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Fund ideas for your ISA allowance

For those looking for inspiration as the end of the tax year draws near, Rob Morgan outlines some options. Invest in your tax efficient ISA.

| 10 min read

ISAs remain one of the most popular ways to invest owing to their simplicity and tax efficiency. We suggest investors use their ISA allowance before investing outside an ISA, and with Charles Stanley there are no additional charges involved in investing in an ISA compared to a standard Investment Account.

The tax year ends on 5 April so anyone considering using their ISA allowances should not delay. This tax year (2021/22) you can subscribe up to £20,000 across all your ISAs and shelter your money from tax. However, you can’t carry over any unused allowance, so if you don’t use it before 5 April, it is lost forever. You get a new allowance in the new tax year, also £20,000, but you could have missed the opportunity to shelter more of your savings and investments from tax.

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Secure your ISA allowance in cash if you are unsure about where to invest

While it is possible to invest in a Charles Stanley Direct Stocks & Shares ISA using a debit card up until midnight on 5th April 2022, we recommend you don’t leave any subscriptions too late in case of any problems.

If you don’t want to commit to an investment right now that’s fine. It’s possible to open or top up a Charles Stanley Direct ISA with cash and leave the decision about where to invest to a later date. Please note there is no interest currently paid on cash balances.

Please note you can only contribute to a Stocks & Shares ISA with one ISA provider each tax year, but you can open a different type of ISA, for instance a Cash ISA, with another provider.

Fund ideas

If you looking to commit money to investing, here are three fund options you might consider. Each represents a different investment approach and level of risk, and they are provided for your information but are not a guide to how you should invest. Before investing in any fund please read the fund’s Key Investor Information Document or Key Information Document, and Prospectus.

There is more information on funds and how they work here.

BNY Mellon Sustainable Real Return Fund (medium low risk)

Targeted absolute return funds aim to be the ‘plodders’ rather than the ‘leapers’ of the fund world, aiming to provide more modest but consistent returns. This objective resonates with more cautious investors or those wishing to diversify a portfolio to balance more risky areas such as shares. However, there is still risk involved and the fund can fall as well as rise in value.

One of our preferred targeted absolute return funds is BNY Mellon Sustainable Real Return. It invests in a diverse portfolio of assets, aiming to beat the return on cash by 4% a year (before charges) while limiting the scope for losses. However, prioritising capital preservation is an aspiration rather than a promise, and the fund can fall as well as rise in value.

The fund comprises a ‘core’ of assets chosen to generate attractive long-term returns, which are offset by stabilising, lower-risk assets and hedging positions to dampen volatility and to provide downside protection. The core is currently invested in shares of high-quality companies with predictable and stable cash flows, alongside bonds which the managers believe offer value. Among the offsetting positions are typically gold and US Treasuries, while the tactical use of ‘put options’ can serve to protect the portfolio against a significant fall in the market.

The managers use a thematic approach to investment decision making, which focuses on identifying long-term structural changes impacting the global economy. This includes demographic shifts, growing demand for healthcare and environmental change. This analysis provides the basis for the views taken on asset classes, sector positioning, stock selection and risk. The fund benefits from a strong team who make full use of the wider resources across BNY Mellon, and it may appeal to investors looking for modest long-term growth while aiming to control volatility.

Charles Stanley Multi Asset Moderate Fund (medium high risk)

Successful investing involves ‘diversification’. Not having all your eggs in one basket helps reduce risk and means you are not reliant on specific investments or areas performing well. The usual approach is to spread money across different asset classes – a mix of shares, bonds and cash and possibly other areas such as property or alternative investments.

If you are looking to invest in a spread of assets but don't want the hassle of putting together, monitoring and rebalancing a portfolio of multiple holdings our Multi Asset Funds could be worth considering. They invest in equities, bonds and other assets, and typically look to provide more consistent returns by blending these together carefully. Each fund is a professionally-managed portfolio in a single product – which means buying, monitoring and managing individual funds, trusts, shares and other assets is not necessary. Investors do, however, need to be careful in selecting the fund(s) appropriate for their needs.

Charles Stanley Multi Asset Moderate Fund takes a balanced approach. This means being willing to tolerate some short-term fluctuations in value to achieve the potential for better long-term returns, typically controlling risk through holding a broad spread of investments but maintaining a bias to shares. It’s a compromise between maximising long term returns from the stock market and providing a smoother ride than investing only in shares. The annual management charges are highly competitive, meaning investors can access a ready-made portfolio run by Charles Stanley’s experts at low cost.

FTF ClearBridge Global Infrastructure Income Fund (medium high risk)

Infrastructure assets should be resilient in a variety of scenarios. They provide steady income and often have a certain amount of contractual inflation protection built in, which is reassuring in the current environment. They can potentially provide investors with an attractive, income-orientated return and welcome diversification. The area is also expanding with the transition to net zero carbon calling for huge investment in new, more efficient electricity generation, storage and transmission, not to mention the huge roll out of charging points that the widescale shift to electric vehicles will bring. Meanwhile, heavy investment in high speed broadband is still necessary, notably in large swathes of the US.

There are a number of fund and investment trust options for investing in this specialist area, which looks relatively well placed to generate consistent returns. The managers of this fund are experienced infrastructure specialists based in Australia and have built an impressive record whilst consistently delivering a decent yield. The fund invests in companies around the world operating in infrastructure related sub-sectors. The fund is exposed to both regulated assets (gas, electricity and water utilities) and to ‘user pay’ assets (toll-roads, airports, rail and communication towers). Around 90% of underlying revenues in the portfolio are inflation linked, so the portfolio should be resilient in a scenario of higher inflation. However, it may be more challenged if economic activity drops off, particularly in respect of companies with ‘demand-based’ revenues, such as toll road operators and airports. The historic yield is around 4.5%, which is variable and not guaranteed, so it may interest income seekers as well as those looking for a relatively defensive equity holding.

Schroder Global Energy Transition (high risk)

Investment in climate solutions has rapidly moved from the periphery into mainstream, and that’s only been brought into sharper focus given recent events and renewed efforts towards gaining energy and resource security. Alongside this, to achieve climate goals, how we produce, distribute and consume energy will have to change significantly and will require monumental investment – as much as $120 trillion of over the next 30 years in order to get to net zero in 2050.

By investing in industry-leading sustainable companies in areas such as batteries, electric vehicles and wind power, investors are helping bring about that transition, as well as reducing reliance on fossil fuels that is currently such an issue. It’s clear that companies have a key role to play in the battle against climate change and the evolution of a more sustainable energy system, and the huge investment required will likely create significant opportunities. Businesses delivering products or services that are part of the solution should be well placed to deliver growth to shareholders.

Energy transition is a multi-decade theme where capital will be reallocated on an unprecedented scale, creating investment opportunities across a multitude of sectors and industries. However, there has been a surge in interest in renewable energy stocks recently and consequently valuations have become more expensive.

We believe a selective, disciplined and active approach such as the one adopted by this fund is a sensible means to access the space. The combination of a well-resourced team and competitive charges for a fund of its type add to the attraction. However, even among the more established businesses in the energy supply chain there will likely be significant losers as well as winners. The growth potential of the area and the scope for positive environmental outcomes should not distract from the high risk involved. For patient, longer term investors it could be worth considering as a more adventurous holding in a broad portfolio.

Open an ISA today

Nothing on this website should be construed as personal advice based on your circumstances. No news or research item is a personal recommendation to deal.

Fund ideas for your ISA allowance

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The information in this article is based on our understanding of UK Legislation, Taxation and HMRC guidance, all of which are subject to change. The tax treatment of pensions depends on individual circumstances and is subject to change in future. This article is solely for information purposes and does not constitute advice or a personal recommendation.

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