Investment ideas to get the most out of your ISA
In a lot of ways, setting up an ISA is the easy part.
Once you’ve selected the right account for you, you can fund it with a lump sum if you have one at your disposal, or drip-feed cash into it on a monthly basis.
If you’ve decided to open a Stocks and Shares ISA, it can be tricky to decide what to invest in. To help you with this process, Tom Sieber of Shares Magazine has identified some potential long-term selections for your ISA.
Remember the value of investments can go down as well as up, and these ideas are merely intended as a starting point for your own research.
Two funds for your ISA
Fundsmith Equity
Fundsmith Equity is managed by Terry Smith and is one of the best performing open-ended funds in the global sector over five years, with a return of 147.6 per cent.
Smith is a long-term investor who only invests in high quality businesses with advantages that are difficult to replicate. There are very few companies like this, which is why the £13.9 billion fund tends to invest in between 20 and 30 individual stocks.
Current portfolio holdings include names such as Microsoft, PayPal, Intercontinental Hotels and Philip Morris.
Henderson Core 3 Income Fund
This is a multi-asset fund and is considered low risk. It has a 37 per cent exposure to bonds, 26 per cent exposure to cash and 20 per cent exposure to equities.
Holdings include bond fund Henderson Fixed Interest Monthly Income fund, infrastructure investor HICL Infrastructure (HICL), and iShares Core UK Gilts (IGLT) an exchange-traded fund offering exposure to UK government bonds.
Two investment trusts for your ISA
Temple Bar Investment Trust (TMPL)
Portfolio manager Alastair Mundy has been in place for 16 years and adopts a contrarian approach to investing. This involves buying companies on the FTSE 350 index which have at least halved from their peaks, but still have reasonable balance sheets. Stocks are then held for around four to five years to allow time for the companies to turn around.
This investment strategy makes periods of underperformance almost inevitable, but over the long term it has underpinned considerable value creation. Over the last decade the trust has delivered an annualised return of 11 per cent.
Fidelity European Values (FEV)
Investors seeking exposure to Europe should consider prioritising companies with progressive dividends rather than high growth stocks, as these could outperform over time.
One investment trust that adheres to this approach is Fidelity European Values. It seeks to achieve long-term capital growth principally from the stock markets of continental Europe.
Manager Sam Morse follows three key investing principles. First is a bottom-up stock selection with a focus on dividend growth.
He takes a long-term view which improves performance and reduces costs. Morse also has a cautious approach, stemming from his belief that managing downside risk creates a strong foundation for long-term outperformance.
Morse invests in companies based on their prospects for producing dividends and dividend growth as this indicates steady structural growth.
Its portfolio positions include food giant Nestle, cosmetics colossus L’Oreal, healthcare company Novo-Nordisk and Helsinki-listed insurer Sampo.
Two exchange-traded funds for your ISA
iShares MSCI World UCITS ETF (IWRD)
This is a global product which aims to track the performance of the MSCI World Index.
The index comprises more than 1,600 large and mid-cap stocks across 23 developed countries. It’s well-diversified on a sector basis, providing exposure to the financials, IT, consumer discretionary, healthcare, industrials, consumer staples, telecoms, materials and energy sectors.
MSCI describes the index as a ‘building block’ for investors to build a portfolio around. For example, you could consider adding small-cap exposure, emerging markets, specific sectors or ETFs which focus on particular stock characteristics.
iShares Diversified Commodity Swap (ICOM)
Commodities have a place in a diverse portfolio.
Exposure to a range of commodities from seven different sectors can be achieved through this ETF, which has an ongoing charge of 0.19 per cent. The product seeks to track the performance of several different commodities markets.
The sectors which the ETF targets include energy, agriculture, industrial metals, precious metals and livestock.
Investment Edge
This article first appeared in the April 2018 issue of Investment Edge Magazine, a digital magazine packed with tips and advice for investors.
EQi does not provide investment advice. Investment Edge is provided by Shares Magazine and is the author’s view and is not the view or opinion of EQi and EQi accepts no liability for any loss caused as a result of the use of this information. The opinions expressed are those of the author at the time of writing and should not be interpreted as investment advice.