Expert investors offer their advice on the best way to take advantage of the tax-free Isa allowance for 2012-13
Small investors have only another three weeks to take advantage of the £11,280 tax-free investment allowance for this tax year. But with thousands of investment funds available, the choice is daunting.
We asked a range of top financial advisers and expert investors for their recommendations for funds that deliver an income, as well as products that can grow your money over the long term.
But remember, although investment Isas may deliver returns which are better than cash Isas, the flipside is you can also lose your money, not only if markets take a turn for the worst, but also through high management charges.
Best for income
Patrick Connolly, AWD Chase de Vere, selects Jupiter Strategic Bond and Threadneedle UK Equity Income. The Jupiter fund is “a flexible, go-anywhere fixed-interest fund, with a current yield of 5.8%. While there is a strong focus on capital preservation, the manager also includes some spicier holdings. The Threadneedle fund has a current yield of 3.9%, investing mainly in large UK companies paying consistent dividends.”
Darius McDermott, Chelsea Financial Services, picks RWC Enhanced Income and Henderson Strategic Bond. “The RWC fund is run by very experienced managers from Schroders and pays an enhanced yield of 7%. We’ve had the Henderson fund on our Core Selection list for a long time and have faith in the co-managers. It has a decent yield of 5.6%.”
Best for growth
McDermott picks M&G Global Emerging Markets and Rathbone Global Opportunities. “The manager of the M&G fund has done well in both rising and falling markets, resulting in a good, consistent track record since launch. The Rathbone fund, run by James Thomson, is an out and out growth fund which will also invest in a number of mid and smaller companies.”
Connolly chooses Henderson European Growth and BlackRock UK Special Situations. “Many European stocks look cheap and the Henderson fund could be set to benefit by investing in resilient medium-sized companies in niche industries with consistent earnings and high barriers to entry. The BlackRock fund invests in high-quality, small and mid-sized stocks, doing much of their business in emerging markets.”
Best for low-cost investing
Peter Sleep, of Seven Investment Management, picks the Royal London UK All Share Tracker. “This invests in a broad index of nearly all the medium- and small-sized listed companies in the UK – some 600 stocks – and returned 12.9% in 2012. The yield of the fund is just over 3%. The total expense ratio (TER) is extremely low at 0.13%.
Shaun Port at Nutmeg.com likes the Vanguard FTSE 100 Exchange Traded Fund (ETF). “It has tracked the performance of the top 100 FTSE companies very closely and has ongoing charges of just 0.1% per annum compared with the 2% many active UK funds charge.”
He also rates the iShares S&P SmallCap 600 ETF. “We believe that the US economic recovery is gathering momentum, despite some hiccups along the way, so it is time to invest in smaller companies rather than just big companies of the S&P 500. The cost is markedly lower than an active fund at just 0.4% per annum.”
Best for risk-takers
Gavin Haynes, of Whitechurch Securities, likes GAM Star China. “I believe that China should form part of an equity portfolio over the long term. Managing equities in China is extremely tricky, but I have been impressed with Michael Lai at GAM, who has 23 years’ experience of managing Asian equities. He also rates Henderson European Special Situations. “I still believe there are attractive opportunities.”
Brian Dennehy, of Fund Expert, is a fan of Jupiter India. “The Indian stock market has turned a very important corner. The reward for greater clarity over much-needed reforms should set India on the path of very long run recovery. This was one of our two ‘trades for the decade’.”
He also likes Neptune Japan Opportunities. “Japan has begun to try to inflate away its vast debt via massive central bank action – this, in turn, could result in sky-rocketing share prices in Tokyo.”
Which is right for you?
What are the tax benefits? No capital gains tax (CGT) and no further tax on any income, although it is not exempt from inheritance tax. But remember that everyone already has a £10,600 annual exemption from CGT anyway.
How much can I put in? Up to £11,280 this tax year (to 5 April 2013) but the maximum that can go into a cash Isa is £5,640. You can split the allowance up as you like, subject to the £5,640 cash Isa limit. The limit rises to £11,520 from 6 April 2013.
What can I put in? You can buy individual company shares, investment trusts and exchange traded funds as well as conventional unit trusts. This week the Treasury said it would also allow small shares traded on AIM to be included in an Isa.
What are the charges? Depends on the type of investment product you buy. For example, a unit trust Isa will have an initial charge (0% to 5%) and an annual management charge (typically 1.5%) plus other charges for dealing.
How can I cut costs? Don’t see an adviser: do it yourself, or use a ‘”guided” investment service. Fidelity has launched Isas with half-price charges. , while other cheap platforms include Cavendish Online and Alliance Trust Savings are also cheap. Trackers that match an index (such as the FTSE All Share) and ETFs have charges that are a fraction of “actively managed” unit trusts’.
Emma Dunkley is a reporter at Citywire, a free independent online financial information and data service.
Money | guardian.co.uk
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