What have ISA investors been buying in March’s market turmoil?

Laura Suter, personal finance analyst at investment platform AJ Bell, comments:

“Investors filling their ISAs ahead of the tax-year-end deadline have been picking beaten up UK stocks and funds in a bid to profit from the recent market volatility. Trading data of ISAs on AJ Bell Youinvest shows that savvy investors have been buying troubled companies that have seen their share prices plummet in the Coronavirus related market falls in the hope of snapping up a bargain, while also investing in funds that specialise in finding troubled companies that are set to rebound.

“Stock market investors have put their money in airlines EasyJet and British Airways-owner IAG, which have seen their share prices fall 61% and 68% respectively since the market volatility began. The companies are struggling now, with flights grounded and global travel having come to a halt, but investors clearly think they have been oversold and the share price will rebound from current levels. 

“Novacyt is a pure Coronavirus play, as it’s the company that has developed a testing kit for the virus and has reported a spike in orders as a result. The share price had already risen 954% from the beginning of the year to the start of March, but that didn’t stop investors continuing to buy, and during March the share price rose another 45%. 

“The presence of a two oil companies in the most purchased stocks could be income seekers hunting out a decent yield after the share prices fell. Oil giants have been hit with a double whammy of the plummeting oil price and general market falls due to Coronavirus, but it means they are offering tasty forecast yields at current valuations. For example, BP is on a forecast yield of 9.6% and Shell is on 11.9%. However, clearly a big question mark hangs over companies’ ability to maintain dividends so investors need to assess how sustainable they are in the future.

“Fund investors focused on the UK market have bought into Jupiter UK Special Situations, which aims to unearth troubled companies that have seen share price falls and are poised to rebound. The fund lost 20% in March alone, and is down 31% in the year so far, as its underlying holdings have been hammered by market falls. But for patient investors who think the stocks will rebound and that fund manager Ben Whitmore can use the current market as a buying opportunity, there may be rewards down the line.

“Fund investors are also choosing to diversify into concentrated, buy-and-hold funds, such as Fundsmith Equity, Lindsell Train Global Equity and Lindsell Train UK Equity. With around 30 holdings apiece in these multi-billion pound funds, investors are relying on the fund managers to use the current markets to buy up more of their existing holdings to turn a profit. There are also some perennial favourites among the fund and investment trust picks, which appear every ISA season, such as Scottish Mortgage, City of London, the Vanguard Lifestrategy funds and Finsbury Growth & Income.

“Investors are generally using trackers to access the UK market, either the FTSE 100 or FTSE 250. Going into March the FTSE 100 had already dropped 13% and the FTSE 250 had dropped 12%, but during March they have continued to plummet, falling 15% and 24% respectively. However, investors are clearly pegging their hopes on profiting from any recovery in markets.”