Last minute ISA options – City A.M.

By adding to your ISA pot each year you can build up a considerable tax-free shelter around your investment portfolio. Over time, this could mean higher returns.

Time is running out for investors wishing to use the 2017/18 tax year’s £20,000 allowance, and it is lost forever if you do not use it. While it is possible to invest in a Charles Stanley Direct Stocks & Shares ISA using a debit card up until midnight on 5th April 2018, we recommend you don’t leave any subscriptions too late in case of any problems.

Many investors already know which investments they want to choose, but it’s also possible to open or top up a Charles Stanley Direct ISA with cash and leave the decision about where to invest to a later date. However, you should note that there is no interest currently paid on cash balances.

If you are looking for inspiration here are three fund options you might consider, which our research team have identified as offering the potential for outperformance in their respective areas. Each represents a different investment approach and level of risk, and they are provided for your information but are not a guide to how you should invest. Before investing in any fund please read the fund’s Key Investor Information Document or Key Information Document, and Prospectus.

Income-producing and defensive

Securing a reliable income from investments has never been more challenging. As the ‘baby boom’ generation moves into retirement, assets that offer a regular income have been highly sought after. At the same time yields on virtually all asset classes have fallen as interest rates around the world remain close to historic lows. Yet there are still opportunities to produce a healthy income, especially for those prepared to be flexible about asset allocation and use a variety of assets. One way to do this is via a ‘multi-asset’ fund such as the Investec Diversified Income Fund.

This fund is managed by John Stopford, and draws upon the combined knowledge of the bond and equity teams at Investec. The aim is to produce a sustainably high income (presently it yields 4.1%, variable, not guaranteed; source: Investec) while providing some modest capital growth. Mr Stopford blends what he sees as the most attractive opportunities in equities, high yield bonds, emerging market debt and, at times, property investments and infrastructure. He also seeks to reduce risk by ensuring there is a diverse range of assets and, historically, the fund has experienced less than half the volatility of UK equities, although like any investment it can fall as well as rise.

Under-appreciated UK shares

UK shares have been unpopular with many investors due to the uncertainty surrounding Brexit, leading to significant underperformance compared with other major global markets. Should the pessimism be unjustified, this could signal an opportunity, in particular in ‘domestic’ companies whose profits are dependent on the UK rather than the global economy.

Man GLG Undervalued Assets is one fund that stands to benefit from an upturn in fortunes. Although it is likely to have escaped the attention of most private investors, it is run by an experienced, dedicated team using a robust and detailed investment process. Put simply the manager, Henry Dixon, believes that by buying undervalued companies with strong balance sheets and cash generation he can produce superior returns for investors. He searches for two types of companies; those trading below his analysis of their “replacement cost”, and those whose profit streams he believe are undervalued by the market.

The established and disciplined process, coupled with the manager’s deep knowledge of UK companies could provide the opportunity for strong performance. However, investors should be aware that the highly active approach tends to focus on smaller and medium-sized companies, which can be higher risk.

A ‘value’ route into Asia

Following a turbulent period for Asian stock markets, the past couple of years have seen a reversal of fortunes. Yet they continue to look good value in our view, and long-term growth prospects should remain underpinned by an increasingly wealthy and well-educated population boosting consumption.

One investment that has lagged slightly in the recent rally is Fidelity Asian Values investment trust. Manager, Nitin Bajaj, explains the rally has been a ‘narrow’ one, centred on some of the largest companies, those in the technology sector in particular, leaving behind attractively-valued shares in other areas. These include smaller companies that are not widely followed by professional investors, and sectors that he believes are under-appreciated, for instance telecoms and utilities.

Mr Bajaj takes inspiration from Warren Buffet’s style of ‘value investing’. This advocates targeting good businesses run by trustworthy management teams, and buying them at the best possible price. Accordingly, he has largely avoided the strong-performing technology sector and other growth-orientated areas because these lack the “margin of safety” he requires. He explains that while he wants to own robust companies with good management he will not do so at any price.

The approach has hampered performance over the past year, but his pragmatic investment process could deliver strong, longer term returns in this exciting and higher risk area. The Key Information Document for this investment can be found here.

Other investments

Investors can also choose from all the investments available on the Charles Stanley Direct platform, including over 2,000 funds and investment trusts. In addition, our Foundation Fundlist and Foundation Portfolios could also provide you with further starting points for your own research.

This website is not personal advice based on your circumstances. No news or research item is a personal recommendation to deal. Investment decisions in collectives should only be made after reading the Key Investor Information Document or Key Investor Document, Supplementary Information Document and Prospectus. If you are unsure of the suitability of your investment please seek professional advice. Investors should be aware that past performance is not a reliable indicator of future results and the value of investments and the income from them can go down as well as up and there is a risk to the capital invested. Funds invested mainly in one geographical sector can be more volatile than broader funds, and there could additional political risks in investing in emerging markets. The value of your investment may also fall due to changes in the exchange rate between the currency of your share class and base currency of the fund. For further explanation on the risks associated with an investment in any of these funds, please refer to the section entitled ‘Risk Factors’ in the prospectus.

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