You and your Isa: Where investors should be looking this year for the best funds

4th February 2014

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As we head into the ISA season, Darius McDermott, Mindful Money columnist and managing director at fund broker Chelsea looks at which asset classes and funds may be the winners going forward…

Over the past few ISA seasons, as the tables below highlight, we have seen a slight swing away from bonds to equities but in general, the trend has been pretty similar: UK Equity Income funds have been the most popular, followed by UK All Companies and Strategic Bond, then Asia Pacific ex Japan and Global equity funds making up the top five selling sectors.

When it comes to individual funds there has been little change at the top either: Invesco Perpetual High Income and Invesco Perpetual Monthly Income Plus have dominated each year as the search for income continues. Asian equities in the form of Newton Asian Income and First State Asia Pacific Leaders have been popular both years, as have M&G Global Dividend and M&G Recovery. The changes that have occurred is that bond funds have fallen out of the top ten to be replaced by more UK equity and equity income funds as fears over an end to quantitative easing and rising interest rates have put people off buying more fixed income.

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CHANGES AFOOT THIS YEAR

This year, judging by trends coming through in the past three months, I think things could be different. UK equities may well retain their top spot, but smaller companies funds and those that have a bias towards small and mid-caps seem to be the preference – both for growth and for income. With Neil Woodford leaving Invesco, other UK equity income funds are moving up the tables; Artemis Income, Threadneedle UK Equity Alpha and Rathbone Income seem to be the main beneficiaries.

A survey we carried out amongst our clients in October* also indicated that emerging market and Asian equities are really out of favour, with just 4% saying they could consider these areas for their next ISA investment. Couple this with the fact that the main two emerging market franchises of Aberdeen and First State have now closed their funds to new business, and it is perhaps unsurprising that not a single fund in this area is in the top ten over the past quarter. The recent volatility will no doubt continue to put most people off these areas in the short term.

Property is likely to be an asset class that will benefit from renewed interest this ISA season. It offers an alternative stream of income, with relatively low volatility and the outlook for growth has also picked up significantly in recent months as the economic recovery gathers pace. Indeed the Henderson UK Property fund is currently one of the top ten best sellers.

The real turn up for the books is European equities. This sector has been the worst selling sector for six of the past ten years, but is currently the fifth best selling. Investors are possibly more confident now that those companies that have so far survived the European sovereign debt crisis, should be in a reasonably strong position.

BEST SELLING SECTORS

Oct 2013 – Jan 2014 ISA season 2012/2013 ISA season 2011/2012
1 UK Equity Income UK Equity Income UK Equity Income
2 UK Smaller Companies UK All Companies Strategic Bond
3 UK All Companies Strategic Bond UK All Companies
4 Global Asia Pacific ex Japan Asia Pacific ex Japan
5 Europe Excluding UK Global Global

 

BEST SELLING FUNDS

Oct 2013 – Jan 2014 ISA season 2012/2013 ISA season 2011/2012
1 Cazenove UK Smaller Companies Invesco Perpetual High Income Invesco Perpetual High Income
2 Artemis Income Invesco Perpetual Monthly Income Plus Invesco Perpetual Monthly Income Plus
3 Unicorn UK Income Newton Asian Income M&G Global Dividend
4 Marlborough Multi Cap Income First State Asia Pacific Leaders Aberdeen Emerging Markets
5 Threadneedle UK Equity Alpha Income M&G Global Dividend M&G Optimal Income
6 Rathbone Income M&G Recovery M&G Recovery
7 Standard Life Investments UK Equity Income Unconstrained AXA Framlington American Growth Newton Asian Income
8 Henderson UK Property Artemis Income First State Asia Pacific Leaders
9 JOHCM UK Equity Income AXA Framlington UK Select Opportunities Schroder Income Maximiser
10 M&G Global Dividend Liontrust Special Situations Kames Investment Grade Bond

* Survey carried out amongst 300 DIY investors during October and November 2013
All ISA data refers to Chelsea’s client base.

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