There’s been a noticeable change in investor appetite in the last few months. Some investors have crystallised their gains after the bull run in tech stocks finally ran out of steam. Meanwhile, high inflation and fears of a recession have fuelled demand for value stocks. Whether you’re looking to use your ISA allowance or rebalance your portfolio, it’s a good time to review your ISA investments ahead of the new tax year.
Although the current market volatility can be unsettling, a stocks and shares ISA remains a good option for investors looking for an inflation-beating return. According to moneyfacts.co.uk, the highest easy access cash ISA currently pays 0.85%. With inflation predicted to top 8% next year, this would result in a monetary loss in real terms of 7% a year. By comparison, Hargreaves Lansdown states that “the stock market has beaten cash in 91% of ten-year periods” since 1900.
If you’re looking for investment ideas for your ISA, here are the 10 funds that were most popular with ISA investors last month.
[top_pitch]
What were the 10 most-bought ISA funds?
These were the most popular funds bought by DIY investors in the AJ Bell Youinvest ISA in March 2022:
|
Position |
Fund |
|
1 |
Fundsmith Equity |
|
2 |
Fidelity Index World |
|
3 |
Fidelity Global Special Situations |
|
4 |
Liontrust Sustainable Future Global Growth |
|
5 |
Baillie Gifford Positive Change |
|
6 |
Standard Life Global Smaller Companies |
|
7 |
Jupiter UK Special Situations |
|
8 |
Baillie Gifford American |
|
9 |
Rathbone Global Opportunities |
|
10 |
Troy Trojan Global Income |
What trends are evident from this list? Well, only one tracker fund makes the top 10 despite having been a popular option over the last few years. However, in falling markets, ISA investors may prefer actively-managed funds that can take some precautions to protect against losses.
Most of these ISA funds come from the global sector where fund managers have the flexibility to source growth opportunities. US funds are another perennial favourite recently falling out of favour after the drop in share prices of growth stocks. But it’s surprising that only one UK fund features, given the relative undervaluation of UK companies against their global peers.
Finally, the rise in popularity of ethical investing continues, with two ESG funds in the top 10. After a record inflow in 2021, Retiniv Lipper reports that ESG funds now account for 10% of worldwide fund assets.
Let’s take a closer look at the top four ISA funds.
1. Fundsmith Equity
With veteran manager Terry Smith at the helm, Fundsmith Equity was a top-quartile performer until 2019. Since then, its performance has been more muted until a 22% return in 2021 marked its recovery, according to Trustnet. After its 10% fall in 2022, ISA investors may be seeing this as a buying opportunity.
Nearly 75% of its portfolio is invested in the US, with a similar proportion split across the consumer staples of technology and healthcare.
Nick Wood from Quilter Cheviot believes that Fundsmith’s investments may not fare well in the short term in an environment of high inflation and rising interest rates. He comments that “areas that the fund tends to avoid, such as banks and/or energy and miners, have done relatively well.”
However, Rob Morgan from Charles Stanley believes that “in the long term, the successful growth of companies in the portfolio and their resilience in terms of pricing power will be a bigger factor.”
2. Fidelity Index World
The only passive ISA fund on the list, Fidelity Index World has rewarded investors with a five-year return of 72%, according to Trustnet. It’s a low-cost ISA option, with an annual fee of only 0.1%.
Nearly 70% of the fund is invested in the US, with Apple, Microsoft, Alphabet and Amazon among the largest holdings. ISA investors will be hoping that US tech stocks outperform in the longer term after their recent fall.
3. Fidelity Global Special Situations
Fidelity Global Special Situations is a consistent second-quartile performer amongst its global peers. Trustnet reports a five-year return of 66%, with over half the fund invested in the US, including Microsoft, Apple and Alphabet.
Bhavik Parekh from Morningstar comments that “the experienced Jeremy Podger continues to keep investors in Fidelity Global Special Situations on a steady path through a variety of market conditions”.
4. Liontrust Sustainable Future Global Growth
This fund has achieved a five-year return of 96%, comfortably out-performing the sector average of 59%, according to Trustnet. However, performance in the last six months has been fairly dismal, with a bottom-quartile loss of 8%.
Although it’s heavily focused on the US, it has a good spread across different sectors, including healthcare and financials. Darius McDermott from FundCalibre comments “Backed by an experienced and excellent team, this fund has everything in its favour.”
[middle_pitch]
Takeaway
Investors are keeping the faith with global active funds delivering a strong performance in the longer term, while the recent falls in fund prices has attracted investors looking to add to their ISA portfolios.
To save you time and money, our experts have compiled a list of our top-rated ISA providers.
