A Stocks and Shares ISA is a great vehicle for investing in assets while simultaneously reducing tax outgoings. With an allowance of up to £20k invested per year tax-free, they have long provided Brits with a great way to build wealth.
Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.
Of course, the exact level of returns each ISA achieves depends on the stocks chosen and the amount invested. But using the average return of global markets, we can get a rough idea.
The UK’s key index, the FTSE 100, has returned 6.3% on average in the past 20 years. The long-term average return of the main US index, the S&P 500, is around 10.5%.
So it’s realistic to conclude that a well-diversified portfolio could achieve an average return of around 8%. In five years, £20,000 invested in that portfolio would have grown to £29,796.
That’s a decent profit of almost £10,000, all tax-free!
However, if an investor picked the wrong stocks, it could be far less. When picking stocks for an ISA, there are several methods I use to identify shares with long-term growth potential.
First, I look for companies that are involved in trends that have a strong future. I then check metrics like revenue growth rate, return on equity (ROE), and earnings per share (EPS) diluted growth.
Stocks that rate highly on these metrics are more likely to enjoy continued growth for the indefinite future.
Building the future
Consider the investment trust Polar Capital Technology Trust (LSE: PCT). It has EPS diluted growth of 146%, ROE of 33.5%, and revenue that is 50% higher than in 2017.
For UK investors seeking exposure to global technology to secure generational wealth, the trust has several characteristics that make it worth considering.
It also has a strong history of active management and outperformance over multiple cycles. The disciplined, research-driven approach of managers Ben Rogoff and Nick Evans has helped the trust navigate downturns and capture secular winners.
This FTSE-listed investment trust offers diversified exposure to leading tech firms worldwide — many of which are dominant, cash-rich, and likely to thrive over multiple decades.
Think Apple, Microsoft, Nvidia, and ASML — all leaders in the global tech industry. These are the businesses driving artificial intelligence, automation, cloud computing, and digital transformation. They all benefit from consistent revenue, strong balance sheets, and wide moats — characteristics associated with durable long-term compounding.
Points to consider
However, as most holdings are in US-based companies, it’s somewhat concentrated and at risk from a localised market downturn. Plus, it’s exposed to GBP/USD exchange rate fluctuations. While this can boost returns in some periods, it can also detract from them in others.
Tech stocks can also be quite volatile, and Polar Capital Trust’s performance is at the whim of rapidly changing sentiment. During periods of rising interest rates or recession fears, the trust can experience significant short-term drawdowns.
Investors should be aware of these risks and diversify adequately to avoid too much exposure to one stock.
Overall, Polar Capital Trust exhibits long-term growth potential due to its exposure to tech megatrends and global innovation. By staying invested through market cycles, investors can harness the long-term growth of this increasingly dominant industry in the global financial world.
