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4th April 2017
Where the experts will be investing their £20k

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Energy efficient lightbulbs, Starbucks coffee shops and guided missiles - Don't take the Isa plunge before asking where the experts will be investing their £20k

Beleaguered savers who have tired of getting next to nothing from their bank can boost returns by investing in stocks and shares Isas. This tactic is only really suitable for those willing to leave their money untouched for at least five years. You also need to be prepared to face the risk that you could lose money for the chance of higher gains.

Once you’ve made your peace with that, it’s time to choose your investments. That’s easier said than done when there are thousands of funds to choose from.

To help with your selection, we reveal how five of Britain’s top fund selectors would spend their £20,000 Isa allowance. Each of our experts suggests splitting the money equally between their recommended funds . . .

CASH IN ON THE BEST OF BRITISH

Mark Dampier, head of investment research at Hargreaves Lansdown. Don’t split your £20,000 between more than five funds, is Mr Dampier’s advice.

‘Any more and you risk doubling up on your holdings — which is a waste of time,’ he explains. With more funds, you could have two or more investments in the same company.

Mr Dampier tips the Edinburgh Investment Trust, which holds lots of blue-chip staples such as BP, tobacco firms and pharmaceuticals including AstraZeneca. It would have turned a £4,000 investment — a fifth of your new £20,000 Isa investment — into £6,928 in the past five years. It’s an investment trust, which effectively means you buy shares in the fund.

Mr Dampier says these types of funds are good value at the moment. He recommends the Standard Life Equity Income Trust to complement the Edinburgh trust. ‘It invests in similarly large companies that offer attractive returns — but instead focuses on those more susceptible to ups and downs in the overall economy,’ he says. One of its largest holdings is Sage, one of the world’s largest payroll software companies. Other major holdings in the trust — which would have turned £4,000 into £6,980 over five years — are insurers Aviva and Prudential. The emerging markets sector has been a favourite of Mr Dampier’s since he started investing in the late Eighties.

He says: ‘With the boom of the middle classes in the developing world there is much potential for growth and rewards — you just need to be able to put up with some volatile market swings in the meantime.’

He would look at Templeton Emerging Markets, which has much of its money in China. You would have £4,800 back on a £4,000 investment over five years.

For those seeking a fund that does well in all markets, Mr Dampier suggests RIT Capital Partners, which he says is one of a kind. It invests in a huge range of different assets — individual stocks, other funds, hedge funds, even currencies. Another thing that sets it apart is that your money will be in good company. Jacob Rothschild, the fourth Baron Rothschild, invests £360 million of his own money in this fund. RIT shares are currently trading at a price higher than the value of the assets it invests in. This premium to net asset of 4 pc means the fund is popular at the moment. It has returned £6,720 on a £4,000 investment over five years.

Mr Dampier’s final choice is the Newton Global Income fund. It has around 46 pc invested in the U.S. stock market, though it is slowly adding European investments. For example, it now holds shares in H&M, a multi-national clothing company from Sweden. A £4,000 investment made five years ago would now be worth £7,548.

FUNDS THAT GROW IN GOOD OR BAD TIMES

Jason Broomer, head of investment at Square Mile Investment Consulting & Research. Although stock markets have had a strong run over the past 12 months — and indeed since 2009 —uncertainty around Britain’s exit from the EU makes him wary.

He says: ‘All in all, this is not the time to be too gung-ho and a conservative approach may prove wise for this year’s Isa money. I would split the allowance between four funds.’

He tips the Jupiter Absolute Return fund which doesn’t rely on booming markets to make a profit. It would have turned a £4,000 investment into £4,640 over five years. He adds: ‘The fund tends to do rather well when markets falter, so if they do suddenly start to head south, this may be one of the few that does a decent job for you.’

Another tip by Mr Broomer is the TB Saracen Global Income & Growth, which is run by veteran investor Graham Campbell. Mr Campbell takes a cautious approach to investing and prefers well-established companies in his fund. These include BP and HSBC as well as Roche, a Swiss multinational healthcare company and Saint-Gobain, which designs, manufactures and distributes construction materials. A £5,000 investment five years ago would now be worth £9,620.

Mr Broomer says tracker funds are worth considering because they provide cheap access to global stock markets. A tracker fund simply goes up and down with the market it follows. That mean the costs can be as low as 0.1 per cent, compared to the 0.75 per cent you will have to pay for a professional stockpicker to select shares for you. He likes the L&G International Index Trust, which costs 0.13 per cent, and invests in several thousand companies from developed countries, excluding the UK. Around £6 in every £10 in the fund is in the U.S., which some experts fear has hit a peak.

However, Mr Broomer says: ‘The U.S. is home to many of the most successful companies in the world such as Apple, Amazon and Johnson & Johnson, and those firms are well-placed to keep doing well.’ A £5,000 investment made five years ago would have grown to £9,865.

Finally, Mr Broomer says the M&G UK Inflation Linked Corporate Bond is a smart choice for protection against rising inflation. Inflation is up to 2.3 per cent on the consumer prices index — so you need to get a return above this mark to keep your money growing in real terms.

‘While you can expect low returns from this fund, it should prove resilient if the markets slump,’ he says. If you had invested £5,000 five years ago it would now be worth £5,590.

LET JAPANESE CARS TURN YOU A PROFIT

Ben Yearsley, director of financial adviser firm Shore Financial Planning. He says funds that focus on so-called value investing are on his radar at the moment. This is where managers look for companies whose share prices seem low compared to the overall worth of the company.

Mr Yearsley tips the JO Hambro UK Dynamic fund. Its manager Alex Savvides looks for companies that have the potential to come back fighting from tough times.

Mr Yearsley says: ‘Alex works by the rule that all the companies he invests in must be able to pay a dividend within 12 to 18 months.’

Companies pay dividends to shareholders when they have spare profits that they don’t need to plough back into the company. It’s usually a sign that the firm is on sounder footing — and it acts as a bonus for investors who’ve benefited from the share price soaring. A £4,000 investment over five years would now be worth £7,656. He also encourages investors to include so-called equity income funds in an Isa portfolio.

‘After all, what’s not to like about a fund that invests in profitable companies that make a lot of cash and pay tasty dividends?’ he says.

His tip for this year is the Artemis Global Income fund, which has recently been investing in companies that will benefit from rising interest rates.A £4,000 investment made five years ago would be worth £8,508 today if the income was reinvested. Regions that have previously been unpopular among investors could come into their own this year, Mr Yearsley says.

‘Japan is probably my favourite market,’ he says.

A fund he thinks will profit is GLG Japan Core Alpha, which buys stocks other fund managers are shunning. At the moment these include financial companies such as banks and insurers and firms focused on iron and steel. It has turned a five-year investment of £4,000 into £8,012 by backing companies such as car manufacturers Honda and Toyota and Mitsubishi, which together account for more than £18 in every £100 in the fund.

Mr Yearsley also recommends investors dip their toe into a Europe fund with part of their Isa. ‘Europe is home to many great companies at bargain prices.’ he says. He likes the Henderson European Focus fund, which targets ailing companies that aren’t reliant on external help to turn things around. If you had invested £4,000 five years ago it would now be worth £10,474.

Mr Yearsley’s final top pick is GAM Global Diversified, which has turned £4,000 into £7,800 in five years. It has been run by the same manager, Andrew Green, since 1984 and typically has a contrarian approach, backing unpopular companies.

MAKE MONEY OUT OF STARBUCKS

Hannah Edwards, financial planning director at BRI Wealth Management. She highlights that while tried and tested funds might be favoured by most investors, there’s no guarantee that the returns will keep rolling in. ‘As long as you do your homework, new funds can reap rewards,’ she says.

She likes the Man GLG Undervalued Asset fund, which launched in 2013. ‘It shies away from investing too much in the more popular stocks such as BP and HSBC’, says Ms Edwards. Two of the fund’s largest holdings are insurance giant Aviva and Imperial Brands, which specialises in tobacco. Since launching it would have turned a £4,000 investment into £5,480.

Ms Edwards reckons property is a smart alternative asset class to hold alongside your main investments. She recommends the LXI REIT (real estate investment trust), which generates profit from rents charged on buildings that it buys and lets out. She says: ‘The funds aims to target a yield of 5 pc by investing in buildings let to consumer staples such as Greggs, Travelodge, B&M Bargains and Starbucks.’

Having only been on the market a month there isn’t much track record for this fund. In the month it has been going, a £4,000 investment would now be worth £4,155. It’s a good start but you should be cautious if you invest, she says.

For investors with more cash to play with, Ms Edwards recommends the GCP Asset Backed Income launched in 2015. It invests through loans and debt. She says: ‘Many of the current portfolio of loans are made to care homes, social housing and student accommodation; areas that one would not expect to disappear overnight.’ If you had invested £4,000 in October 2015 when it was launched, it would now be worth £4,428. For exposure to small British businesses Ms Edwards backs CF Miton UK Smaller Companies. It holds Burford Capital, which offers finance and insurance for lawyers and clients engaged in litigation and arbitration. A £4,000 investment made at launch in December 2012 would now be worth £8,564.

Ms Edwards tips the Schroder Global Equity Income fund as a more conventional choice for those who don’t want to take the risk with unproven fund managers. It invests in financial firms and technology companies — mainly in the US and UK — and has turned £4,000 into £7,735 in five years.

MAYBE THE ONLY WAY IS ETHICS?

Ben Willis, head of research at Whitechurch Securities. Ethical investing is now worth trying — with at least some of your savings, he says.

‘Ethical investing has moved on considerably. It used to be focused on avoiding controversial activities but now fund managers try to profit from companies working in areas such as climate change, human rights, Fairtrade and conflict avoidance.’ He tips the Impax Environmental Markets Investment Trust.

It invests predominantly in stocks of small and medium-sized companies which are involved in technology in environmental markets. The fund has grown a £4,000 investment to £9,339 over five years.

He also recommends Alliance Trust Sustainable Future Global Growth. This fund aims to grow your pot in the long term by investing in companies that promote climate change and energy efficiency, such as Acuity Brands, which provides energy efficient LED lighting. The fund has returned £7,280 on a £4,000 investment.

Mr Willis also favours UK equity markets, even with the uncertainties over Brexit. He says: ‘The weak pound has boosted large British companies and overseas businesses, which could continue to do well this year now we have triggered Article 50. ‘While small and medium sized firms have generally lagged, if the UK economy and currency continue to remain relatively resilient going forward, we could see some of these areas have a great run.’

He likes Aberforth UK Small Companies, which is run by a specialist Edinburgh-based investment management firm that solely focuses on smaller companies, such as e2v Technologies, a company behind everything from radiotherapy machines to treat cancer to missile control systems used by the U.S. air force. The fund has grown a £4,000 investment to £8,152 over five years. To gain access to other economies, Mr Willis suggests investing in Japan. Many firms there have started paying dividends.

He tips Baillie Gifford Japanese Income Growth — a relatively new fund having launched in 2016. Its aim is to generate strong returns by tapping into the growing dividend payouts. For example, one of its holdings is Sony Financial, which paid out just over 3 pc in dividends last year. So far a £4,000 investment would be worth £4,760. Mr Willis says: ‘At their current prices, U.S. shares don’t look as attractive as shares in other markets. So my preferences are Japan and Europe.’

He tips the Neptune European Opportunities fund, which looks for cheaply priced stocks expected to generate strong returns. The fund has handed back £6,808 on a £4,000 investment in five years. Like all our experts’ tips, it’s made quite an impressive net profit.