Look to long term trends, plug gaps in your existing portfolio, and use the option to drip feed this year’s Isa allowance into funds later in the year, suggest investing experts.
These strategems and others are offered below to help investors navigate volatile markets, as the tragic war in Ukraine and inflation take a toll on near term sentiment.
We just looked at share ideas for your Isa, and now we turn to the best fund and investment trust options if you are still hunting for last-minute buys before 6 April.
Isa season 2022: Experts tell us how to pick investments in choppy markets
What to consider when choosing funds and investment trusts this year
Look ahead: ‘It’s been a very difficult past few weeks, with extremely volatile markets and, more importantly, tragic and worrying events unfolding before our eyes in Ukraine,’ says Nick Wood, head of fund research at Quilter Cheviot.
‘While the news flow is rightly focused on events in Ukraine at the moment, it is important to remember that investing is for the long term, so you shouldn’t really base your investment decision on what’s currently happening in markets.
‘Europe, for example, has borne the brunt of a significant chunk of recent volatility, given its reliance on Russia for oil and gas, but in 10 to 15 years’ time this will be less of a consideration.’
Juliet Schooling Latter, research director at FundCalibre, says: ‘How the horrific invasion of Ukraine will affect markets over the longer term is unclear.
‘Much will depend on how long the conflict lasts and the effect of economic sanctions imposed on Russia by western nations.’
Funding your Isa: ‘If you have a lump sum and are looking to invest in the next tax year, it is worth considering drip feeding your investment in smaller chunks rather than going all in at once,’ says Wood.
Nick Wood: It is worth considering drip feeding your investment in smaller chunks rather than going all in at once
‘This way you may sacrifice some positive performance, but with markets moving over 2 per cent either side in recent days, it will substantially limit your losses if markets move against you.’
Jason Hollands, managing director at investing platform Bestinvest, says people who are nervous of buying into funds at the moment can always fund their Isa with cash if they want to retain this year’s allowance.
They can then either invest at a later date, or start drip feeding now to ride out volatility.
Diversification: ‘Depending on what you already hold in your Isa, it would be worth considering a trust or fund that doesn’t target too narrow a corner of the market, and where the manager has the flexibility to seek out opportunities,’ warns Wood.
‘A multi-asset solution might also be a good idea in the current market environment as it will provide a more diversified return profile, meaning that when equity markets fall there may be investments in other asset classes that hold up well.’
What you already own: ‘A key point for anyone thinking about Isa ideas is to first of all take a look at what they already own,’ says Hollands.
‘A lot of investors tend to make ad hoc Isa choices each year and so end up with sprawling collections of funds rather than a well-diversified portfolio that is pulling together.
‘Having a look at how your existing investment are spread across different asset classes and markets will reveal areas where your portfolio might have gaps that could be plugged by a choice of new investment.’
Wood says: ‘Whenever you make a new investment, you should consider how the fund or trust holdings will fit into your existing portfolio.
‘You should ask yourself whether your new holding will make you over-exposed to a particular asset class, region or style.
‘We’ve seen quite a few examples of “value” managers holding “growth” orientated companies like Apple and Google, so make sure you get exactly what it says on the tin and that there are no surprises.’
Juliet Schooling Latter: Multi-asset funds are worth looking at in current markets
Fund and trust picks for your Isa
1. Fidelity UK Special Situations (Ongoing charge: 1.00 per cent)
‘It’s fair to say many investors have shunned the UK stock market in recent years, due to its low exposure to growth sectors like tech and its bias towards ‘old economy” areas such as financials, energy and materials,’ says Hollands.
‘We are now in a very different environment of high inflation and rising interest rates. Energy and material prices are soaring and financial stocks – banks in particular – tend to prove more resilient when interest rates are on the rise.’
Hollands says Fidelity Special Situations is 80 per cent invested in UK listed companies, and has considerable exposure to smaller companies which currently make up 42 per cent of the portfolio.
‘Manager Alex Wright takes a contrarian approach, targeting companies that have been ignored by the wider market but with bounce-back potential.
‘This can be because of new management, a turnaround plan or a growth opportunity that has been overlooked. Current holdings include insurers Aviva and Legal & General, oil major Shell and motor dealership Inchcape.’
2. Redwheel UK Equity Income (Ongoing charge: 0.80 per cent)
Investors have also overlooked dividend paying companies during the growth stock boom of recent years, and 2020 in particular was a very tough with many companies cancelling their dividends when the Covid pandemic began, according to Hollands.
‘When share prices are zig zagging all over the place and the future is uncertain, the allure of a regular pay-out suddenly looks a whole lot more attractive than what a growth company might deliver in several years time.
‘This fund – managed by boutique Redwheel (formerly RWC Partners) has a “value” approach of targeting cheap stocks which are typically larger companies.’
Its holdings include Legal & General, Reckitt Benckiser and vegan lipsticks and skincare product maker Revolution Beauty Group.
People who are nervous of buying into funds at the moment can always fund their Isa with cash if they want to retain this year’s allowance, says Jason Hollands
3. Personal Assets Trust (Ongoing charge: 0.73 per cent)
This UK-listed investment trust might suit investors looking for a more cautious approach with a strong emphasis on capital preservation in these uncertain times, suggests Hollands.
‘It takes a multi-asset approach with a strong emphasis on delivering inflation beating returns, while preserving capital. It won’t shoot the lights out during an equity bull market, but it will help protect against sharp falls in markets while delivering steady eddy returns.
‘The fund’s equity strategy focuses on high-quality companies with the ability to generate strong cashflows consistently over time.’
It holds 39 per cent in blue chip equities. 9 per cent in gold, 32 per cent in US index-linked bonds that protect against inflation, and 20 per cent in UK short-term money market instruments and cash.
4. Aubrey Global Emerging Market Opportunities (Ongoing charge: 1.1 per cent)
China had a torrid 2021, which affected emerging markets more generally, according to Hollands.
‘Investors were spooked by state crackdowns on tech companies and the private education sector, and the near collapse of Chinese property giant Evergrande was another concern.
‘Things are looking somewhat more encouraging this year for Asian markets in particular. While many central banks have been raising interest rates and winding down stimulus programmes to tame inflation, China has been swimming in the opposite direction and easing monetary policy.
‘With emerging market equities trading at a 30 per cent discount to the developed world, these are also relatively attractively priced at a time when emerging market earnings forecasts are also skewed upwards.’
Hollands notes that while higher commodity prices should provide a tailwind to certain emerging market economies such as Brazil, one of the biggest long term opportunities is the growth of the emerging market consumer, especially in fast growing countries with young populations like India which has a rapidly expanding middle class.
Unloved: Many investors have shunned the UK stock market in recent years, but it is worth another look, say Jason Hollands
He tips Aubrey Global Emerging Market Opportunities fund, which focuses heavily on the growing consumption theme.
‘It has a whopping 44 per cent of the portfolio invested in India – versus a 12.5 per cent weighting in the MSCI Emerging Markets Index – and 36 per cent in Chinese companies. Consumer discretionary stocks represent 39 per cent of the portfolio and it also has 18 per cent in consumer staples companies.
5. Evenlode Global Income (Ongoing charge: per cent)
‘Global funds have proven very popular with investors in recent years, but many are heavily exposed to the US market which has ballooned to over 68 per cent of the MSCI World Index,’ says Hollands.
Evenlode Global Income, managed by a boutique firm based in Chipping Norton in Oxfordshire, takes an alternative approach by investing in 36 stocks the managers reckon provide a high return on capital and generate strong free cashflow, he explains.
The fund favours companies delivering sustainable dividend growth rather than high yielders, and typically owns larger companies for the long-term. Holdings include US consumer firm Proctor & Gamble and Swiss pharmaceutical giant Roche.
‘Unlike most global funds which can look more like US funds when you look below the bonnet, Evenlode Global Income is 38 per cent invested in the US, holds a similar amount in Europe and has 21 per cent in the UK.’
Gold and silver fund: Precious metals are often regarded as a hedge against inflation, says Juliet Schooling Latter
6. LF Ruffer Diversified Return (Ongoing charge: 1.13 per cent)
‘This fund has been designed to protect and grow the value of its assets, which means avoiding large losses and harnessing the power of compounding over time,’ says Juliet Schooling Latter of FundCalibrex.
‘It has a broad spread of assets and has the protection of capital at the heart of its process.
‘While only launched relatively recently, the wider Ruffer Investment Strategy, on which it is based, has enjoyed success for almost three decades – through major market turbulence such as the dot.com bubble, the global financial crisis 14 years ago, and the recent Covid-19 pandemic. The fund is up almost 5 per cent year to date.
7. M&G Episode Income (Ongoing charge: 0.65 per cent)
This is a multi-asset fund that aims to produce monthly income and long-term capital growth from a diversified range of assets, says Schooling Latter.
‘The term “episode” refers to those periods of time when investors’ emotions cause them to act irrationally. The fund manager uses behavioural finance to find pockets of value and invest against the herd rather than following it.’
She says that in the year to date it is one of the better performing funds in its sector, down 4 per cent versus market falls of far more.
8. BlackRock World Mining Trust (Ongoing charge: 0.99 per cent)
Strong annual results for 2021 have been followed up by a good start to 2022, says Nick Wood of Quilter.
‘The trust has produced consistently strong absolute and relative performance in recent years and is one of the few to produce positive returns in 2022.
‘The portfolio is globally diverse and holds both large cap names such as BHP and Anglo-American, as well as more specialist companies.
‘Another real positive is the dividend on offer, with it up 109 per cent following strong revenues from underlying companies and including a number of special dividends. That leaves the current dividend yield of the trust at 5.6 per cent.
Wood adds that the manager, Evy Hambro, has noted the long-term tailwind of energy transition for the sector, while the Ukraine crisis further impacts the commodities universe globally.
Meanwhile, the trust is trading at a 1 per cent premium, which he reckons represents a reasonable entry point given the wider context.
How do investment trusts work?
Investment trusts are listed companies with shares that trade on the stockmarket.
They trade at a premium or discount to net asset value or NAV – the value of their holdings.
Read a This is Money guide here.
Schooling Latter says in addition to investing in quoted securities, the trust may also invest in royalties derived from the production of metals and minerals, physical metals and unquoted securities.
‘It also offers an attractive dividend yield to investors. This trust plays into the theme of electrification of the world and the move to clean energy (and the current high energy costs). The trust is up 30 per cent year to date.’
9. Jupiter Gold & Silver (Ongoing charge: 0.47 per cent)
‘Precious metals are often regarded by investors as a hedge against inflation,’ says Schooling Latter.
This fund, managed since its launch by Ned Naylor-Leyland, can invest in gold and silver bullion as well as gold and silver mining companies, she explains.
‘The portfolio’s dynamic approach enables it to be positioned in a way that best suits the current market conditions. Against an ever-changing backdrop, this can be attractive. The fund is up about 4 per cent year to date.’
10. First Sentier Global Listed Infrastructure (Ongoing charge: 0.79 per cent)
Invested in shares of companies involved in infrastructure around the world, this fund is well diversified in terms of sector and country exposure, according to Schooling Latter.
‘The industries covered include utilities (water and electricity), highways and railways, airports services, marine ports and services, as well as oil and gas storage and transportation.
‘The fund has been managed since launch by Peter Meany, who is a respected pioneer in the world of infrastructure investment.’
Schooling Latter notes that Meany recently highlighted the fund’s investment in a range of global listed infrastructure assets – toll roads, airports, railroads, utilities, pipelines, and wireless towers – which share characteristics like barriers to entry and pricing power and can provide inflation-protected income and strong capital growth over the medium term.
Toll roads: Infrastructure assets share characteristics like barriers to entry and pricing power
11. Schroder Recovery (Ongoing charge: 0.90 per cent)
‘This fund is making the most of recent turnarounds in fortune for the UK and the value segment of the market,’ says Wood.
‘Managers Nick Kirrage and Kevin Murphy have many years of experience in the space and the broader value team at Schroders is one the largest and have delivered reasonable results in markets that have not necessarily favoured them over the past 10 years.
‘The fund has already shown significant outperformance in the recent value rally, and the prospect of further monetary support tightening and higher commodity prices, the environment should remain for the fund to prosper.’
12. City of London (Ongoing charge: 0.38 per cent)
Wood says this trust has been a dividend stalwart for investors and managed to raise its shareholder payout during the pandemic when others were having to pause or cut them.
It currently offers a yield of around 5 per cent and gives investors exposure to the UK income market, he adds.
‘The trust has tended to trade on a slight premium over the long term, but given its history and credentials it may be a price worth paying for investors to increase their value exposure.’
13. RIT Capital Partners (Ongoing charge: per cent)
‘Run by J Rothschild Capital Management, this investment trust is diversified across quoted and private equity, hedge funds and absolute return and credit investments,’ says Wood.
‘As it has this multi-asset approach it has dual aims of outperforming a global equity index as well as seeking to remain 3 per cent ahead of inflation.
‘This mix of assets means it is more likely to protect capital in difficult markets although it does not quite keep up in strongly rising markets.’
Nevertheless, Wood says its underlying portfolio has performed well in recent years and ahead of global equity markets.
‘It can benefit strongly from companies decided to IPO and go public as they often hold companies from an early point in their growth trajectory meaning they can add significant value for investors.’
14. Virtus GF SGA Global Growth Fund (Ongoing charge: 0.90 per cent)
‘A less well-known investment, this fund allocates capital globally in a relatively concentrated portfolio of high-quality companies with sustainable growth characteristics,’ says Wood.
‘Companies held tend to have strong pricing power to weather higher inflation as well as highly predictable revenue streams and led by strong management teams.
‘Quality companies are going to be crucial as we go through this period of market volatility and this fund provides good exposure to that.’
Wood says this US boutique firm has performed very well long term, but lagged the market in the past 12 months, so new investors won’t be buying in at the top.
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