High inflation, rising interest rates and war in Ukraine have taken their toll on global stock markets in recent weeks. With two weeks left to use this tax year’s ISA allowance, investors may be wondering whether to sit out the current market volatility.
Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown, advises that “Even with the current market uncertainty, it’s still important to use your ISA allowance to protect your money from tax.” She also comments that “it’s more important than ever to make sure you have a diversified portfolio.”
With that in mind, the analysts at Hargreaves Lansdown, one of our top-rated ISA providers, have picked three stocks, investment trusts and funds for ISA investments. So, let’s take a closer look at their investment ideas.
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Which ISA stocks did Hargreaves Lansdown select?
1. Lloyds Banking Group
Lloyds features regularly amongst the most-traded shares after doubling in its share price over the 18 months to December 2021.
Yesterday’s interest rate hike should benefit banks. Sophie Lund-Yates notes that “As a traditional lender, Lloyds is set to feel the benefit of rising rates more dramatically than those that have bigger sources of alternative income.”
Lund-Yates also highlights that Lloyds has “an impressively low cost to income ratio, making it more resilient in tough times”.
2. Microsoft
Microsoft rewarded shareholders with a 430% increase in its share price from 2016 to 2021. However, this was followed more recently by a 14% fall.
Sophie Lund-Yates comments that “There aren’t many businesses that can say they make software the world doesn’t know how to live without.” She adds that Microsoft’s “traditional software sales are a cash cow”.
Other strengths she points out include Microsoft being one of the few technology companies to pay dividends, the recent expansion of its cloud business and the impact of its pending acquisition on gaming revenues.
3. Smith & Nephew
After years of growth, the share price of Smith & Nephew hit the buffers in late 2019 due to a fall in profits. And profits took a further hit during the pandemic after delays to hip and knee replacements.
However, Sophie Lund-Yates believes that the backlog in elective surgery “should offer a strong tailwind for Smith & Nephew over the next few years.” She also comments that “the shares could rerate substantially if Smith & Nephew can protect its new lower cost base.”
Which ISA investment trusts were selected?
1. Personal Assets Trust
Personal Assets Trust invests in a variety of assets to provide stability in a stock market downturn. Kate Marshall, lead investment analyst at Hargreaves Lansdown, comments that fund manager Sebastian Lyon “aims to grow investors’ money steadily over the long run, while limiting losses when markets fall”.
This is backed up by recent performance. Personal Assets Trust has delivered a small return of 1.5% in the past six months, compared to a -3.0% loss for the sector, according to Trustnet.
2. Bankers Investment Trust
Bankers Investment Trust aims to deliver capital and income growth and has achieved a 56% return over the last five years, based on data from Trustnet.
Kate Marshall comments that it’s provided an impressive “55 years of consecutive dividend increases”. And she believes that the trust “could add some global diversification to an income-focused portfolio”.
3. Aberdeen Asia Focus
Aberdeen Asia Focus has a strong track record, achieving a top-quartile return of 38% in the last five years, according to Trustnet. After a recent fall in price, it’s currently trading on a discount of nearly 16% against net asset value.
Kate Marshall believes it “could help diversify a global investment portfolio”. But she warns that “the combination of younger, smaller businesses with exposure to emerging markets makes the trust a higher-risk option”.
Which ISA funds did Hargreaves Lansdown pick?
1. Troy Trojan
Troy Trojan is a more defensive fund, aiming to deliver modest growth while protecting against a downturn. Kate Marshall comments that “a total return fund could be a good choice” in volatile markets.
Trustnet reports that Troy Trojan delivered an annual growth rate of 7%-12% from 2019 to 2021. But it’s also limited investors’ downside, increasing by 1% against a sector loss of 5% in the last six months.
2. Legal & General Future World ESG Developed Index
This fund is one of the new breed of sustainable investments, tracking the performance of the developed markets’ ESG index. It’s a relatively new fund, delivering a return of 11% in the last year, according to Trustnet.
Kate Marshall comments that the fund “could be a good addition to a broader investment portfolio aiming to deliver long-term growth in a responsible way”.
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3. ASI Asia Pacific Equity
ASI Asia has been a mid-table performer over the last few years, delivering a three-year return of 25% according to Trustnet.
Kate Marshall points to the predicted growth in domestic consumption in Asia Pacific, which is “helped by a young and growing population and rising wealth”. But she also notes that “younger economies mean the risks are greater and more volatility should be expected”.
