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.

| 8 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 Direct 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 (2020/21) 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.

Stocks & Shares ISA

If in doubt secure your ISA allowance in cash

While it is possible to invest in a Charles Stanley Direct Stocks & Shares ISA using a debit card up until midnight on 5th April 2021, 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.

Cautious - BNY Mellon Sustainable Real Return Fund

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.

Balanced – Charles Stanley Multi Asset Moderate Fund

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 are 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 and is considered ‘medium risk’. 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.

Adventurous – Schroder Asian Total Return Trust

Our expectation is that Asian economic recovery will be quicker than in the western hemisphere. That’s significant as the region already accounts for half of the world’s economic activity, a proportion that is set to grow further over the next few years, aided by a pronounced demographic advantage, rising wealth and hard-working populations.

One option for exposure to the region is Schroder Asian Total Return investment trust, which aims to achieve market-beating performance while offering a degree of capital preservation through tactical use of derivatives. This approach offers the managers the opportunity to go some way to protect capital in weak markets while still harnessing long term returns from the region. Having greater exposure when markets are cheap and gradually reducing and focussing on relative performance as markets get expensive makes sense – although the timing can be difficult to achieve and the managers might not get it right.

The managers’ preference is for high-quality but resilient businesses, and they can draw on a large and impressive research team for ideas in an exciting region that includes China, India and South-East Asia.

Very adventurous – Schroder Global Energy Transition

Investment in climate solutions has rapidly moved from the periphery into mainstream. To achieve climate goals, how we produce, distribute and consume energy will have to change significantly and will require huge investment – as much as $120 trillion has been estimated. From a purely economic perspective, renewable energy also makes sense – it is now the lowest cost form of generation in most markets.

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 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.

There are a broadening number of funds investing specifically in the transition towards lower carbon sources of energy and more sustainable forms of consumption. One is Schroder Global Energy Transition, which invests across the whole sustainable energy industry from production to end-use. There has been a surge in interest in renewable energy stocks recently and consequently, valuations have become more expensive, so we believe a selective, disciplined and active approach such as the one adopted by this fund is a sensible means to access the space. There’s more on the fund in our article Schroder Global Energy Transition.

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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