Where are Isa investors putting their money in 2016?

UK equities more popular than bonds

Earning an income, as ever, has been top of mind, but preferences are changing for how this is achieved. Bond funds are really out of favour. Even Strategic Bond funds – the most flexible type of bond fund – are down from the third best-selling sector from January to March last year to seventh as 2016 kicked off.

Bond yields generally are at all-time lows and although better yielding opportunities can be found in some parts of the corporate market, conservative income investors are not keen to accept the associated higher risks for the levels of return on offer.

Instead, income investors are preferring UK equity funds that pay dividends.These are the mainstay of many portfolios and remain the most popular choice.

Benefiting from manager Neil Woodford’s experience, Woodford Equity Income fund, which tops the list, was also the sector’s best performing for the six months to 31 December 2015, delivering 6.1% total returns.

We’ve been saying for some time now that many investors are too heavily concentrated in the top end of the market – and to their detriment, as total returns from the FTSE 100 in 2015 were -1.3%, compared to 11.2% in the FTSE 250.

Times they may be a-changing, though, with the UK Smaller Companies sector shooting into third place among Chelsea clients in January, despite making no appearance at all in the top 10 of Isa season 2015.

Five smaller companies, mid-cap and multi-cap funds were also named among the 10 most popular funds.

Make the most of market falls

So what has been driving recent changes in investor sentiment? As anyone even remotely following the financial news will be able to tell you, 2016 began turbulently. Global markets fell nearly 5% in the first few weeks of the year.

Historically, these kinds of pronounced falls have deterred all but seasoned investors. But in reality, now might be the perfect time to snap up a bargain.

We all flock to the shops after Christmas to take advantage of seasonal sales because we can get good- quality purchases at cheaper-than-usual prices.

The same rationale should hold true for investments. UK companies are 7.5% cheaper than they were this time last year. A long-term investor prepared to buy shares a year ago should really be prepared to do the same thing now.

Short-term markets may continue to fall but longer-term the potential gains are greater.

Even if you’re not in a position to buy today, it doesn’t hurt to have some ideas stashed away for next year’s Isa allowance.

Read 10 things you need to know about Isas.

Top selling sectors and funds among Chelsea Financial Services clients in Jan 2016:

Darius McDermott is the managing director of Chelsea Financial Services and FundCalibre.

  • Past performance is not a reliable guide to future returns. You may not get back the amount originally invested, and tax rules can change over time. Mr McDermott's views are his own and do not constitute financial advice.


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