Expert fund picks for your ISA

Published by Faith Glasgow on 01 March 2011.
Last updated on 23 August 2011

Dart on investment chart

We have selected a broad cross section of mainstream and esoteric funds selected by financial advisers specialising in investment advice.

But before you delve further into the attractions of the funds themselves, here are a few ideas for ISA portfolios to suit a range of risk profiles, as chosen by our experts.

We asked them to suggest a combination of funds suitable for an investor with £50,000 to invest, who is not prioritising either income or growth, and who doesn't plan to dip into their ISA portfolio for at least 10 years.


Invested in each of the following...

15% Jupiter Merlin Growth Portfolio.

10% M&G Global Basics, Standard Life Smaller Companies Investment Trust, Polar Capital Technology Trust and Ecclesiastical Amity International.

7.5% Aberdeen Emerging Markets, Aberdeen Asia Pacific, BlackRock New Energy Investment Trust, AXA Framlington UK Select Opportunities, Schroder UK Alpha Plus and M&G Recovery.

Ian Lowes, managing director of Lowes Financial Management, describes the global portfolio he has selected as one that will provide "above-average growth, but with a higher weighting to the UK market, which we believe will benefit from changes in the global economic balance over the next decade".

Interestingly, almost 30% of Lowes' portfolio is channelled into investment trusts. He also allocates the largest proportion of this widely diversified selection to the Jupiter Merlin Growth fund of funds, which he sees as "ideal as a core to a portfolio, offering both enhanced diversification and active management throughout the economic cycle".

Throughout the selections, Lowes' focus is firmly on consistency. He views the three UK-oriented vehicles rounding off his list as "among the most consistent funds in the UK all companies sector, with experienced managers who have been in place for some years; all have been given the highest OBSR AAA rating".


Invested in each of the following...

15% Jupiter Merlin Growth Portfolio.

8% Artemis Income, M&G Recovery and Neptune Global Equity.

7% Ecclesiastical Amity International, Standard Life UK Smaller Companies, Invesco Perpetual Monthly Income Plus and Schroder UK Alpha Plus.

5% AXA Framlington UK Select Opportunities, Schroder US Smaller Companies, BlackRock UK Special Situations and Jupiter Financial Opportunities.

4% M&G Global Basics.

3% Aberdeen Emerging Markets, First State Global Emerging Market Leaders and Threadneedle Latin American.

The 16-strong fund selection proposed by Peter McGahan of Worldwide Financial Planning will suit someone "who wants a spread of risk, is happy with fluctuation and wants to outperform inflation through equities".

Again, McGahan uses Jupiter Merlin Growth as the lynchpin on which to hang a broad selection of UK and international funds.

"The higher-risk areas of financials, emerging markets and smaller companies are there to enhance the benefit of any market upturn or rise in confidence, but they should be monitored regularly and gains taken [to prevent them becoming more predominant within the portfolio as they gain value, and therefore increasing the overall risk profile]," he warns.


Invested in each of the following...

12% Legal & General Dynamic Bond.

10% M&G Strategic Corporate Bond, Invesco Perpetual Monthly Income Plus, Artemis Income, Ruffer Investment Company, M&G Recovery and Scottish Mortgage Investment Trust.

8% Ignis UK Property and M&G Global Dividend.

5% JPM Natural Resources.

4% Aberdeen Asia Pacific and Standard Life UK Smaller Companies.

With an eye to relatively cautious growth-oriented investors, Adrian Lowcock, senior investment analyst at IFA Bestinvest, suggests a rather less racy combination of 12 funds from the shortlist.

"This portfolio is 0.72 times as risky as the FTSE All Share, and in terms of volatility it could fall around 15% in value once every 20 years," he says.

Compared with the two preceding portfolios, there is markedly greater emphasis on both bond and equity income funds. Lowcock also includes a couple of global investment trusts - Ruffer and Scottish Mortgage - often favoured as core holdings.


Invested in each of the following...

20% Jupiter Merlin Growth Portfolio and Ruffer Investment Trust

10% Scottish Mortgage Investment Trust, First State Global Emerging Market Leaders, Jupiter Financial Opportunities, Invesco Perpetual Monthly Income Plus, M&G Global Basics and Newton Higher Income.

Neil Mumford of Milestone Wealth Management focuses on capital preservation through a diversified multi-asset portfolio. "We aim to choose fund managers who complement each other, and who also are not interested in following the herd but have capital preservation at the forefront of their minds," he explains.

Mumford's selection is much shorter, just eight funds strong. As he points out: "50% of the portfolio is split between three multi-asset funds that have provided great resilience to the challenging markets of the last three years: Ruffer, Jupiter Merlin Growth and Scottish Mortgage.

"All three of their managers have been adept at moving around various asset classes at the right times to preserve capital and capture gains."

He uses First State's emerging markets fund on the grounds that "a good exposure to emerging economies will actually reduce risk rather than increase it, and 10% makes little difference to the volatility of a balanced portfolio."

Income funds are included because of their capacity to enhance total returns through "a reasonable yield" as well as capital growth. The two chosen "generally invest in profitable companies with strong, sustainable cashflow, the kind that can thrive in all market conditions".

Mumford adds: "They tend to be industries widely considered boring, such as pharmaceuticals and utilities, but over the coming years give me boring any time."


Invested in each of the following...

10% Artemis Income, AXA Framlington UK Select Opportunities, Neptune Global Equity, M&G Global Dividend, Fidelity Strategic Bond, L&G Dynamic Bond, Invesco Perpetual Monthly Income Plus, M&G Strategic Corporate Bond, Investec Enhanced Natural Resources and Ignis UK Property.

Cautious investors are also catered for in the portfolio suggested by James Davies, investment research manager at Chartwell. "For a 10-year plus timescale, a return in excess of the Retail Prices Index plus two or 3% is needed if the real value of the capital is to be at least maintained," he says.

For the 40% of the portfolio that Chartwell allocates to equities, he suggests a rough 50/25/25% split between the UK, emerging economies and the developed world - covered here by the two global funds.

Another 40% goes to fixed interest funds, but Davies says he prefers strategic bond funds to separate corporate and government funds, as it places the decision to switch between the two in the hands of the manager. For further diversification, the last 20% is held in alternatives - Ignis's commercial property and Investec's commodities funds.

Although he uses 10 component funds, Davies says the advent of fund supermarkets makes it feasible to create a well-diversified portfolio with only half a dozen or so holdings.


Invested in each of the following...

14% Fidelity Moneybuilder Income fund.

12% Man AHL Diversity

10% Vanguard FTSE Developed World excluding UK, L&G Global 100 Index and BlackRock iShares FTSE 100

9% Dimensional UK Smaller Companies, Dimensional Value Fund Institutional and Dimensional Emerging Markets Core Equity.

8% BlackRock iShares FTSE EPRA/NAREIT UK Property and BlackRock iShares FTSE EPRA/NAREIT Dev Mkt Property Yield.

If, like Andrew Swallow of Swallow Financials, you place more importance on asset allocation than on the choice of funds, what kind of portfolio might you build?

For an adventurous investor, Swallow suggests an asset split comprising roughly 15% in cash and fixed interest, 12% in commodities and futures, 17% in commercial property, and 28% in both UK and international equities.

"Because the funds are of secondary importance to the asset mix, we choose low-cost passive funds on the whole or low-cost active funds where we have to (because we can't get a suitable passive)," he explains.

This article was taken from Money Observer, Moneywise's sister publication in February 2011

More About

Leave a comment