Ideas for your ISA

In a lot of ways setting up an ISA is the easy part. Once you’ve selected the right account for you, you can fund it with a lump sum if you have one at your disposal or alternatively drip feed cash into it on a monthly basis. What can be more difficult, assuming you’ve gone down the Stocks & Shares ISA route, is deciding what to invest in. To help you with this process, Tom Sieber from Shares Magazine has identified some potential long-term selections for your ISA.

Remember the value of investments can go down as well as up and these ideas are merely intended as a starting point for your own research.

Three Investment Trusts For Your ISA

Portfolio manager Alastair Mundy has been in place since November 2002 and adopts a contrarian approach to investing. This involves buying companies on the FTSE 350 index which have at least halved from their peaks but which have reasonable balance sheets. Stocks are then held for around four to five years to allow time for the companies to turn around. This investment strategy makes periods of underperformance almost inevitable but over the long term it has underpinned considerable value creation. Over the last decade the trust has delivered an annualised return of 11%.

Late manager Ian Rushbrook is an important factor in the fund’s early success. Rushbrook, who managed the fund since it was set up in the 1980s, died in October 2008. Management of the fund passed to Sebastian Lyon in early 2009. Its investment policy is to protect and increase (in that order) the value of shareholders’ funds per share over the long term. The portfolio contains a mixture of UK, US, Canadian and European-listed stocks, as well as gold, cash and index-linked bonds.

Investors seeking exposure to Europe should consider prioritising companies with progressive dividends, rather than high growth stocks, as these could outperform over time. One investment trust that adheres to this approach is Fidelity European Values. It seeks to achieve long-term capital growth principally from the stock markets of continental Europe. Manager Sam Morse follows three key investing principles. First is a bottom-up stock selection with a focus on dividend growth. He takes a long-term view which improves performance and reduces costs. Morse also has a cautious approach, stemming from his belief that managing downside risk creates a strong foundation for long-term outperformance. Morse invests in companies based on their prospects for producing dividends and dividend growth as this indicates steady structural growth. Its portfolio positions include food giant Nestle, cosmetics colossus L’Oreal, healthcare company Novo-Nordisk and Helsinki-listed insurer Sampo.

Three exchange traded funds For Your ISA

The ETF provides access to the 30 highest yielding UK companies that have managed to either maintain or grow dividends for at least 10 years in a row. This screening method means you don’t get exposure to companies that have irregular dividends. The index also provides some level of futureproof protection in that it will remove any companies should they break the sustained/growing dividend rule. Dividends are paid once every six months. The in-built fee is 0.3% each year.

This is a global product which aims to track the performance of the MSCI World Index. The index comprises more than 1,600 large and mid-cap stocks across 23 developed countries. The index is well-diversified on a sector basis, providing exposure to the financials, IT, consumer discretionary, healthcare, industrials, consumer staples, telecoms, materials and energy sectors. MSCI describes the index as a ‘building block’ around which investors can build a portfolio. For example, you could consider adding small cap exposure, emerging markets, specific sectors or ETFs which focus on particular stock characteristics.

Commodities have a place in a diversified portfolio. Exposure to a range of commodities from seven different sectors can be achieved through this exchange-traded fund (ETF) which has an ongoing charge of 0.19%. The product seeks to track the performance of several different commodities markets. The sectors which the ETF targets include energy, agriculture, industrial metals, precious metals and livestock.

Investment Edge

Shareview and Shares Magazine have produced Investment Edge, a digital magazine with tips and advice for investors. Download for free to find out how to deal with the issues of keeping cash, as well as how to diversify your investment portfolio.