Investors are expected to plough this year’s Isa allowance into popular
sectors such as commercial-property and equity-income funds. But
professionals are favouring funds in bombed-out sectors such as Japan and
technology in the hope of a rebound.
There are just six-and-a-half weeks to go until the Isa deadline on April 5.
You can invest up to £7,000 each year and your returns will be sheltered
from the taxman, but you must use your allowance before the tax year ends.
Commercial-property funds took millions of pounds of investors’ cash last year
and their popularity is expected to continue this Isa season. However, with
fears that the property market is overheated, the smart money is heading
elsewhere.
We asked a panel of professionals where they are investing their money. Many
are opting for funds or sectors that have been out of favour — the strategy
known as “contrarian” investing popularised by star manager Anthony Bolton
of Fidelity. The idea is to get into a sector before the crowd and then
enjoy strong returns when everybody else eventually latches on.
Bear in mind that these are not funds for novice or cautious investors. They
are high-octane schemes suitable only if you already have a balanced
portfolio of equities, bonds and cash and are prepared to stomach
potentially hefty losses.
If that is not you, opt instead for steadier funds such as Invesco Perpetual
High Income or Artemis Income. If you are prepared to take a gamble, here is
where the professionals are putting their money:
Mark Dampier of Hargreaves Lansdown: JP Morgan Japan
Dampier is backing Japan with this year’s Isa money even though it had an
abysmal 2006. The 10 worst funds last year were all Japanese, with JP
Morgan’s scheme down 31 per cent.
The market was hit by a series of scandals, including a fraud investigation
into the internet firm Livedoor, which pushed shares in smaller stocks down
50 per cent over the year. British investors in Japan also suffered because
of the weakness of the yen, which meant returns were even lower when
converted back into sterling.
But things seem to be looking up. The Japanese economy grew at an annual rate
of 4.8 per cent in the last three months of 2006 and consumer spending was
also stronger, according to data released last week. The robust figures
prompted a rally in the yen, and bulls hope that this year investors will
get a double boost from a stronger currency and a rising stock market.
Dampier said: “I believe last year’s sell-off in Japan went too far. The
domestic economy is showing signs of recovery, there has been an increase in
consumer confidence, which should help boost spending, and the property
market is beginning to rise.”
Darius McDermott of Chelsea: Baring German Growth
Germany was one of the best-performing markets in sterling terms during the
last three months of 2006 and McDermott thinks the trend will continue, so
he is putting his Isa cash in the Baring fund.
German companies, and indeed the property market, look cheap compared with
their European counterparts, which could prompt takeover activity and boost
share prices.
McDermott said: “This is the only onshore German fund available to UK
investors. It is focused on a single country so will be riskier but recent
performance has been strong.”
Justin Modray of Bestinvest: New Star Select Opps
Modray’s choice for his Isa may seem odd because it was last year’s worst UK
scheme, but that is exactly what contrarian investors look for in the hope
of a rebound.
He said: “The manager, Patrick Evershed has a strong track record over the
long term, and is presently invested in a number of pharmaceutical companies
which are expected to do well as drugs in production come to the market.”
The largest holding in Evershed’s fund, at 3 per cent, is Oxford Biomedica,
which specialises in gene therapy. The company has a number of drugs in the
later stages of development, including Trovax, which treats cancer patients
by helping to stimulate the immune system. Several big pharmaceutical
companies are reputed to be interested and a large commercial deal is
expected.
Anna Bowes of AWD Chase de Vere: SocGen Tech
Although those who lost money during the dotcom boom and bust at the turn of
the century may take some convincing, Bowes thinks the tech sector is a good
bet for this year’s Isa. The FTSE Techmark index hit 1,606 last week — the
first time it has broken the 1,600 barrier since November 2001. The rise has
been driven by an increase in companies investing in new technology.
Justin Urquhart Stewart of Seven: Ishares Macquarie Global Infrastructure
Urquhart Stewart’s tip is an exchange-traded fund (ETF) — a share that acts
like a tracker in that it follows an index. In this case, the Ishare ETF
tracks infrastructure firms: companies that own tangible assets from
power-supply networks and air-ports to bridges.
Infrastructure was one of the buzzwords of 2006 and is expected to stay in
vogue this year. Investors are falling over themselves to buy companies
whose assets can provide a steady income in a downturn: witness Spanish
construction giant Ferrovial’s bid for air-port-operator BAA last year. The
firm gets a steady income from the fees paid by airlines to use its sites.
Urquhart Stewart said: “Previously, only institutions had access to this sort
of fund. The great thing about infrastructure is if there is a slowdown in
the world economy you still get a reliable income. If a firm owns a toll
bridge, people will still have to pay to use it”.
Mick Gilligan of Killik: CQS Rig Finance
Gilligan has made a leftfield choice: the fund buys bonds issued by firms that
build oil rigs. Demand for rigs soars along with the oil price and, while
the oil price dropped to $50 at the start of the year, it has already
climbed back to within a whisker of $60.
Gilligan said: “If you take the view that demand for oil is set to stay firm,
as I do, then this is a good option. Oil rigs will take perhaps four to five
years to build, so this fund is less sensitive to short-term movements in
the oil price.”
Paul Ilott of Bates: Resolution Argonaut European Income
European funds that pay an income are a relatively new concept, but Ilott
thinks they will become more common as continental firms mature and pay out
bigger dividends.
Although slightly down on 2005, Europe still delivered good returns to
investors in 2006 where the FTSE Europe (ex-UK) index posted growth of 20
per cent, beating the FTSE All-Share’s performance by 3 per cent.
Anna Sofat of AJS Wealth Management: Legg Mason US
Investors with money in America had an appalling year as rising interest rates
raised the cost of borrowing and caused a slump in the housing market. US
shares were made even less enticing for British investors by the weakening
dollar.
Despite this, some analysts think now could be one of the best times in
decades for UK investors to buy into the US if the dollar strengthens again
and rates head down.
Last week stocks and bonds jumped after the US Federal Reserve chairman, Ben
Bern-anke, stated that the US economy was in a benign state, with recovering
growth and moderating inflation — perfect conditions for the stock market.
Sofat said: “I think you would be a fool to ignore the US completely because
it has a great ability to bounce back. There are already signs that the
housing slowdown may have bottomed.”
The CQS Rig Finance Fund is AIM listed. However it is also listed on the Channel Islands Stock Exchange, which is a Recognised Investment Exchange. The fact that it is listed on an RIE makes it eligible for ISAs, a fact that the company's website, (which is expected to be up and running shortly) should point out.
Matthew Kinkead, London, UK
I believe CQS Rig Finance is AIM listed. This makes it ineligible for an ISA, which is unfortunate given the juicy yield.
Nick Billson, andover,
i would buy ETF's (exchange traded funds also known as isharesas normal fund charges are a rip off - from initail fee to annual fee to redemption fee...., you can pick specific ETF's from emerging markets to european dividend ones. I would wait around until theirs a big drop in share prices and buy then.
terry, london, uk