Three investment themes for 2016 ISA Season

21st March 2016


Adrian Lowcock, head of Investing at AXA Self Investor, outlines three themes for this ISA season – and ways to access them…

Equity Income: Getting diversification of income

Equity Income is widely believed to be one of the best long-term investments around; investing in companies which have strong cash flow and can grow their businesses, profits and dividends. For those who don’t need the income now reinvesting dividends has the potential to have a huge impact on the long-term total returns. To illustrate, according to Barclays Equity Gilt Study 2014 a £100 invested in UK equities in 1899 would be worth £14,915 today, rising to £2.2m if the dividends had been reinvested.

Investment idea

Fidelity Global Dividend: Manager Daniel Roberts targets income and long term capital growth from the fund by seeking out simple companies with good cash flow generation. Income is targeted to grow ahead of inflation and 25% greater than the MSCI All Country World Index. The fund is a fairly concentrated global equities fund with about 50 holdings and is focused on large companies. The dividend element means the fund is looking for companies which pay an income; typically these types of companies are managed with a focus on shareholder returns.


Abenomics has been around for a few years and the initial progress made resulted in a rebound in the Japanese stock markets. Further changes are structural and will take a long time to come through. In the meantime deflation remains a threat as falling oil prices have impacted the region. The country is also a big exporter and is sensitive to any changes to global growth outlook; the recent wave of negative sentiment caused the Yen to rise and markets to fall further than in the UK.

Sentiment towards Japan is now more mixed as some question whether Abenomics is working. Valuations are more attractive relative to other developed markets and corporate earnings have been growing as a weaker Yen provides a boost to exports.  Focus has been on quality growth whilst value stocks have lagged behind.

Investment idea

GLG Japan CoreAlpha: Stephen Harker is a contrarian investor, actively looking for companies out of favour with investors. He uses valuations measures including Price to Book, Dividend Yield and Price Earnings ratio to identify such stocks.  He selects companies with strong fundamentals where he believes there is the opportunity for a turnaround. Focus is very much on large cap value companies which have been out of favour recently.


Asian equities have been out of favour for some time, with concerns over the effect of the US raising interest rates combined with a weaker economic outlook from China have weighed on the region.  Sentiment towards the region has been negative but the economic indicators paint a different picture. PMI data is broadly positive especially in manufacturing with the only exception being in the metals and mining sector.

The Chinese driven sell-off has created opportunities and valuations are cheap. However, with sentiment still cautious the focus is on safety not on fundamental growth.  China’s outlook is likely to continue to weigh on the region for some time. The long-term demographics of Asia are still very attractive; it has a young population and growing middle classes which has historically been a key driver of stock markets.  Taking a long term patient view with investing in the region is the best approach.

Investment idea

Schroder Asian Income:  Richard Sennitt is a very experienced manager and has been investing in Asia for over 21 years. He has a strong value discipline and won’t buy at any price. He is a stock picker and runs a concentrated portfolio of 60-80 stocks. The fund invests in companies which are financially sound, profitable, with proven management focused on shareholder returns.


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