our newsletter. Email subscribers will also receive a free print copy of Money Observer magazine.