Take a global view for the best returns on your ISA
IF you want to make the most of your ISA allocation, then you had better get your skates on: tomorrow is your last chance this year. Of course, the principles of picking a fund are the same as any fund-picking. As ever, diversification is the key when it comes to long-term investment planning, so it important to build up exposure in a number of different markets. Most investors agree that the main driver for world economic growth in the future will be from the developing economies.
Dan Clayden, founder of Clayden Resources, says: “Emerging markets are probably going to be the established markets in years to come so as a long term bet it is good to have some exposure to them.”
China with its huge growth potential has been grabbing the headlines as the place for canny investors to put their money which means that some of the other emerging markets are being overlooked. But the remaining BRIC economies – Brazil, Russia and India – all have strong potential for stocks and shares ISAs. For investors who wish to get exposure to the investment opportunities in Brazil they should consider an exchange traded fund such as iShares MSCI Brazil, according to Martin Bamford, managing director of Informed Choice.
“This offers exposure to the entire Brazilian stockmarket in a single trade,” he says. Alternatively, Invesco Perpetual Latin America invests in shares from South and Central America, including Mexico. It has delivered first quartile returns in the IMA Specialist sector over one, three and five years, with a total expense ratio of 1.71 per cent.
If you want to avoid the problem of specific emerging markets, with their often volatile political situations, you can pick funds which invest in a wide range of regions to reduce the risk. For a general emerging market fund that has exposure to a number of regions, Dan Clayden recommends Gartmore Emerging Markets for a long term investment, which has a large financials component and has returned 101 per cent over five years.
Geoff Penrice of Honister Partners, also says that long-term investors might consider Aberdeen’s Emerging Markets Fund, “a well diversified fund across a wide range of countries and with the largest holdings in Brazil, Hong Kong & China, India, Mexico and South Korea.” The fund has returned 80 per cent in the last year and 170 per cent over five years and over 350 per cent over seven years.
ESTABLISHED ECONOMIES
However, if the volatility inherent in emerging markets outweighs the potential profits to be made for you, then there are still profits to be made from developed market funds.
Away from the emerging markets and looking instead towards the established economies, Mark Dampier, head of research at Hargreaves Lansdown, believes it is time to look once more at little-loved Japan. He recommends investing in Invesco Perpetual Japan, Neptune Japan or GLG Japan.
“The economy in Japan looks pretty dreadful, like our own, but in fact some of the big multinationals don’t look badly priced,” he says. “If the yen falls in value, the Japanese market could actually have a big move upwards.
“I agree there have been many false dawns and I don’t see many people taking necessarily taking that route but it is certainly an area where I have been adding some of my own personal money.”
And for those wishing to have exposure in the US, the world’s biggest economy, may with to have a look at the M&G American Fund. The US economy remains flexible and is slowly but surely pulling itself out of recession.