Choosing your ISA investments can seem overwhelming given the thousands of options on offer. But help is at hand in the form of model portfolios offered by ISA providers. They’re aimed at investors who don’t want to pay for financial advice but lack the time or expertise to pick their own investments.

Here, I compare the model portfolios of three major ISA providers to see who comes out on top.

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What are model portfolios?

Model portfolios are ready-made selections of ISA investments. There’s typically a choice of income or growth, with different sub-options depending on your appetite for risk.

Here’s what the three ISA providers offer:

• Hargreaves Lansdown (HL): five “master” portfolios of funds selected from their Wealth Shortlist. Investors can choose between three growth portfolios (conservative, medium risk and adventurous) and an income portfolio.
• Interactive Investor: five model portfolios with three growth portfolios (active, ethical and low-cost) and two income portfolios (active and low-cost). The low-cost options comprise tracker funds and ETFs.
• AJ Bell: four model portfolios split into three growth options (cautious, balanced and adventurous) and an income option.

Which ISA provider wins the battle of the model portfolio?

I selected the ‘medium risk’ growth portfolio as the most comparable option across the three ISA providers. So, how did they compare?

Round 1: performance

Which ISA model portfolio delivered the highest annual returns over the last five years?

The calculations above are based on the ISA providers’ recommendations for a £20,000 lump-sum investment. The overall performance number was based on annualised five-year returns (or the next longest period available) sourced from Morningstar and was weighted by the recommended percentage in each investment.

In first place is the Interactive Investor ISA, delivering an annual return of 10.3%, followed by Hargreaves Lansdown and AJ Bell.

Interactive Investor’s investments in Scottish Mortgage and Standard Life Private Equity paid off, achieving annual returns of 23% and 15% respectively. Legal & General US Index and Rathbone Global Opportunities from the HL portfolio achieved returns of just under 15%. However, AJ Bell’s highest-performing investment, Fidelity Global Special Situations, was some way behind with an annual return of 10%.

Winner: Interactive Investor

Round 2: risk profile

Given that higher returns may entail higher risk, here’s a look at the diversification of the model ISA portfolios:

It’s not entirely surprising that the best-performer, Interactive Investor, has 85% invested in equities compared to around 60% for HL and AJ Bell. HL and AJ Bell invested the other 40% in lower-risk asset classes, such as bonds and absolute return funds. These can provide some protection against capital loss in falling markets.

In terms of the overall ISA portfolio, AJ Bell has a relatively concentrated portfolio of seven funds, and almost a third invested in one global fund. Interactive Investor has an interesting selection of investments, including investment trusts and a private equity trust. But overall, HL has a good balance between higher-risk equities and lower-risk assets.

Winner: Hargreaves Lansdown

Round 3: fees

These are the ISA fees across the three platforms:

* Excluding stamp duty and other dealing costs

Fund fees are the annual fees charged by the underlying investment managers, while platform fees are charged by the ISA providers. Hargreaves Lansdown and AJ Bell both charge a percentage of your ISA value, although HL is somewhat higher at 0.45% compared to AJ Bell’s 0.25% (for ISAs up to £250,000). Interactive Investor charges £9.99 per month, which is a lower-cost option for people with a higher-value ISA.

Dealing fees are charged by both AJ Bell (£1.50) and Interactive Investor (£7.99) for buying funds and trusts.

While AJ Bell offers the lowest ISA platform fee, its fund fees add up, as do Interactive Investor’s. Hargreaves Lansdown offers the lowest overall fee due to lower fund fees (partly due to their negotiated discounts) and no dealing fees.

Winner: Hargreaves Lansdown

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Overall winner

I’m going to award first place to Hargreaves Lansdown for charging reasonable fees and delivering strong performance with some protection in falling markets.

Interactive Investor comes a close second, achieving superior returns, but its more adventurous style may be a riskier option. Its fees are also relatively high for lower-value ISA portfolios.

The post Should you invest your ISA in a model portfolio? appeared first on The Motley Fool UK.

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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.

Emerging markets have significantly underperformed compared to other sectors over the last few years. The MSCI Emerging Markets Index fell by 2% in 2021, 24% lower than the developed markets MSCI World Index return. With market volatility showing little sign of abating, is it time for investors to cut their losses on emerging markets investments?

Well, Larry Light from Fortune.com believes that “Emerging markets are poised to have a breakout year, and compared to US equities these stocks are shockingly cheap.” He states that “Red ink is washing over emerging markets, which haven’t been doing a lot of emerging lately” but, to some, “that spells opportunity.”

Let’s take a closer look at the outlook for emerging markets, together with some of the top-performing funds.

Why have emerging markets underperformed?

Emerging markets were one of the better-performing sectors in 2017, delivering a 24% return according to Trustnet. However, concerns over global economic growth and US-China trade relations started to take their toll thereafter. The pandemic struck a further blow, with disruption to global exports and slow vaccine roll-out in some emerging economies.

The issue of high inflation has not been confined to developed economies. Darius McDermott from Chelsea Financial Services comments that the “sharp spike in emerging market inflation hampered many economies in 2021” with central banks having “to jump the gun rather than hope that price rises and supply bottlenecks were temporary.”

As one of the largest emerging markets, China has also exerted a drag on returns. According to Lazard Asset Management, China’s “barrage of regulations over the past year and Beijing’s drive for ‘common prosperity’ have led to market value losses of more than $1 trillion (£77 trillion) and raised doubts about the country’s commitment to a market-based economy.”

Due to these factors, the emerging markets sector has achieved a three-year return of 10%, including an 11% loss in the last year.

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What’s the outlook for emerging markets?

It would be fair to say that opinion is divided about the outlook for emerging markets.

Victoria Scholar from Interactive Investor points to two main risks for emerging markets. The first is that emerging markets “with lower vaccination rates are more likely to be at risk from the Omicron variant”, including Russia, India and Mexico.  

She adds that the “strengthening US dollar, underpinned by monetary policy normalisation from the Federal Reserve, is likely to be a key risk to emerging markets in 2022”.

However, this sector encompasses a wide range of countries and industries. While India, UAE and Saudi Arabia out-performed in 2021, Turkey, China, and Peru were at the bottom of the sector.

Schroders reports that “China’s economy made a blistering start to the year” but warns that “financial markets are already pricing in tougher times ahead.” Issues include stagflation reducing demand for manufactured goods and the recent rise in Covid-19 cases.

On the other hand, Latin America has benefitted from rising commodity prices. Justin Leverenz from Invesco comments that “the rise of disruptive technology could help underwrite a better chapter for the region and represent a big opportunity for investors.”

In summary, the consensus view is that emerging markets may face further volatility in the short term but have upside potential in the longer term. Darius McDermott states “Like most parts of the world, emerging market valuations are not cheap relative to history, but they are nowhere near as expensive as the likes of the US.”

What are the top-performing funds?

These are the top three emerging markets funds based on their five-year performance.

1. Aubrey Global Emerging Markets Opportunities

This fund has rewarded shareholders with a five-year return of 58%, according to Trustnet. But it’s been a bumpy ride with losses of 11%-13% in 2018 and 2022. Its portfolio focuses on large-cap growth stocks, with over 80% invested in India and China.  

2. BNY Mellon Global Emerging Markets

BNY Mellon Global Emerging Markets delivered a five-year return of 51%, as reported by Trustnet. Over half the fund is invested in China and India, together with the IT and financial sectors.

It’s consistently outperformed the sector, and it achieved a 55% return in 2020 compared to a sector return of 14%. However, it’s also suffered greater losses than the sector, including a fall of 20% in 2018.

3. Baillie Gifford Emerging Markets Leading Companies

Trustnet reports a five-year return of 44% for this fund. However, it’s fallen by 20% in the last year. Around half of the fund is invested in China and Brazil, along with IT and financials. It’s also a more volatile option, with losses of around 8%-11% in two of the last five years.

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Take away

Emerging markets funds have performed poorly over the last few years. And uncertainty over the sector outlook appears likely to continue in the near term. That said, Investors Chronicle comments that “Investors in emerging markets are sometimes very well-rewarded for taking on risk” with annual returns of over 50% in some years.

If you’re looking for an ISA platform, it’s worth reviewing our top-rated ISA providers.

The post Is it time to exit emerging markets investments? appeared first on The Motley Fool UK.

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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.

However, some investors are viewing depressed share prices as a trading opportunity. Laura Hoy, equity analyst at Hargreaves Lansdown, comments that “Bargain hunters have started sniffing around some of the market’s beaten-down stocks, but are there truly any undervalued diamonds in the rough?”

Let’s take a closer look at three ‘turnaround stocks to watch’ picked by Hargreaves Lansdown.

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Three companies with the potential to rebound

A short-term share price fall may represent a buying opportunity, but it can also mark the start of a longer-term decline.

Laura Hoy advises that “It’s unusual for a stock to be lowly valued for no reason. The market tends to price in risk. But there are some companies with compelling turnaround potential.”

1. Royal Mail (RMG)

Royal Mail’s share price increased from 124p in early 2020 to almost 600p in mid-2021. Since then, its share price has steadily declined by 45%, not helped by delivery delays due to staff shortages and concerns over the cost of living squeeze affecting parcel volumes.

That said, there are positive signs for Royal Mail. While parcel volumes have declined from their pandemic high, they remain 15% higher than in 2019. And the company is investing in automated parcel sorting systems, predicted to deliver a £30 million cost-saving this year, albeit with significant up-front investment.

Royal Mail is also targeting a reduction in wages. Laura Hoy states that “So far, we’ve been impressed with management’s ability to bring the unions onboard with its cost-cutting drive.” However, its plan to save £40 million by cutting 700 managers may meet stiffer resistance.

Royal Mail is currently trading on a modest price-to-earnings ratio of 3.8, compared to 9.9 for Deutsche Post and 10.7 for FedEx. It also offers an attractive dividend yield of 5.2%.

However, analyst price targets suggest some potential downside risk from its current share price of 326p. Its 12-month price forecast ranges from 275p to 800p, with an average of 550p, according to the Financial Times. Laura Hoy comments that “The market’s not convinced that the group can pull off its efficiency drive.”

2. Meta Platforms (FB)

Meta’s share price has fallen by over 40% since its high of $384 in September 2021. And its 26% fall after disappointing results in February was the highest ever daily loss for a US firm.

Laura Hoy described Meta’s quarterly results as “lacklustre” as “revenue growth of 20% was more than offset by rising costs”. However, she adds “More concerning was management’s forecast for growth to slow considerably in the year ahead.”

That said, Hoy thinks “the market’s reaction might have been too harsh”. This is partly due to the company’s “unparalleled trove of customer data” to generate advertising revenue. Meta is a social media behemoth, owning Facebook, WhatsApp and Instagram. These platforms are used by 77% (3.6 billion) of global internet users, according to Statista.

Hoy also points out that Meta is “sitting on a rather large pile of cash”, which should help in seeking growth opportunities, including the metaverse.

Meta is currently trading on a price-to-earnings ratio of 16.2, half the Nasdaq 100 index p/e ratio of 33.5. According to Marketwatch, the median brokers’ price target is $334, which would represent a 50% increase from its current share price of $223.

3. Tate & Lyle (TATE)

Tate & Lyle is a food and beverage producer, with a particular focus on sweeteners and thickeners. Having fallen from an 800p high to a low of 624p last year, its share price has steadily climbed back up to 745p.

Laura Hoy comments that the company has “recently embarked on a major strategic overhaul”. This entails “selling off the least profitable parts of the business and refocusing on higher-growth areas.” It plans to pay £500 million to shareholders as a special dividend from the estimated £900 million proceeds.

The company is well-positioned to capitalise on the market for sweeteners, which Statista reports is growing at 7.4% per year. However, Tate & Lyle is facing a significant increase in costs due to the current disruption to commodity supplies, particularly corn supplies from Ukraine. This may start to impact profitability once existing contracts expire.

Tate & Lyle is currently trading on a price-to-earnings ratio of 15.8 with a dividend yield of 4.1%. According to MarketBeat, the average broker price forecast is 908p, suggesting a potential upside of over 20%. Laura Hoy agrees, stating that “Tate & Lyle looks to be on the brink of a fully-fledged turnaround.”

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Take away

Royal Mail, Meta and Tate & Lyle may be well-positioned for a turnaround in their fortunes. However, investors should carry out their own research before making any trading decisions.

If you’re looking for a broker for share trading, it’s worth reading our guide to our top-rated share dealing accounts.

The post Share trading? Three shares with turnaround potential appeared first on The Motley Fool UK.

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• At 228%, the Warren Buffett indicator says the stock market is strongly overvalued. Should I be worried?
• With £9,633.30 to invest, are these the best UK stocks to buy now?

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.

There’s been a wholesale change in the top-performing fund sectors over the last six months, according to Trustnet. After recording returns of over 60% in the year to April 2021, the smaller company and technology sectors have slipped down to mid-table. While the commodities, Latin America, infrastructure and property sectors have taken their place. Could these sectors provide an opportunity for ISA investors to diversify their portfolios into different asset classes?

Vince Childers from Cohen & Steers believes so, commenting that the “combination of potential inflation benefits, diversification and relative value represents a compelling opportunity to realign portfolios to take advantage of what real assets can offer”.

Here, I evaluate the outlook for the best-performing sectors for ISA and SIPP investors looking to rebalance their portfolios.

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What are the best-performing ISA sectors?

According to Trustnet, these sectors have produced the highest returns over the last six months:

What can ISA investors learn about the top 4 sectors?

1. Latin America

Latin America tops the list with a six-month return of 25%. However, it comes after a period of under-performance, with losses of 3%-15% in three of the last five years.

Raina Oberoi, Managing Director at MSCI Research, comments that “While Latin America has been more volatile than other emerging markets, the region has, on average, outperformed other emerging markets during growth periods and recovered faster following economic distress.”

Raina Oberoi points to Latin America attracting more foreign investment than other emerging markets, reducing poverty and expanding the middle class. She also states that Latin America has strong exposure to “the efficient-energy theme”, together with “ESG leaders”.

Within this sector, the HSBC MSCI EM Latin America UCITS ETF achieved the highest 12-month return of 34%.

Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, administrative costs, withholding taxes and different accounting and reporting standards. They may have other tax implications, and may not provide the same, or any, regulatory protection.

2. Commodities and natural resources

This sector delivered the second-highest six-month return of 24%. However, it’s been less volatile than Latin America, achieving positive returns in four of the last five years.

John Baron from Investors Chronicle comments that this sector “usually comes into its own once it is apparent the inflationary genie is out of the bottle.” He also points to “handsome dividends” and “geopolitical tensions” increasing short-term demand.

However, Baron states that “it is the longer-term secular trends including the push to net-zero, industrial manufacturing, transportation and food that encourage optimism.” Commodities will play a key role in decarbonisation, while the rise in renewable energy should increase demand for copper and other battery-related metals.

Another tracker ETF took the honours for the best performer, with the iShares Oil & Gas Exploration & Production UCITS delivering a 12-month return of 76%.

3. Infrastructure

The infrastructure sector achieved a six-month return of 11%, less than half the return of the top two sectors. It’s made modest losses of 2%-3% in two of the last five years and gains of 9%-22% in the other three years.

According to McKinsey’s Private Markets Annual Review, infrastructure fundraising hit a record high in 2021. McKinsey comments that “infrastructure’s mandate has evolved” with capital “increasingly flowing into subsectors that support the energy transition and digitisation.” Infrastructure is also seen as a partial hedge against high inflation.

The highest-performing fund is FTF ClearBridge Global Infrastructure Income, with a 27% return in the past year and a consistent top-quartile performer over three and five years.

4. Property

UK property sector funds invest directly in retail, industrial and/or commercial ‘bricks and mortar’. Whereas the IA Property Other sector includes funds that invest globally, or indirectly through property company shares.

Global property delivered a higher five-year return of 36% compared to 19% for the UK. However, the UK property sector returns were less volatile, ranging from a loss of 4% in 2020 to a gain of 9% in 2021.

Property is also viewed as a hedge against inflation. Theoretically, inflation pushes up rents and, by extension, property values. However, landlords’ pricing power depends largely on the local level of supply and demand. Property companies can also manage high inflation by demanding shorter leases, more regular rent reviews and inflation-linked rents.

Josef Licsauer from Hargreaves Lansdown believes direct property funds are less attractive as “Commercial property is not easily bought and sold. It’s time-consuming, labour-intensive and expensive.” Whereas he advises that investing in indirect funds “helps to spread risk” as they “don’t rely on a small number of properties.”

The highest-performers in both sectors were the iShares US Property Yield UCITS ETF and Scottish Widows HIFML UK Property, with 12-month returns of 30%.

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Take away

With high inflation and rising interest rates, ISA investors might want to consider diversifying into ‘real asset’ sectors. These have out-performed other sectors in the last few months, principally due to a growing appetite for more defensive asset classes.

If you’re looking for an ISA provider, our experts have compiled a list of our top-rated ISA providers to help with this.

The post The 10 best-performing sectors for ISA investors appeared first on The Motley Fool UK.

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• How much is needed in a Stocks and Shares ISA to target a £31,628 second income?
• Down 25%, this dividend stock offers an 11.2% yield for investors
• At 228%, the Warren Buffett indicator says the stock market is strongly overvalued. Should I be worried?
• With £9,633.30 to invest, are these the best UK stocks to buy now?

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.

Today is the last day to use or lose this tax year’s ISA allowance. However, nearly 40% of investors are leaving their stocks and shares ISA contributions in cash, according to Hargreaves Lansdown. This is the highest level in three years, and nearly 10% more than in 2020.

Stock markets have been turbulent in 2022, with concerns over soaring inflation, increasing interest rates and war in Ukraine taking their toll. Emma Wall, head of investment analysis at Hargreaves Lansdown, comments that it’s “hardly surprising, therefore, to see investors are reticent to take the plunge with their ISA.”

She advises that nervous investors “can park [their] allowance in cash and decide where to invest once the outlook is clearer.” So what type of investors are choosing to hold cash in their ISAs? And which investments might offer a lower-risk alternative?

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Who’s holding cash in their stocks and shares ISAs?

Unsurprisingly, lifetime ISA (LISA) holders are the most risk-averse, with 63% leaving their money in cash, according to Hargreaves Lansdown. If LISA investors are planning to buy a house in the next few years, they are less likely to risk a stock market downturn hitting the short-term value of their LISA.

LISAs are available to 18 to 39-year-olds who want to save a deposit towards their first home or retirement. You can contribute up to £4,000 a year, with the government adding a cash bonus of 25% (up to £1,000). You can invest your LISA in cash or stocks and shares. However, any contribution towards your LISA is deducted from your £20,000 overall ISA allowance.

In second place are junior ISA (JISA) investors, with 42% of JISA customers choosing to leave their deposits in cash. This is interesting given that junior ISAs tend to be longer-term investments as funds can’t be withdrawn until the child’s 18^th birthday.

The annual limit for JISA contributions recently doubled to £9,000. Anyone can contribute to a JISA, but it must be opened by a parent. Children can invest any proportion of their allowance in a cash JISA and/or a stocks and shares JISA if they wish.

Finally, 37% of Hargreaves Lansdown’s main ISA customers left their contributions in cash. This has risen from around 30% in the last two years, reflecting investors’ current nervousness about market volatility.

You can contribute £20,000 per year to an ISA with any income or gains being tax free. As with a JISA, you can invest in both a cash ISA and a stocks and shares ISA in a single tax year.

Why not open a Cash ISA instead?

Stocks and shares ISAs have historically delivered better returns than cash ISAs. According to Moneyfacts, the average stocks and shares ISA delivered a return of 13.6% in 2020-21, compared to 0.6% for the average cash ISA.

Looking over a longer time period, research by IG shows that the FTSE 100 has achieved an average annual return of 7.8% since 1984. This includes the stock market crashes on Black Monday, the collapse of the dot-com bubble and the global financial crisis in 2008.

The current inflation rate is over 6%, and it’s forecast to rise further to 8%, according to Bank of England forecasts. Moneyfacts.co.uk reports that one of the highest easy access cash ISAs currently pays 0.8%. At current inflation rates, you would lose over 4% in real terms each year. Stocks and shares ISAs have greater potential to provide an inflation-beating return.

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How can you protect your ISA from market volatility?

You can leave your ISA contributions in cash in your stocks and shares ISA. This will allow you to “gain the benefits of this year’s tax wrapper,” according to Emma Wall. However, she warns that “timing the market perfectly is near impossible, however, so waiting for total certainty can mean missing out on gains.”

Hargreaves Lansdown recommends these three approaches for protecting your ISA against a market downturn:

1. Drip-feeding your contributions by setting up a monthly direct debit: this allows you to benefit from pound-cost averaging as you pay lower prices during a market downturn.
2. Diversification: Emma Wall advises that “a well-balanced portfolio is the best way to combat market volatility, and should offer exposure to a mix of higher-risk assets, such as equities, alongside lower-risk assets, such as bonds.”
3. Consider capital preservation funds, such as strategic bond funds, and multi-asset funds with a cautious approach: these funds aim to deliver modest growth while protecting your investment from downside risk.

Finally, if you’re trying to choose an ISA provider, our experts have compiled a list of our top-rated ISA providers.

The post Over a third of investors hold uninvested cash in their stocks & shares ISA appeared first on The Motley Fool UK.

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• After tanking 46.5%, this FTSE 250 stock offers me an 8.1% dividend yield
• How much is needed in a Stocks and Shares ISA to target a £31,628 second income?
• Down 25%, this dividend stock offers an 11.2% yield for investors
• At 228%, the Warren Buffett indicator says the stock market is strongly overvalued. Should I be worried?
• With £9,633.30 to invest, are these the best UK stocks to buy now?

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.

After a record number of transactions in 2021, the UK continues to be a hotbed of global activity when it comes to mergers and acquisitions (M&A). Private equity firms have heavily targeted UK company takeovers, accounting for nearly half of all transactions in 2021. While the US private equity firm Clayton, Dubilier & Rice’s £7.1 billion takeover of Morrisons was one of the most notable transactions of 2021.

Kit McCarthy, partner at Norton Rose Fulbright, comments that “Private equity has clearly been a voracious acquirer of UK listed assets over the past 12 months and that shows no signs of abating in 2022.”

Here, I take a look at what’s driving the appetite for UK companies, the possible upside for shareholders and some of the latest rumours around UK takeover targets.

Why is UK M&A booming?

The principal reason for the booming UK M&A market is the relative valuations of UK companies. According to research by Schroders, “The UK equity (stock) market is trading at a 30% valuation discount to global peers, close to a 30-year low.” The rotation in investor appetite from growth to value stocks may also benefit the perceived upside in the current valuation of UK companies.

Kit McCarthy identifies “sterling remaining in the doldrums” as another factor, together with continued access to low-cost debt. Michael Nicholson, Head of M&A at Peel Hunt, states, “Those big beasts of private equity – KKR, Apollo, Carlyle and so on … have these huge funds to deploy.” International buyers also view the UK as an attractive jurisdiction for M&A activity due to its relatively liberal takeover rules.

How can shareholders benefit from takeovers?

Shareholders in listed companies are generally offered a premium for selling their shares. Ashurst reports that the average bid premium was 42% in 2021. Meanwhile, shareholders in aerospace supplier Meggitt hit the jackpot with a 71% premium offered by US competitor Parker Hannifin.

However, by their nature, company takeovers often occur when the share price is relatively depressed. As a result, some shareholders might have preferred to wait for a recovery in the future share price.  

What are the current rumoured takeover targets?

Ultimately, takeovers should be seen as a bonus rather than the primary reason for buying shares. Takeover targets are often smaller-cap companies due to the larger pool of potential acquirers. They may also be trading at low valuations relative to their peers.

Kit McCarthy identifies technology, media, telecoms, leisure and hospitality as the “sectors to watch in 2022” as they “were characterised by elevated activity levels in 2021.”

So, which companies have the takeover rumours been swirling around?

1. Marks & Spencer (MKS)

Ron Emler from The Drinks Business comments that rumoured interest in Marks & Spencer in 2021 from US private equity firm Apollo “has little to do with Percy Pigs and more to do with robot technology.”

He adds that “UK retailers are rich pickings for private equity firms, as the valuations of stores have been dragged down while the economy recovers after the pandemic and Brexit.” The M&S share price rose to a high of over 255p on the rumours, before falling back to around 150p.

2. Pearson (PSON)

Shares in education media company Pearson recently rose to a seven-month high after Apollo made three bids for the company. Roddy Davidson, analyst at Shore Capital, described Pearson as “a fairly unique asset in an area that has already seen a degree of consolidation.” He believes that “the super-tanker has finally been turned” with its US issues largely resolved.

However, Pearson’s share price has since fallen by 8% after Apollo announced it was withdrawing from a potential takeover.

3. Ted Baker (TED)

Fashion retailer Ted Baker has recently rejected two unsolicited bids from US private equity firm Sycamore Partners. Sycamore’s latest proposal represented a near 40% premium from its pre-announcement share price.

Ted Baker is currently on a turnaround plan after profit warnings, changes to management and an accounting scandal. As a result, its share price has crashed from nearly £25 to just over £1 in the last four years. It remains to be seen whether Sycamore will come back with a firm offer.

4. British Telecom (BT-A)

Takeover rumours intensified when billionaire Patrick Drahi raised his stake in BT at the end of 2021. The company has a relatively unstable shareholder base, with Deutsche Telekom making noises about potentially divesting its 12% stake in the next year. If Drahi purchases Deutsche Telekom’s shares, he’ll hit the 30% threshold for a mandatory takeover offer.

However, BT has some regulatory protection as a strategic asset. Neil Wilson from Markets.com comments that “At a valuation of £10 billion, the group has become a definite target.” He adds that the “Openreach crown jewel … would be (worth) considerably more on its own than the group is valued at today.”

Takeaway

While buying shares should be based on company fundamentals, takeovers can reward shareholders with an attractive bid premium. If you’re buying or selling shares, we’ve created a guide to our top-rated share dealing accounts.

The post With UK M&A booming, who’s rumoured to be the next takeover target? appeared first on The Motley Fool UK.

More reading

• After tanking 46.5%, this FTSE 250 stock offers me an 8.1% dividend yield
• How much is needed in a Stocks and Shares ISA to target a £31,628 second income?
• Down 25%, this dividend stock offers an 11.2% yield for investors
• At 228%, the Warren Buffett indicator says the stock market is strongly overvalued. Should I be worried?
• With £9,633.30 to invest, are these the best UK stocks to buy now?

Growth expectations for the global economy have fallen to their lowest level among professional investors since 2008, according to the latest Bank of America Global Fund Manager Survey. Almost half of fund managers identified the Russia-Ukraine crisis as the biggest issue, followed by concerns over a possible global recession and inflation rates. With 60% of fund managers predicting a bear market in 2022, investors may be worried about protecting their ISA portfolios against a downturn.

However, it’s not all bad news for ISA investors. Fund managers tip the commodities sector to produce the highest returns in 2022, followed by emerging market equities and gold. There’s also been a resurgence in demand for value shares this year after the bull run in growth stocks came to an end.

Let’s see whether these predictions were reflected in the investment choices of UK ISA investors last month.

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The top-10 most-bought investment trusts for ISAs

According to Interactive Investor, these were the most popular investment trusts among their customers in March:

What does this tell us about current investor appetite? Well, tightening monetary policy, high inflation and rising interest rates have hit the valuations of growth-based trusts. It may therefore come as little surprise to see four growth-orientated trusts exiting the top 10. Polar Capital Technology, Allianz Technology, Edinburgh Worldwide and Baillie Gifford US Growth have made significant losses of 18-25% over the last 3 months.

If growth trusts are out of favour with ISA investors, which trusts have taken their places? According to Kyle Caldwell from Interactive Investor, some investors are “viewing defence as the best strategy at a time when there’s no shortage of headwinds”. He describes RIT Capital Partners, Ruffer Investment Company, Personal Assets and Capital Gearing as offering “plenty of defensive armoury in an attempt to weather stock market storms.”

Kyle Caldwell reports that other ISA investors are “on the lookout for opportunities” with JPMorgan Russian Securities rising from seventh place in February to second in March. Commodity-based funds are also popular with ISA investors. BlackRock World Mining makes the top 10 for the third month running, while JPMorgan Natural Resources enters for the first time in 2022.

Let’s take a closer look at the three most-bought investment trusts.

1. Scottish Mortgage (SMT)

Despite the fall in favour of its fellow growth-based peers, Scottish Mortgage retains top place as the most-bought trust. According to Trustnet, it’s dropped by an eye-watering 26% in the last six months. However, demand from investors looking to invest at reduced prices has triggered a modest recovery of +5% in the last month.

Scottish Mortgage has rewarded longer-term ISA investors with a 5-year return of 187%, which is double the return of the next highest trust in the global sector. The trust aims to invest in disruptive companies, including up to 30% in unlisted companies.

2. JPMorgan Russian Securities (JRS)

Unsurprisingly, this trust’s share price has plummeted by 81% in the last three months, as reported by Trustnet. Prior to that, it achieved a 21% and 55% return for ISA investors in 2021 and 2019 respectively.

James Carthew from Marten & Co believes that “Unburdened by conscience, the temptation would be to say that JRS is cheap.” However, he comments that, ethically, the trust is “beyond the pale as a bargain opportunity”. While shareholders recently voted to continue the trust, some experts believe it should be wound up or merged with another emerging markets trust.

3. BlackRock World Mining (BRWM)

The Financial Times reports that commodity-based exchange-traded products attracted $6.8  billion (£5.7 billion) of investment in the first two months of 2022. These products have benefitted from increasing energy and food prices in a high-inflation environment.

While Kyle Caldwell comments that some investors are “predicting the early stages of a new ‘super-cycle’, which is being driven by the global green revolution as major economies strive to decarbonise.”

BlackRock World Mining has delivered strong returns for ISA investors in the last three years, including a 47% gain in 2020, according to Trustnet. It’s risen by 32% so far in 2022 and is currently trading at a 3% discount to its net asset value.

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Final thoughts

Investor appetite continues to rotate away from growth-based trusts to more defensive ISA options for the inflationary environment. However, the recent fall in the price of some trusts has attracted opportunistic buying for a longer-term investment.

Buying investment trusts within an ISA means that any gains or income are tax free. If you’re looking to compare ISA platforms, our experts have produced a guide to our top-rated ISA providers.

The post The top-10 most-bought ISA investment trusts in March appeared first on The Motley Fool UK.

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• With £9,633.30 to invest, are these the best UK stocks to buy now?

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.

This is an important week for ISA investors. Are you a last-minute investor scrambling to use or lose your ISA allowance before the current tax year ends on 5 April? Or are you an early-bird investor with next tax year’s ISA allowance ready to invest come 6 April? Alternatively, you may be a drip-feeder who prefers to make monthly contributions given the current volatility of global stock markets.

Whatever your investing habits, the timing of your contributions can have a surprising impact on the value of your ISA over time. I’m going to take a closer look at which investing strategy would have delivered the highest returns over the last 20 years.

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How does the timing of ISA contributions impact returns?

I’ve calculated the value of an ISA pot assuming an investor has made the maximum possible contributions of £272,000 since ISAs were introduced in 1999:

• The annual growth rate is based on the MSCI World Price Return index each year (excluding income).
• The ‘early bird’ is assumed to make their contribution on the first day of each tax year and the ‘last-minute’ investor on the final day.
• The ‘drip feeder’ is assumed to make their contribution on the first day of each month, and a compound monthly growth rate based on each year’s annual growth rate has been applied.

This table shows the current value of the various investing strategies:

All three investors would more than double their money thanks to the average growth rate of nearly 7%. The early bird wins the race with an ISA worth £32,000 more than the last-minute investor, mainly due to the power of compound growth on the ‘extra’ year’s return.

The habit of investing early in a tax year is also shared by ISA millionaires. Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, comments that the millionaires “consistently invest as much as possible of their annual allowance, as early as possible in the tax year … and they’ve done this every year for decades.”

However, investing later in the tax year can have its advantages, as shown below:

While the early-bird ISA performed better in rising markets, the reverse was true in market downturns. The value of the last-minute ISA overtook the early-bird ISA after the fall in global stock markets from the dot-com crash. And the last-minute ISA also ‘caught up’ with the early-bird ISA in 2009-2011 after the global financial crisis.

But not everyone has the luxury of available funds to invest at the beginning of the tax year. So is drip-feeding contributions into your ISA a good compromise?

What are the merits of making monthly ISA contributions?

The drip feeder’s ISA took second place, in the middle of the values of the early bird and last-minute investor. While drip-feeding contributions on a monthly basis may sacrifice returns in a rising market, it’s a good option in falling or volatile markets.

Most investors want to buy low and sell high, but in reality, this is almost impossible to achieve. Monthly investing allows you to benefit from pound-cost averaging. When prices fall, you can buy more investments with your money.

What type of investor might drip-feeding suit? Well, Eve Maddock-Jones from Trustnet comments that, for less experienced investors, “building up their total over time” can be “more palatable, removing some of the intimidation of letting go of your entire pot in one go.”

She also points out that cautious investors may prefer this approach as a “less volatile way to invest” compared to the “gut-wrenching ride” to achieve the higher returns of the early-bird lump-sum investors.

It may also work well for investors who want to use their ISA as a monthly savings plan. Hargreaves Lansdown and Interactive Investor, two of our top-rated ISA providers, allow customers to make monthly ISA contributions from £25 upwards.

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Take away

If you have the available funds, investing a lump sum in your ISA at the beginning of the tax year “gives you the advantage of time, which is always the most precious commodity” according to financial advisory firm FAS. They advise that “Using your ISA allowance early can make a real difference to the returns on your investment.”

However, they also rate monthly investing as “a simple way of taking the guesswork out of investing, avoiding uncomfortable market highs and lows.” Given the current market volatility, monthly drip-feeding could be a good strategy for a wide range of investors over the next few years.

The post How timing your ISA contributions could earn you an extra £30,000 appeared first on The Motley Fool UK.

More reading

• After tanking 46.5%, this FTSE 250 stock offers me an 8.1% dividend yield
• How much is needed in a Stocks and Shares ISA to target a £31,628 second income?
• Down 25%, this dividend stock offers an 11.2% yield for investors
• At 228%, the Warren Buffett indicator says the stock market is strongly overvalued. Should I be worried?
• With £9,633.30 to invest, are these the best UK stocks to buy now?

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.

Volatile stock markets have made investing feel like a game of poker at times in 2022. Should you ‘raise’ by taking advantage of the opportunity to buy investments at lower prices? Or should you ‘fold’ by selling your investments and sitting out until stock markets stabilise? It’s undoubtedly a dilemma for investors trying to manage their ISA and SIPP portfolios.

Let’s take a look at strategies for investing in uncertain times, together with six fund ideas from leading ISA providers.

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Investment strategies for unpredictable markets

Warren Buffett is currently the fifth-richest man in the world, thanks to the success of his investment company Berkshire Hathaway. What can we learn from the so-called ‘Oracle of Omaha’? Well, his advice to “be fearful when others are greedy, and greedy when others are fearful” may be relevant in the current investing environment.  

True to these principles, Buffett generated large profits by investing in Bank of America and Goldman Sachs after their share price plummeted during the global financial crisis. Conversely, the recent tech sell-off was fuelled by fears over the sustainability of the heady valuations reached in 2021.

Emilia Booth, investment writer at Hargreaves Lansdown, agrees that “it’s essential to hold your nerve and think long term” in difficult markets. She adds that history shows “buying when valuations are lower can push the odds in an investor’s favour and yield a greater chance of profit.”

Our Foolish philosophy is also to invest for the long-term and try to ignore the short-term noise of market falls. Despite periodic downturns, stock markets have delivered superior ISA returns to cash-based investments over the last 50 years.

Six fund ideas for your ISA

Here are six fund ideas from two of the largest ISA providers, Hargreaves Lansdown and Charles Stanley, for investing in uncertain markets.

1. Funds for the more conservative ISA investor

Hargreaves Lansdown selected Troy Trojan as a lower-risk option. It’s a total return fund that aims to generate a positive return whatever the market conditions. They rate Troy Trojan due to its “good long-term track record” and “experienced fund manager Sebastian Lyon.”

According to Trustnet, Troy Trojan has achieved a five-year return of 30%, with a 4%-12% gain in every year except 2018 (when it made a 3% loss).  

Rob Morgan, chief analyst at Charles Stanley, picks BNY Mellon Sustainable Real Return Fund as one of the “‘plodders’ rather than the ‘leapers’ of the fund world, aiming to provide more modest but consistent returns.”

Trustnet reports a three-year return of 18%, with an 8%-12% gain in the last three years, although it’s fallen by 6% in 2022.

2. Funds for the more adventurous ISA investor

Hargreaves Lansdown selected ASI Asia Pacific Equity as a higher-risk option for an ISA. They believe Asian markets have “strong long-term growth potential” due to growing domestic consumption from rapid population growth.

The fund has been an average performer within its sector, achieving five-year growth of 37%, according to Trustnet. But its volatility isn’t for the faint-hearted, with a 9% loss following the 51% gain in 2020-21.

Rob Morgan chooses FTF ClearBridge Global Infrastructure Income as a higher-risk fund run by “experienced infrastructure specialists”. He views infrastructure assets as “resilient in a variety of scenarios” providing “steady income” with “a certain amount of contractual inflation protection built in.”

It’s a consistent top-quartile performer, with Trustnet reporting a five-year return of 67%. Annual returns have varied from -1% to 27% over the last five years.

3. Funds for the ethical investor

Hargreaves Lansdown selected Legal & General Future World ESG Developed Index as it tracks “developed stock markets while being mindful of ESG issues”. The index is currently focused on the US and technology, pharmaceuticals and financial sectors.

It was launched in 2019, achieving returns of 24% and 13% in the last two years. With an annual charge of only 0.18%, it’s also a low-cost option for an ISA.

Rob Morgan selects Schroder Global Energy Transition as a higher-risk ESG option. He believes that “the huge investment required will likely create significant opportunities” in the energy transition to net-zero emissions by 2050.

The fund had an inauspicious start, making a 5% loss over the last year, according to Trustnet. However, it has made a modest gain of 0.2% in the last three months against an average fall of 5% for the global sector.

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Take away

We believe that investors should take a long-term view when investing in their ISAs. But it’s worth reviewing the composition of your ISA portfolio to check you are comfortable with the overall level of risk.

Emily Booth from Hargreaves Lansdown advises that “While you can’t always control how your investments perform, you can control how you prepare your portfolio.” Total return funds are one option to reduce downside risk during market downturns, while commodity and infrastructure-based funds may be good hedges against inflation.

Fees can also impact the value of your ISA. You might like to compare the fees charged by our top-rated ISA providers.

The post Six ISA fund ideas for investing in uncertain markets appeared first on The Motley Fool UK.

More reading

• After tanking 46.5%, this FTSE 250 stock offers me an 8.1% dividend yield
• How much is needed in a Stocks and Shares ISA to target a £31,628 second income?
• Down 25%, this dividend stock offers an 11.2% yield for investors
• At 228%, the Warren Buffett indicator says the stock market is strongly overvalued. Should I be worried?
• With £9,633.30 to invest, are these the best UK stocks to buy now?

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.

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.

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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:

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.”

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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.

The post What were the top 10 ISA funds bought in March 2022? appeared first on The Motley Fool UK.

More reading

• After tanking 46.5%, this FTSE 250 stock offers me an 8.1% dividend yield
• How much is needed in a Stocks and Shares ISA to target a £31,628 second income?
• Down 25%, this dividend stock offers an 11.2% yield for investors
• At 228%, the Warren Buffett indicator says the stock market is strongly overvalued. Should I be worried?
• With £9,633.30 to invest, are these the best UK stocks to buy now?

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.