Where does our research team invest their ISA?
We asked our research team to talk about funds that they hold in their ISA and to explain the thought process behind these selections.
James Yardley Senior Research Analyst
Elite Rated Henderson UK Absolute Return
Markets have risen over the past five years and, with an uncertain election coming up, I want to position some of my portfolio defensively. Unfortunately traditional safe havens like government bonds have also rallied strongly. Bonds now look very expensive and, whilst they still provide some diversification, I am concerned that their performance has become increasingly correlated to equity markets. An alternative and often under-utilised asset class are absolute return funds, which aim to make money in any environment. These funds don't always get a good press but they are sometimes misunderstood. You have to accept that they won't do as well during the boom times but they should also protect you during the bad times.
One of my favourites is the Henderson UK Absolute Return fund managed by Ben Wallace and Luke Newman. This is a long/short UK equity fund, which traditionally has a small bias to the long-side (although not always) but volatility has usually been just 1/3 of the UK stock market. The team has a 10-year track record running this mandate and returns have been remarkably consistent.
Elite Rated Standard Life UK Equity Income Unconstrained
I think UK Equity Income is a fantastic asset class, even for those seeking capital growth. The UK market is not expecting much earnings or dividend growth this year. It's tempting to choose funds which have the highest dividend yields, but I think this is a mistake as this usually comes at the expense of dividend growth. I aim to invest in funds which can keep growing their distributions year after year. If they can do that, capital growth will usually look after itself.
One fund with a very good track record of growing distributions is the Standard Life UK Equity Income Unconstrained fund, managed by Thomas Moore. Thomas typically avoids slow growing mega-cap companies in favour of mid and small-sized companies which can grow their dividends quickly. This should make it the perfect fund for the current low growth environment. The fund has an excellent track record having returned 101.85% versus 69.02% for the IA Equity Income sector over the past five years.
Juliet Schooling Latter Research Director
JOHCM Asia ex Japan Small and Mid Cap
My ISA tends to form the riskier long-term part of my investments and I typically have a portion of it invested in emerging markets. I've recently been increasing my exposure to Asia. Whilst Latin America has suffered from the collapse in commodity prices Asia has been a beneficiary and the biggest winner is the Asian consumer.
The managers of JOHCM Asia ex Japan Small and Mid Cap, Cho Yu Kooi and Samir Mehta, share my view and have weighted their portfolio heavily towards the consumer. They look for quality companies which are sustainable in tough cyclical markets. I like the fact that the managers are willing to make big calls. The fund currently has an enormous 31% overweight to India. At just £19m in size this fund has the ability to reposition itself very quickly if it needs to, although traditionally the managers aim to invest for the long term. This is a volatile fund but its returns have been excellent since it launched in Oct 2011 and it has already returned 73.62% since launch after all fees.*
Elite Rated Artemis Global Income
I've got plenty of Woodford and I didn't want another standard UK equity income fund. Having all your investments exposed to one part of the world can be risky if that area falls out of favour, but global equity funds help overcome some of this risk and iron out currency movements.
The Artemis Global Income fund avoids investing in the stereotypical dividend stocks you find in most global equity income funds. Unlike other global equity income managers Jacob de Tush-Lec screens for companies free cash flow rather than dividend yield. Jacob is doing something different from the average global equity income manager and it shows in his performance numbers. Since launch the fund is top of its sector and has returned 111.35%, almost 20% more than its nearest competitor.*
Darius McDermott Managing Director
Elite Rated Threadneedle European Select
European stock markets have severely lagged the US for the past five years. That could be about to reverse as Europe has finally begun quantitative easing (QE) and the US has recently ended their own programme. If recent history has taught us anything it's that QE drives stock markets higher.
As a result I have been positioning more of my portfolio towards Europe. The weaker euro is a huge boost for European exporters as it makes it cheaper for other countries to buy their products and services. Despite the currency weakness, Europe is already up 12.76% in sterling terms year to date.*
One of my favourite European funds is Threadneedle European Select, run by David Dudding. David buys quality companies with pricing power and strong barriers to entry. He has an excellent understanding of the companies he invests in and this shows in his performance. Since David took over the fund it has returned 114.39% versus 54.55% for the sector average.*
I bought into the Jupiter India fund for my 2014 ISA, after the election of the pro-business, Narendra Modi. For the first time in 30 years India is not being run by a coalition government. The country has enormous potential and it has also been one of the biggest beneficiaries of the fall in the oil price. Some are now looking to India to take over from China as the world's growth engine. The market has already had a huge rally and most of the easy money has already been made, but India is likely to only become more important in the future.
Avinash Vazirini is manager of the Jupiter India fund and has almost 20 years experience managing Indian equities. He runs a high conviction GARP (growth at reasonable price) strategy, and typically invests in high-quality companies across the market-cap spectrum. Despite a very strong run for Indian equities over the past year Avinash believes the Indian economy may be at a turning point. Potential investors should be aware that the funds high conviction, single country focus and mid and small-cap bias can lead to it being very volatile, but the fund has a place in my portfolio.
*Source FE Analytics: Bid-bid 25th March 2015
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. James, Juliet and Darius' views are their own and do not constitute financial advice.