Where can you invest with a stocks and shares ISA? A better question would probably be where can’t you invest.
The range of options for investing your full 2010/11 ISA allowance of £10,200 is long, and when it comes to funds – hundreds of which can be accessed for zero initial charge through Fair Investment Company – the range is no more limited.
The focus for many investors on income has not abated, and for some the search for income has become tougher as interest rates remain at historically low levels. In the world of income funds, options range from fixed interest assets like government and corporate bonds, to funds holding shares and active investment strategies.
The Allianz Pimco Gilt Yield Fund holds UK government bonds – known as gilts – but actively manages the portfolio aiming to reduce risk and enhance the return of the fund, using futures contracts. It makes two dividend payments a year.
Strategic bond funds, such as the Henderson Strategic Bond Fund, Legal & General Dynamic Bond Fund and M&G Optimal Income Fund, have the flexibility to invest right across the bond market, often in high yielding assets carrying more risk, finding opportunities in different market conditions.
In UK equities, two of the biggest fund managers have some of the best known income funds.
At Invesco Perpetual, Neil Woodford’s Income Fund offers the potential for capital growth and a level of income, with Woodford’s recent performance slightly sub-par by his standards he is sticking to his guns, holding under-valued stocks in areas like pharmaceuticals which he expects to outperform others in the longer-term.
At Schroders, the company recently unveiled a third fund in their Income Maximiser range. The original Schroder Income Maximiser fund, managed by Thomas See, invests in UK equities but uses ‘covered-call’ options contracts on some of the shares held by the fund. The buyer of the option can buy the shares in the contract at a future date for a pre-set price; a premium is generated in the contract that the fund aims to take a profit, boosting the level of income,
Growth funds can be domestic, investing in shares on the UK stock market, invest in other specific regions, such as Europe or Asia Pacific, or invest globally across continents.
One driver of growth in UK funds is the process of reinvesting dividend income from shares, often larger company shares, while smaller companies are seen as a source of capital growth for investors.
The Standard Life UK Smaller Companies Fund, managed by Harry Nimmo, invests in relatively small UK firms operating in consumer services, the industrial sector and technology, focused on companies with the potential to grow.
Although the trend of rising share prices in emerging stock markets has been in reverse in recent months, the wider economic growth prospects for many of these regions remains and fund managers believe companies can harness this economic growth.
The popular Aberdeen Emerging Markets Fund invests globally in growth economies such as China, Brazil, Mexico and Turkey, while funds like the First State Greater China Growth Fund or Invesco Perpetual Latin American Fund focus on particular regions.
Other growth funds, such as the Neptune Global Equity Fund or Baillie Gifford International Fund look for opportunities in emerging markets and developed economies like the USA.
A different angle
Other funds take a slightly different approach to achieving growth in global investing. The BlackRock Gold and General Fund and JP Morgan Natural Resources Fund are commodity funds investing in mining and energy companies.
These are concentrated funds and in a portfolio investing in other areas, such as bonds or general equities, can help with diversifying by investing some of the portfolio in this relatively specialised area.
The Jupiter Ecology Fund seeks out global investment opportunities in companies demonstrating a ‘positive commitment to the long-term protection of the environment’.
The M&G Global Dividend Fund, meanwhile, targets its investment in companies across the globe that the fund manager, Stuart Rhodes, believes pay a sustainable dividend that has the potential to grow.
All of the funds discussed here are available as stocks and shares ISA investments and can be accessed through Fair Investment Company at no initial charge.
See the Select 100 section for more information on these funds
No news, feature article or comment should be seen as a personal recommendation to invest.
The value of investments and income from them can fall as well as rise and you may not get back the full amount invested. Different types of investment carry different levels of risk and may not be suitable for all investors.
Investors in emerging market funds should be prepared to accept a higher degree of risk than for a fund with a broader investment mandate, as difficulties in dealing, settlement and custody could arise.
Prior to making any decision to invest, you should ensure that you are familiar with the risks associated with a particular investment. If you are in any doubt as to the suitability of a particular investment, both in respect of its objectives and its risk profile, you should seek independent financial advice.
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