Thanks to the magic that is compound interest, investing as early in the tax year as possible is a really good idea. As such, I’ve wasted no time making a few fund purchases in my Stocks and Shares ISA this month. Here’s what I’ve been buying.
Small stocks, big rewards
My first buy has been a top-up to my holding in the Lionstrust UK Micro Cap fund. This aims to hold some of the best small company shares available and is managed by a team of highly experienced managers including Anthony Cross and Julian Fosh.
Thanks to their ability to grow revenue and profits far quicker than your average FTSE 100 juggernaut, minnows tend to generate better returns for investors over the long term. Launched back in September 2016, the 64-stock Liontrust fund had gained 133% by the end of March. This compares very well to the 85% achieved by its benchmark (IA UK Smaller Companies).
As good as this performance is, it’s important not to get carried away. Micro-cap stocks can be infinitely more volatile than their blue-chip equivalents. This may make them unsuitable for more mature investors nearing (or in) retirement. With hopefully many decades of investing left, however, I’m confident the Liontrust fund matches my own risk tolerance.
The first new addition to my Stocks and Shares ISA in April has been the Biotech Growth Fund (LSE:BIOG). As it sounds, this near-£600m trust invests in a diversified basket of companies in this space. These come from around the world but most (almost 75%) are based in the US.
BIOG’s share price rose almost 68% over 2020. Like the Liontrust fund, this compares favourably to the 22% achieved by its benchmark (The NASDAQ Biotechnology Index). Although this may prove to be an exceptional year, I think the growing demand for diagnostics and therapeutics solutions for chronic diseases bodes well.
Of course, there’s the potential to make more money in individual biotech stocks. However, I’m fairly certain BIOG’s managers have a better idea than I do about which companies have the best growth prospects. The only snag is that this expertise doesn’t come cheap. BIOG has an ongoing charge of 1.1%.
Hot growth theme
It pays to catch an investment theme early and keep all profits from the taxman in a Stocks and Shares ISA. As such, my final purchase this month is a small opening position in the Medical Cannabis and Well Being ETF (LSE: CBDP).
Launched last year, this provides me with exposure to a concentrated bunch of companies involved in the medical cannabis, hemp, and cannabinoids industry. Its biggest holding is UK-based firm GW Pharmaceuticals.
Naturally, CBDP is far from risk-free. In fact, it’ll likely prove to be the most volatile of all three funds mentioned. The medical cannabis industry is still very much in its infancy and still faces huge regulatory hurdles. The 0.8% total expense ratio isn’t cheap for a passive fund either.
So, is this a punt? Not exactly. The chances of cannabis being legalised at a Federal level in the US received a shot in the arm following the election of Joe Biden. Should this happen, it could prove to be the catalyst for more investors to get involved. Naturally, the gradual approval of more treatments should also prove a tailwind for this ETF’s share price.
Right now, this ‘screaming BUY’ stock is trading at a steep discount from its IPO price, but it looks like the sky is the limit in the years ahead.
Because this North American company is the clear leader in its field which is estimated to be worth US$261 BILLION by 2025.
The Motley Fool UK analyst team has just published a comprehensive report that shows you exactly why we believe it has so much upside potential.
But I warn you, you’ll need to act quickly, given how fast this ‘Monster IPO’ is already moving.
Paul Summers owns shares in Liontrust UK Micro Cap Fund, Biotech Growth Fund and the Medical Cannabis and Well Being ETF. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.