Just when the political backdrop in the UK looked to be giving investors a bit more clarity, Coronavirus struck and sent another wave of uncertainty through global markets. It reminds us that there will always be some short term issues for investors to navigate and this is particularly relevant at this time of year when many are planning where to invest their end of tax year ISA subscriptions.
As always, taking a long term view and matching investments to your risk appetite is important. Below, Ryan Hughes, head of active portfolios at AJ Bell, highlights some funds and investment trusts investors could consider for their ISAs based on their personal preferences:
Adventurous investors
Asia – Fidelity Asia
“The Coronavirus has very much focused attention on Asia and China in particular with the Chinese economy coming to a virtual standstill. The natural inclination for many investors may be to give these markets a wide berth given the slowdown in economic growth, but on a long term view, this may create some very interesting buying opportunities for investors prepared to be patient and accept some volatility. Many companies are likely to report poor results in the coming months and therefore it is right to expect some volatility but for the brave this could create opportunities. The Fidelity Asia fund could be a way to gain exposure, with their extensive resources on the ground well placed to understand what is happening in the region. The fund has 50% in China / Hong Kong, in line with the benchmark and a focus on large cap stocks like Alibaba and Tencent so is very much focused on the Chinese consumer and therefore could be well placed to capitalise on a recovery in the region once the virus begins to wane.”
Healthcare – Worldwide Healthcare Trust
“Investing in healthcare has been thrust right back into the spotlight with events in China showing how ill-prepared we are to contain major global health problems. As a result, it is possible that spending on healthcare around the world increases significantly, not just in the search for new drugs but also in the area of medical devices and support as the impact of the ageing populations in western countries comes into full effect. The Worldwide Healthcare Trust is a diversified portfolio of healthcare companies with exposure to the big pharmaceutical companies, emerging biotech companies, medical devices companies and everything else in-between. The trust has a market cap of over £1.5bn giving it significant scale while the managers OrbiMed focus solely on healthcare giving them huge insight and knowledge into this specialist area. While the trust is expensive and has a performance fee, the long term potential of healthcare and the quality of the management team means it may be a price worth paying.”
Balanced investors
Jupiter UK Special Situations
“Manager Ben Whitmore has managed the fund for 15 years, employing a consistent approach that focuses on companies that have materially underperformed the market. Whitmore looks for fundamentally sound companies that are unloved by other investors and priced below true value. As a natural contrarian, the portfolio can look very different from the index which is a positive, with the portfolio currently tilted towards domestically focused companies that may benefit further if Brexit is implemented successfully.”
Temple Bar
“Temple Bar is managed by Alistair Mundy of Investec and operates with a contrarian investment approach, focusing on companies that are very much out of favour. Domestically focused companies in the UK have been left behind over the past three years as overseas earners have benefited from a weakening currency but this could reverse in 2020. The trust has a solid yield of over 4% and an OCF of 0.48% making it a relative low cost way of gaining actively managed UK equity exposure.”
Cautious investors
Royal London Short Duration Global High Yield
“Cautious investors have benefited from strong returns over the past year as bonds have performed strongly. Looking ahead, government are indicating higher spending which could well steepen the yield curve. As a result, traditional corporate and government bonds may struggle. One alternative would be to look at short duration high yield bonds which are less correlated to interest rates and bond yields. The team at Royal London are strong and with a focus on bonds that are only 1-2yrs from maturity, protect investors from the full impact of yields increasing. With cash rates so low, this may be a way of eking out a little extra return but of course doesn’t come without some risk.”
Personal Assets
“2019 was a positive year for cautious investors with lower risk assets such as bonds performing strongly. Looking forwards, I think it is fair to assume returns for 2020 are likely to be more muted and therefore looking for a trust that has preservation of capital at the forefront of its thinking could be a useful starting point. The Personal Assets Trust, managed by Troy’s Sebastian Lyon operates with an absolute return mind set and a diversified portfolio that includes high quality equities such as Microsoft, Nestle and Unilever, short dated government bonds, cash and gold. Avoiding loss of capital is a primary consideration and therefore this trust makes for an interesting first holding for a cautious investor just making their way with investments, not least because it gives an instantly diversified portfolio in just one holding.”
Income seekers
Man GLG UK Income
“There are many income funds available that simply allocate to the big dividend payers in the index but this fund is different. Manager Henry Dixon takes a multi cap approach and also has a value bias, making it a good complement to other traditional equity income funds. In addition, the manager can invest in corporate bonds if appropriate, albeit in a limited manger making this a slightly different UK equity income fund. The strategy currently yields around 5% and pays monthly making it an interesting option for income seekers.”
City of London
“City of London is one of the most famous investment trusts in the UK, tracing its pedigree back to 1891 with current manager Job Curtis in place since 1991. With the UK having been out of favour for much of 2019, solid yields are now available with the trust yielding 4.3% from a dividend which is paid quarterly making it useful for income seekers. Combine this with a hugely experienced manager, a track record of increasing dividends for 52 years and one of the lowest OCFs in the market at 0.39% and you have a trust that is well placed for income seekers and also those who want to reinvest that income over time.”