23rd June 2014
With the beefed up ISA – or NISA – about to launch many investors will be looking at what to do with their new £15,000 annual limit.
For investors who do not want to take any risk with their capital, or who have a time horizon less than five years, cash is the only realistic option. But remember it is not totally without its own set of risks – put £10,000 on deposit today and you should still get £10,000 plus interest back in five years’ time but chances are inflation will have eroded its spending power.
However for savers looking to become investors and for those already experienced in the volatility of stockmarket investing, we highlight some of Mark Dampier’s – Hargreaves Lansdown’s head of investment research – top picks…
Diversification reduces risk and a fund that invests in a range of asset classes is one solution. Newton Real Return, 12% better over three years, invests in equities, bonds and cash with smaller amounts in other assets such as commodities and foreign currencies. It aims to produce cash-beating returns over the long term while also sheltering capital during difficult periods.
Income investors are attracted by the stable and potentially growing income stream dividends provide. Dividends, profits corporation share with investors, can compensate for any short-term volatility in share prices and patient investors can reap significant rewards over the long term. Dampier says: “Those who don’t yet need the income can reinvest the dividends to buy more shares, boosting the growth prospects.” The newly-launched CF Woodford Equity Income Fund may not have a track record yet but its manager Neil Woodford certainly does – one of his previous portfolios, the Invesco Perpetual High Income Fund, which he ran for more than 25 years was the best performing fund in the equity income sector under his management, turning a £10,000 investment into £230,000. For investors looking for another option, Dampier cites the Threadneedle UK Equity Income as worthy of consideration.
Long-term growth investor
Dampier says: “Look for fund managers who take a high conviction approach, investing in a relatively small number of companies.” Old Mutual UK Alpha, up 48% over three years, is a UK-focused fund managed by Richard Buxton, who has a robust track record of producing decent returns. Dampier adds; “He looks for undervalued companies which are being unjustly ignored by other investors and backs them for the long term.” For exposure to global stock markets the CF Odey Opus Fund, up 29% over 36 months, is worth a look says Dampier, who explains that the manager Crispin Odey’s high conviction, and often contrarian approach, has been the cornerstone of his success.
After years of soaring performance emerging markets have had a tough time recently but given their demographics, an abundance of natural resources as well as young well-educated populations, the long-term potential remains. In addition, often the optimal time to invest is after a difficult period when valuations are lower and more attractive but this requires a steady nerve notes Dampier. For intrepid investors he tips a regional fund such as First State Asia Pacific Leaders, up 22% over three years, or for a more concentrated approach look toward the likes of Aberdeen Latin America, down 10% over the same period or perhaps even Neptune Russia and Greater Russia, which is off by 26%.
(*All fund returns – Source FE Analytics to 20 June, 2014, in sterling)