The best and the worst
For example, according to research by website FundExpert.co.uk, assuming you had invested your full personal equity plan (PEP) allowances and subsequent stocks and shares ISA allowances into the same fund every year since 1987, you could have ended up with a savings pot worth £1,160,000 if you’d been lucky enough to choose Fidelity’s Special Situations fund – the best-performing fund over this period. This equates to a staggering profit of £967,520.
On the other hand, if you’d picked the worst performing fund, Scottish Widows’ Japan Growth fund, you’d have lost £21,480 over the same period.
Unfortunately, none of us has a crystal ball to help us pick the funds which will prove investment winners over the next few years, and just because a fund or sector has performed well in the past, there are no guarantees it will continue to do so in the future.
While many of us are still making up our minds what to do with this year’s allowance, we decided to ask the experts which funds they have chosen themselves this year, and the reasons behind their choices. This is what they said:
Danny Cox, of independent financial advisor (IFA) Hargreaves Lansdown:
“I subscribe to my ISA at the earliest point in the tax year – this gives me around 11 months more tax efficiency than leaving it until March. I am a long term investor and aim to use my ISA to top up my pension income in retirement.
“My longest held and favourite holding is Invesco Perpetual High Income which I first invested in nearly 15 years ago. Neil Woodford’s track record is first class. UK Equity Income is an ideal core holding, acting somewhat defensively compared to some of the other funds in my ISA such as Henderson European Special Situations.
“Europe is somewhat unloved, however the risk of total meltdown seems to have minimised. Valuations are low and therefore European funds avoiding the banking sector have good long term potential, albeit a bumpy ride along the way. To tap in directly to the key energy resource, oil, I also hold the Junior Oils Trust. This fund has lost considerable ground in recent months as smaller oil company’s valuations have fallen. However there seems no stopping the increasing demand for oil and for those, like me, who believe the underperformance of smaller oil companies is likely to turn around, this fund may appeal.”
Darius McDermott, managing director at discount brokers Chelsea Financial Services:
“Last summer I put about a third of my ISA allowance into the Jupiter European fund. I thought the market was very cheap and could do well after the president of the European Central Bank Mario Draghi's 'I'll do anything' speech. It's a concentrated portfolio focusing on mid-caps. The manager has a very good long term track record and has run the fund for more than 10 years.
“In November I invested a further third into the GLG Japan Core Alpha fund. The new government in Japan had just got a majority win which made market-friendly reforms a possibility. The fund follows a large-cap value strategy, which has struggled for quite some time and in fact its three-year numbers place it towards the bottom of its sector. However, I think 2013 could well see this area of the market back in favour.
“I’ve just invested the last third into Aberdeen Global Emerging Markets Smaller Companies fund. This reflects my long-term view that emerging markets should out-perform and within them smaller companies should do best, albeit with more volatility along the way. Aberdeen has a market-leading franchise in this asset class.”
Philippa Gee, managing director at Philippa Gee Wealth Management:
“This year, given how volatile markets are, I have really diversified my investments and have added them to an existing portfolio which holds a number of different funds. I do like the higher end of the risk spectrum, such as Invesco Perpetual Global Smaller Companies, but then I also like funds such as Miton Strategic which should be better placed in case there is a market correction.”
“The Miton Strategic fund aims to provide long-term capital growth and invests in collective investment schemes, government debt securities, company shares and cash.”
Patrick Connolly, of IFAs AWD Chase de Vere:
“I am investing regular premiums into M&G Global Basics, Old Mutual UK Smaller Companies and Schroder Income and have recently also started investing into JPM Natural Resources.
“The Old Mutual and Schroder funds have performed well recently where as M&G and JPM haven’t. I am relaxed about this and the high risk nature of some of the funds because I will be investing for more than 20 years and by making monthly contributions am reducing the risk of market timing.
“The M&G fund has a top quality fund manager who, despite making the wrong calls on commodities, has a good long term record. Old Mutual has one of the best smaller companies teams while I like the contrarian approach adopted by Schroders. It means they will have periods when they under-perform but are long-term investors who buy good companies at cheap prices.
“I have only recently started investing into JPM Natural Resources. This is a high risk fund investing into gold and precious metal mining shares, energy stocks and base metals. It fell by 30% in 2011, 13% in 2012 and is also down in 2013. I am willing to wait for it to recover.”
Martin Bamford, of IFAs Informed Choice:
“My ISA this year will be invested in two funds – First State Asia Pacific Leaders and HSBC American Index. I’m investing for the long-term, so my portfolio is exposed solely to equities which are riskier but tend to outperform other asset classes over time.
“First State Asia Pacific Leaders invests in large and mid-cap companies across the Asia Pacific region, excluding Japan but including Australasia. It is managed by the experienced team of Alistair Thompson and Angus Tulloch, who have delivered above average performance over the past one, three and five years. Despite slower economic growth in the region, we still expect Asian equities to deliver double digit returns in 2013.
“HSBC American Index is a good way to access US equities at a low cost, with an annual management charge of just 0.25%. Whilst there is continued political instability in the US over a deal to manage spending cuts, we are still seeing some good news in terms of their economic recovery and the stock markets are fairly priced.”
Please note: Any rates or deals mentioned in this article were available at the time of writing. Click on a highlighted product and apply direct.