Stocks and Shares ISAs give investors a great opportunity to embrace a variety of exciting asset classes and innovative funds. However, a crucial component is having a core holding in your portfolio that will provide the bulk of your returns over the coming years. What are the qualities of such funds? And how can you pick the right one for your needs?
While nothing is for certain in investing, having a reliable central ‘core’ will help provide stability to your overall portfolio. Potential core holdings can be found across the globe. They will generally be well-diversified and have exposure to well-established companies that pay decent dividends. They will also invest in assets with a history of achieving consistent returns, as opposed to high levels of volatility.
Here we take a look at some funds that may fit the bill this ISA season:
The first fund on our list concentrates on UK-listed businesses. It’s run by Richard Buxton, who is one of the most experienced and successful UK fund managers. He puts together a portfolio of 30 to 40, mainly large companies, that he believes are undervalued, despite having strong business models and healthy balance sheets.
We like the fact he’s supported by a very strong UK equity team that helps him uncover changes in companies and industries that may provide opportunities. Currently, the fund’s largest holdings include pharmaceutical giant AstraZeneca, oil majors BP and Shell, mining group Glencore, and prominent banks in Barclays and Lloyds*.
The fund is also broadly diversified in terms of sectors. Consumer discretionary is currently the most prominent with 22.8%, followed by 17.3% in financials and 12.5% in industrials*.
While we think this fund is a core UK holding, it’s also worth investors noting that it can struggle during a falling market.
Our next suggestion has a broader continental feel. Its manager, John Bennett, uses sector and stock analysis to come up with his best ideas portfolio. The fund currently has just under 40 holdings but is broadly diversified when it comes to company size.
We particularly like John’s pragmatic approach that also sees him consider the overall macroeconomic environment and sector trends. The fund’s largest holdings currently include a mix of multinational giants, such as Shell and Novo Nordisk*, alongside names that may be new to some investors. These include Safran, a French company that designs, develops and manufactures aircraft engines, as well as various aerospace equipment*.
The United States is home to some of the world’s biggest companies – and many of them can be found in this fund that’s managed by Taymour Tamaddon. Taymour is a patient investor that wants to invest in stocks tracking at attractive valuations relative to their long-term potential, while taking advantage of cyclical opportunities.
Large businesses that demonstrate innovation and change will be particularly favoured and the most attractive prospects will be backed with strong conviction. The fund will typically have between 60 and 75 large cap stocks, with a diversified exposure to different industries.
Currently, just over half of the fund’s assets are in its top 10 holdings*. These include prominent global giants such as Apple, Microsoft, Amazon, and Alphabet, the parent company of Google*.
There’s a very strong chance you’ll know most of the companies in the Morgan Stanley Global Brands fund as they boast prominent positions in their sectors. Tech giant Microsoft, tobacco company Philip Morris International, and payment firm Visa are among the portfolio’s largest holdings*. There’s also Reckitt Benckiser, the consumer goods business that’s home to brands such as Dettol, Durex, Air Wick, Vanish and Cillit Bang*.
That’s the whole point of this fund: investing in high quality global companies with brands, permits or licences that give them a distinct edge over rivals. The 10-strong investment team behind the fund believes that businesses with such advantages, as well as dominant market positions, can generate attractive long-term returns.
Our final suggestion is a sustainable multi-asset fund that has proved its ability to outperform over the last two decades. The fund aims to deliver capital growth over the long-term – which is defined as being at least five years – by investing in a combination of global equities, bonds and cash.
Its investment process uses a thematic approach to identify the key structural growth trends that are likely to shape the global economy of the future. The managers, Peter Michaelis and Simon Clements, will then search for well-run businesses whose products and operations are expected to benefit from this backdrop.
This portfolio is part of Liontrust’s flexible asset allocation range of funds, each of which offers different maximum exposures to various asset classes. In this fund, for example, 60-85% will be in equities – 30-60% in global ex-UK equities and 20-45% in UK equities – with fixed income accounting for between 10 and 40%, and cash of up to 10%*.
*Source: Fund factsheet, 28 February 2023
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. The views expressed are those of the author and do not constitute financial advice.