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.
