Brexit is in chaos, but this year’s Isa deadline is approaching fast – so where should undecided investors stick their cash?
Those with patience and steady nerves will still be putting money in the unloved UK market.
Financial experts are predicting a big comeback in 2019 – and besides, many domestic companies have international exposure that should help them withstand near-term shocks.
Meanwhile, global and emerging markets funds are a good way to spread your risk.
We look at the relative merits of world markets right now, and round up last-minute fund tips for your Isa below.
Hargreaves says: Current values are shaded green where they are below historical averages and red where they are above
‘Our preferred measure of valuation is the Cyclically Adjusted Price Earnings Ratio, which measures how current share prices relate to the last 10 years of company earnings, thus giving a longer term perspective on current market valuations,’ says Khalaf.
‘With the exception of the US, the main international markets are trading below their historical averages.
‘None are so far below the average we would say they are in clear bargain territory, though the data still suggests it’s a reasonable time to invest.
‘The US is trading above its long run average, though the deviation from the average is not significant enough to make a compelling case for ignoring this market.
‘The measures for the US presented above are based on returns data running back to 1973.’
He says the UK currently offers a high yield which is good for income-seekers, although Brexit clearly casts a shadow.
Emerging markets have a swelling middle class and plenty of room to grow, although they are under pressure from the US-China trade war at present, he adds.
And for those looking to diversify, a global fund makes sense, especially if you are new to investing and don’t already have investments spread too widely.
UK: Look past Brexit and pick up stocks on the cheap
Laith Khalaf, senior analyst at Hargreaves Lansdown
Artemis Income. Ongoing charge: 0.80 per cent. Yield: 4.30 per cent.
Keeping it simple… Vanguard’s James Norton explains what’s in his Isa
I own four funds in my Isa – all Vanguard, naturally, he writes.
Three of them – Vanguard Global Emerging Markets fund (providing active stock-picking in emerging markets), Vanguard Global Credit Bond fund and Vanguard Global Small-Cap index fund – provide me with slightly higher-risk long-term tilts.
But my most trusted, go-to fund by far is the Vanguard LifeStrategy 80 per cent Equity Fund.
This accounts for more than 80 per cent of my entire Isa holdings. It has the right level of risk for me and is extremely well diversified with 18,705 underlying holdings at the end of 2018.
Crucially it’s very low cost with an ongoing charges figure of 0.22 per cent, so I get to keep more of the return. It’s where I invested my Isa allowance again this year.
And before you ask, I’ll probably be buying more of the same next tax year. Why try to fix what’s not broken?
‘Fund manager Adrian Frost mainly invests in larger companies that make plenty of cash, which can support their dividends, and also grow them over time.
‘If you invested £10,000 in 2002 when Adrian Frost took the helm, and re-invested the dividends, your investment would now be worth £36,242.’
Legal & General UK Index. Ongoing charge: 0.10 per cent. Yield: 3.90 per cent
‘A simple fund which tracks the returns of the FTSE All Share and has an extremely low annual fund management charge.’
Adrian Lowcock, head of personal investing at Willis Owen
Merian UK Mid Cap Fund. Ongoing charge: 0.85 per cent. Yield: 1.60 per cent
‘Manager Richard Watts looks to invest in companies that demonstrate some of the following characteristics: the ability to grow earnings faster than the market average for an extended period; the scope to generate positive surprises; or the potential to be re-rated relative to the market.
‘He is pragmatic about stock valuations, using various ratios and timescales, depending on the wider context.’
Darius McDermott, managing director at FundCalibre
Standard Life Investments UK Equity Income Unconstrained. Ongoing charge: 0.90 per cent. Yield: 4.38 per cent
‘Continued Brexit uncertainty, has left UK companies very much unloved, but I think the yield of the UK stock market offers a good buffer at the moment. So I prefer equity income funds over growth funds right now.
‘This particular fund has about 40 per cent in larger companies and 36 per cent in medium-sized ones – so a natural hedge against any Brexit outcome.’
Threadneedle UK Equity Income. Ongoing charge: 1.59 per cent. Yield: 4 per cent.
‘This fund has more in larger companies, but the manager has real conviction in his ideas and a close eye on capital preservation. He holds companies for a long time and isn’t afraid to ignore whole parts of the market if they look unattractive.’
Global: A simple way to diversify your portfolio
Laith Khalaf of Hargreaves Lansdown
Lindsell Train Global Equity. Ongoing charge: 0.74 per cent. Yield: 0.90 per cent.
‘Fund managers Nick Train and Michael Lindsell are classic buy-and-hold investors. They invest in companies they think are truly exceptional and hold them, ideally, forever.
‘They don’t try to make a quick profit from a company they’re not certain about, and prefer to keep hold of an investment for long term growth.’
Legal & General International Index. Ongoing charge: 0.13 per cent. Yield: 1.90 per cent.
‘This fund tracks the FTSE World (excluding UK) Index and invests in more than 2,300 companies across the globe.
‘Just over half the fund is invested in the US stock market, as that dominates on the global stage. While the US is one of the more expensive markets around, it’s consistently confounded sceptics for a number of years by continuing its upward march.’
Adrian Lowcock of Willis Owen
Artemis Global Select. Ongoing charge: 0.90 per cent. Yield: 0.70 per cent.
‘Simon Edelsten seeks companies that are trading at attractive valuations and are poised to benefit from identified long-term secular [as opposed to seasonal or cyclical] growth trends.
‘He prefers companies that have high and sustainable barriers to entry, sustainable cash flows, a clear capital structure, good management, and limited exposure to external factors.’
Darius McDermott of FundCalibre
Baillie Gifford Global Discovery. Ongoing charge: 0.78 per cent. Yield: Nil.
‘The manager of this fund looks for the most innovative and fast-growing companies in the world. He looks to invest in those that are embracing the unrelenting impact of technology and forcing change onto what were previously stable industries.’
Invesco Global Equity Income. Ongoing charge: 0.87 per cent. Yield: 3.55 per cent.
‘This fund invests in companies all over the world and captures the best regional ideas from regional Invesco equity income teams. The manager likes to generate a rising stream of income from holdings, rather than simply investing in high yielding companies.’
Emerging markets: Under pressure from US-China trade war, but plenty of growth potential
Laith Khalaf of Hargreaves Lansdown
JPMorgan Emerging Markets. Ongoing charge: 1.18 per cent. Yield: 0.60 per cent.
‘Managers Leon Eidelman and Austin Forey invest in companies with healthy finances and sustainable earnings that have the potential to grow year after year, an approach which has delivered significant long term outperformance.’
iShares Emerging Markets Equity Index. Ongoing charge: 0.26 per cent. Yield: 2.30 per cent.
‘This fund invests in more than a thousand companies listed in over 20 countries in the FTSE All-World Emerging Index, providing a high degree of diversification for investors looking for broad exposure to the world’s developing economies.’
Adrian Lowcock of Willis Owen
Lazard Emerging Markets. Ongoing charge: 0.93 per cent. Yield: 1.30 per cent.
‘Manager James Donald focuses on firms with improving financial productivity that have been overlooked by the market.
‘He initially filters companies through assessing their valuations – looking for value opportunities before researching them in more detail to understand the drivers of profitability, paying particular attention to cashflows’ impact on balance sheets and shareholder value.’
Darius McDermott of FundCalibre
Magna Emerging Markets Dividend. Ongoing charge: 1.43 per cent. Yield: 4 per cent.
‘A hidden gem among other better known emerging markets funds, this fund is slightly lower risk as, instead of looking for the more exciting but risky growth opportunities, it looks to invest in emerging market companies that have robust and proven business models and whose management knows the value of returning dividends to shareholders.’
Aberdeen Latin America Equity. Ongoing charge: 1.25 per cent. Yield: 1.40 per cent.
‘Latin America is my favourite emerging market area at the moment: five out of six of the main Latin American economies have pro-business governments and their currencies and stock markets are cheap.
‘This fund benefits from a labour-intensive, yet cautious approach, which lends itself particularly well to these volatile and less-researched equity markets.’
Can’t make up your mind? Keep this year’s Isa in cash for now
‘It’s possible to do a ‘cash and dash’, parking your money in a stocks and shares Isa before dashing off, and returning to invest it at a later date when you’ve got a bit more time,’ says Khalaf.
‘Provided you stick the cash into the Isa before midnight on 5 April, your subscription will count towards this year’s Isa allowance, even if you invest the cash in the next tax year, or beyond.
‘This is a handy feature of the stocks and shares Isa which can help those in a last minute rush, or indeed those who simply want to drip feed money into the market gradually.’