ISA season 2024: where are investors putting their money this month?

We look at which investment fund sectors are most popular.

We’re just a few weeks away from the end of another tax year and time is running out to make the most of your annual ISA allocation.

But where should you put your money? To give you some inspiration, we’ve taken a look at where UK investors have been focusing their attention.

Overview

UK investors currently have just under £1.4 trillion spread across 4,500 funds.

Some of these will be focused on equities (shares) and others on fixed income.

There are also mixed investment funds whose managers can hold several asset classes, as well as country and industry-specific portfolios.

Funds are divided into around 50 sectors by the Investment Association, the trade body for UK investment managers.

The aim is to group together those with similar objectives.

Most popular sectors

So, which are the most popular? 

Two sectors are head and shoulders above the rest in terms of assets under management.

These are IA Global and IA UK All Companies.

IA Global leads the way with £170.8 billion of funds under management, according to the latest data from the Investment Association.

Funds in this sector invest at least 80% of their assets into global equities. These portfolios must also be geographically diversified.

IA UK All Companies is next with £135.9 billion under management. This sector is for funds investing at least 80% of assets into UK equities, with a primary objective of achieving capital growth.

IA North America takes third sport with £86.4 billion, followed by IA Mixed Investment 40-85% shares on £81.7 billion and IA £ Corporate bond with £60 billion.

Source: Investment Association rankings for November 2023.

Best and worst performing sectors

Seven sectors are up by double digits over the past year – while the worst performers have lost more than 20%, according to Morningstar Direct to 29 February 2024.

The stand-out sector over the past year has been IA Technology and Technology Innovation, which is up 36.45%.

This is for funds investing in telecoms, robotics and other related industries.

IA India/Indian Subcontinent is next with a 27.35% improvement, followed by the 20.01% uplift achieved by IA North America.

At the other end of the table, the IA China/Greater China sector is down 21.33% over the period, with IA Infrastructure losing 6.4% and IA UK Index Linked Gilts slipping 4.09%.

Here are the best performers over the past year

Source: Morningstar Direct to 28 February, 2024. 

Here are the worst performers over the past year

Source: Morningstar Direct to 28 February, 2024. 

How to choose your fund

The prospect of choosing from 4,500 funds can seem overwhelming. However, your decision should be based on your investment objectives and attitude to risk.

You must know what you’re looking to achieve. For example, are you investing to build up a pot for the future or do you need to generate a regular source of income?

Do you feel more comfortable putting your money into UK-listed companies you’ve heard of – or would you prefer the excitement of emerging markets?

Whatever your preference, you need to have confidence in the fund manager’s ability to achieve decent returns so pay attention to his historical performance.

Remember, even funds with the same aims can differ in terms of their philosophies, investment processes, and levels of performance.

Fund suggestions

We asked Darius McDermott, managing director of FundCalibre, to highlight five funds that could be worth considering before the end of the tax year.

Here are his suggestions for each of the following areas: smaller companies, Europe, global, bonds, and diversified.

Smaller companies: abrdn Global Smaller Companies

Smaller companies normally trade at a premium to larger companies but are now trading at a discount, according to McDermott. “This is a good entry point for the long-term investor,” he said.

The abrdn Global Smaller Companies fund uses a powerful screening tool, known as the Matrix, which former co-manager Harry Nimmo helped create.

“It identifies smaller companies from all around the globe, including emerging markets, that they believe to have the best growth prospects,” he said.

“The portfolio is concentrated in 50-60 names.”

Europe: FTF Martin Currie European Unconstrained fund

This region is home to several high-quality companies. “This fund offers a focused, high-conviction portfolio of quality European growth equities, with no constraints on regional or country allocations,” said McDermott.

Its manager, Zehrid Osmani, takes a long-term approach and he believes that it’s important to avoid short-term noise and focus on a five to 10-year time horizon.

“He has considerable experience of investing in this way and a strong track record,” he added.

Global: Morgan Stanley Global Brands fund

McDermott believes that investors looking for a more global option might consider the Morgan Stanley Global Brands fund. 

“This fund looks to invest in the biggest and best global brands,” he said. “These high-quality companies offer a long-term compounding opportunity for investors.”

The fund is a very concentrated portfolio of high-quality global companies.

Its criteria for identifying them include ike strong network benefits and brands, or licenses and permits that can provide an advantage over competitors.

“They will also look for companies benefiting from economies of scale and leading market distribution,” added McDermott.

Bonds: Nomura Global Dynamic Bond fund

With inflation normalising, fixed income should be back in investors’ portfolios, believes McDermott, who likes the Nomura Global Dynamic Bond fund. 

“A sector as vast as that of strategic bonds needs a manager who has the rare ability to accurately read the economic environment, as well as pick individual investments,” he said.

This fund’s manager, Dickie Hodges, has repeatedly shown he is capable of doing both.

“He is incredibly knowledgeable about bond securities and derivatives and uses this skillset and a flexible mandate, to exploit opportunities,” he added.

“This fund offers an excellent option for all market conditions in terms of both yield and capital return.”

Diversified: WS Ruffer Diversified Return fund

McDermott’s final pick is considered a lower-risk all-weather strategy for all seasons.

“An extension of the wider Ruffer Investment Strategy, this fund is an absolute return vehicle which has the protection of investor capital at the heart of its process,” he explained.

“The fund aims not to lose money on any 12-month rolling basis, with a strong emphasis on providing genuine protection in times of market stress. Asset allocation is the key driver of returns in the portfolio.”

The information included in this article does not constitute regulated financial advice. You should seek independent, professional financial advice before making any investment decision.