The best UK shares to buy in an ISA now are likely to be different, depending on an investor’s aims. For example, an investor seeking a passive income is likely to prefer dividend shares. Meanwhile, an investor with a long time horizon should prioritise capital growth over an income.
However, there are likely to be common traits among the most attractive shares. For example, they may have low debt levels, a competitive advantage over peers and trade at a price that undervalues their long-term prospects.
Over time, such companies could have a positive impact on an ISA’s performance. They could lead to increasing financial freedom for investors.
Low debt levels among the best UK shares
The best UK shares could be those companies with solid balance sheets. After all, the economy is currently experiencing an extremely challenging period. Risks such as coronavirus are likely to remain in play in the coming months, and could have a negative impact on economic growth.
As such, companies such as Berkeley and Taylor Wimpey could be attractive purchases in an ISA. Both stocks have large amounts of cash on their balance sheet. This provides them with the financial strength to survive a period of potentially lower sales.
Significant sums of cash may also enable them to prioritise long-term opportunities that are not available to rivals, owing to their focus on surviving the short term. This may lead to higher profitability for Berkeley and Taylor Wimpey, as well as increasing share prices.
Competitive advantages compared to sector peers
The best UK shares for 2021 are also likely to have competitive advantages versus their peers. This may enable them to deliver higher levels of financial performance in the short run, since they may be less impacted by a weak operating outlook. They may also be in a stronger position to generate high returns in the long run, as they benefit from a likely global economic recovery.
Therefore, stocks such as Reckitt Benckiser and Diageo could be attractive investments for ISA investors. They have strong brands across a wide range of market segments. They also have strategies that could maximise their returns through greater innovation and efficiency.
Since the global economy is forecast to deliver an improving performance in 2021, buying globally-focused businesses may reduce risk and enhance returns.
A long-term outlook
Of course, even the best UK shares could experience a challenging period in 2021. Therefore, it’s crucial to take a long-term view of their prospects. Investors who are expecting similar returns in the short run to those experienced in the aftermath of the 2020 stock market crash may be disappointed. After all, major risks remain.
However, on a long-term view, the stock market could experience further growth that catalyses ISA portfolios.
Peter Stephens owns shares of Berkeley Group Holdings, Diageo, Reckitt Benckiser, and Taylor Wimpey. The Motley Fool UK has recommended Diageo. 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.