INVESTORS who took the plunge and and bought a fund last year have made excellent returns. The average unit trust gained nearly 15%, according to Standard & Poor’s, a fund-data firm — the best performance since 1999.

Now investors have just three months to choose the best fund for this year’s Isa allowance.

Every tax year, you can invest up to £7,000 in an Isa and shelter returns from the taxman. But you lose the allowance if you do not invest before the end of the tax year on April 5.

In 2003, funds that focus on small and medium-sized companies posted remarkable gains, as did schemes that invest in emerging markets, such as China and Latin America.

But will these sectors still be top of the league tables at the end of 2004, or should you put your money elsewhere? To help you make your choice, we asked five investment experts where they plan to put their Isa allowance this year.

Tony Lanning, A&B

Lanning thinks 2004 will be the year to invest in larger British companies. Blue chips lagged smaller firms last year, but he thinks they will perform better in 2004 as the global economy continues to improve.

He said: “Large British companies will do better in the global economic recovery than medium and smaller firms because they get more of their profits from overseas.”

He also thinks investors will seek quality stocks, which should boost blue chips. In 2003, they piled into any firm that might benefit from the stock-market upturn, whether or not it had a robust business.

“Now they are looking for solid companies again,” Lanning said. “Quality businesses that have good management and strong balance sheets should perform well.”

This year, he would put his money in aggressive funds that have the freedom to move between large and smaller firms as conditions change, such as Gartmore UK Focus or Schroder UK Alpha Plus.

He said: “The Gartmore fund is not for the faint-hearted as it holds a very concentrated portfolio of 40 stocks. But it does hold blue chips in its portfolio and I think this will help it produce some excellent returns in 2004. The Schroder scheme also has a very concentrated portfolio but invests more heavily in larger companies.”

Tip: buy big British firms