How someone decides to spend the up-to-£20,000 they can put into a Stocks and Shares ISA in any financial year will depend on their financial goals, risk tolerance and time horizon. As a long-term investor, having a good proportion of money invested in funds I don’t need to tamper with makes a lot of sense to me. Here are three that I like, two of which I already own.
One holding I continue to accumulate within my Stocks and Shares ISA is the Vanguard Life Strategy 80% Equity Fund. Offered by the US passive investing giant, this fund might be considered a one-stop-shop for anyone who has very little interest in stock markets beyond increasing their wealth. Alternatively, I think it can be a great way of counterbalancing riskier investments.
This Ronseal-like ‘does-what-it-says-on-the-tin’ fund invests 80% of the money I put to work across thousands of companies around the world. The remaining 20% is shoved into fixed-income assets, which tend to be less volatile than stocks. This strategy won’t stop the fund from dipping in value during a market crash, of course. However, it should help mitigate the (temporary) pain.
Of course, there will come a time in life when people want to reduce their exposure to stocks. Recognising this, Vanguard also offers 20%, 40% and 60% versions of the LifeStrategy fund. A 100% Equity fund is also available.
My love of Vanguard’s cheap, passive range doesn’t mean I’ve no time for funds managed by proven professional investors. After all, the former will only give me the market return. To beat the market, I’ll need to use the latter (or pick stocks myself).
One active fund I’ve been buying quite a lot of recently is Lindsell Train Global Equity. This highly-concentrated, low-turnover fund has climbed a little over 350% in value since 2011. Investors wouldn’t have got that sort of return by simply holding a FTSE 100 index tracker!
Despite its stellar track record over the years, owning Global Equity isn’t without risk. Some of its biggest holdings — FTSE 100 firms Diageo and Unilever — have been hit to some extent by the pandemic. The fact that this fund doesn’t buy value stocks could also hamper returns for a while.
Nevertheless, I’m a firm believer that quality always wins out over the long term.
As a long-term investor with many years left in the market, I think having some exposure to the smaller businesses in my Stocks and Shares ISA is really important. Market minnows have the ability to grow far quicker than larger listed firms, which should ultimately lead to larger share price gains. This is why my final pick is Premier Miton UK Smaller Companies.
Since launching in 2012, the AIM-focused Premier Miton fund has achieved an annual return of 18.5%. That compares very favourably to the 12.7% return of the IA UK Smaller Companies sector. No wonder it’s the most researched fund of its kind, according to Trustnet.
Of course, there are a few things to remember. Past performance is no guarantee of future returns. Moreover, these returns could vary wildly from year to year due to the volatility of small-cap stocks. Also, investors must be comfortable paying the relatively high management fees compared to, say, the LifeStrategy 80% fund.
The Premier Miton fund won’t suit all investors, but I’d be happy to buy it today.