ISA ideas: alternatives to funds and trusts that are flavour of the month

Following the herd doesn’t tend to end well. Throughout history investors’ tendency for herd mentality bias has inflated asset bubbles and driven sharp declines detached from market fundamentals.

On a lesser scale, blindly following the flock into a fashionable fund can blinker investors to alternative options that may be equally or more worthy of consideration.

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Trading on the interactive investor platform highlights half a dozen funds that have climbed the popularity rankings over the past year. Unsurprisingly, among them is a technology index tracker.

“The technology sector has been one of the predominant drivers of returns for the US, especially through the past year with returns heavily concentrated across a select number of mega-cap names,” says Alex Watts, an investment data analyst at ii.

Propelled by the euphoria surrounding artificial intelligence (AI), the seemingly unstoppable rise of Apple (NASDAQ:AAPL), Microsoft (NASDAQ:MSFT), Alphabet (NASDAQ:GOOGL), Amazon (NASDAQ:AMZN), NVIDIA (NASDAQ:NVDA), Tesla Inc (NASDAQ:TSLA) and Meta Platforms (NASDAQ:META) has earned them the title “the Magnificent Seven”.

Amid stubbornly high inflation in the West, other in-vogue funds focus on the Asia-Pacific and equity income – Asia for its differing inflationary dynamics and income for its potential to grow distributions at or above inflation.

These are all sensible areas to invest part of a diversified portfolio. We asked analysts and wealth managers to suggest alternatives to six trendy investment trusts and funds for free-thinking investors.

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Royal London Short Term Money Market

Looking for an alternative to this cash fund is tricky: there aren’t many alternatives with the same level of risk apart from other cash funds.

Ben Yearsley, a director of Fairview Investing, suggests upping the risk a bit to try to eke out a better return on the understanding that a higher investment could fall in value.

“I’m going to suggest the AXA Sterling Credit Short Duration Bond fund, which invests in bonds up to five years and largely those with low impact if interest rates move,” he says. “The income paid from this fund will be quite closely linked to base rates.”

Peel Hunt analyst Anthony Leatham recommends a fund that is higher risk than a cash or short duration fund but “potentially a good complement”.

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BBGI Global Infrastructure Ord (LSE:BBGI) is the lowest-risk core infrastructure trust. Focusing on social infrastructure and availability-based revenues, it has high-quality, typically public sector counterparties and a high level of inflation linkage to support its dividend growth targets (6% for 2024).

Jupiter India

One of the earliest India funds and boasting a strong long-term record, Jupiter India has seen its assets almost double in the past 12 months. For investors attracted to India’s strong demographics, growing domestic consumption-driven economy and business-friendly reforms, Watts suggests Stewart Investors Indian Subcontinent Sustainability.

The concentrated 30 to 40 name portfolio invests in high-quality businesses contributing to the sustainable development of the region and has “convincingly” outperformed its benchmark and peers over the past decade with lesser drawdowns.

“This fund is an option for investors looking to take a long-term and sustainable approach to investing in the rich investment universe of Indian equities,” says Watts.

Investment trusts are arguably a better structure for investing in Indian smaller companies and Ryan Lightfoot-Aminoff, an investment trust research analyst at Kepler Partners, rates Ashoka India (LSE:AIE) as “compelling”.

“Since launch in July 2018, the trust has significantly outperformed [Jupiter India], supported by a 15-strong team of analysts on the ground,” he says.

Another worthy contender is JPMorgan Indian (LSE:JII). “It lagged peers during last year’s small/mid cap rally, but we think the outlook for Indian equities looks compelling and its focus on higher-quality stocks places it well to capture growth,” says Deutsche Numis analyst Gavin Trodd.

JPMorgan Global Growth & Income

This global equity income trust has grown significantly through several mergers in recent years, including Scottish Investment Trust, JPMorgan Elect and a potential upcoming merger with JPMorgan Multi Asset Growth & Income.

James Carthew, head of investment companies at QuotedData, suggests CT Global Managed Portfolio Income (LSE:CMPI) as an alternative. It has a much higher yield and less-volatile performance profile, reflecting its diversified portfolio and making it a “good option if you’re nervous about the direction of equity markets”, says Carthew.

“Because it’s a fund-of-funds, it has been hit by the general widening of discounts in the investment companies sector, but I think this trend is starting to reverse,” he adds.

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Kamal Warraich, head of fund selection at Canaccord Genuity Wealth Management, puts forward an open-ended fund in the form of WS Evenlode Global Income.

“Like the JPMorgan trust, Evenlode also maintains a quality, total return approach to global equities but it’s suitably differentiated,” he says. “Due to its valuation discipline, it’s now materially overweight both the UK and Europe. It’s likely that many investors currently have a bias to the US, so this fund is a suitable diversifier and deserves attention.”

Watts likes Bankers Ord (LSE:BNKR) as an alternative here. It has a more modest yield (2.4% versus 3.5% for the JPMorgan trust) but one of the most impressive track records of dividend increases at 57 consecutive years.

Henderson Far East Income

Investors have likely been drawn to Henderson Far East Income (LSE:HFEL) due to its high yield of 11%-plus, says Trodd. He points to the recently announced retirement of manager Mike Kerley and shift in focus for the trust – from high yielders to a balance of income and capital growth – following disappointing performance.

He prefers Schroder Oriental Income Ord (LSE:SOI), managed by Richard Sennitt, who has “demonstrated a strong track record managing Asian income mandates for more than 20 years”.

“It yields around 5%, modest in comparison, but the portfolio is well diversified between income generating and capital growth companies and we see limited downside to its 6% discount,” adds Trodd.

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Leatham at Peel Hunt and Warraich at Canaccord Genuity cherry-pick alternatives from other investment trust sectors: BlackRock Frontiers Ord (LSE:BRFI) in global emerging markets and Schroder Asian Total Return Inv. Company (LSE:ATR) in Asia-Pacific equities. They yield less still, at 4.3% and 2.5% respectively, but have ably navigated difficult markets and can be bought on attractive discounts.

Finally, Watts at ii suggests open-ended Guinness Asian Equity Income, which employs Guinness’ equal weight approach, allocating equally to 36 stocks. “Recent and long-term performance has been impressive, the yield of 4.6% is one of the best in sector and the ongoing charge of 0.89% one of the cheapest,” he says.

Legal & General Global Technology Index Trust

This technology tracker was a clear winner in 2023 as AI dominated and the Nasdaq flew 40% or more.

“It has a clear advantage over open-ended tech funds as it isn’t bound by the 10% in one company rule – it has more than 15% in Microsoft and Apple today,” says Yearsley. “This increases risk and while it’s been good for performance, I prefer a broader approach where you aren’t forced into a stock just because it’s large.”

Yearsley’s pick is Polar Capital Technology Ord (LSE:PCT). Another investment trust alternative, highlighted by both Trodd at Deutsche Numis and Watts at ii, is Allianz Technology Trust Ord (LSE:ATT).

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It has a bias to mid-caps, which “should perform well in a falling interest rate environment”, says Trodd. Watts agrees: “Looking forwards, less concentration risk and broader exposure across the market-cap spectrum could be a tailwind for the trust should the performance of a select few tech giants spread across the market.”

Leathan at Peel Hunt suggests a somewhat different alternative in Augmentum Fintech Ord (LSE:AUGM). It is “uniquely well-positioned to access the high-growth and disruptive world of fintech”.

HSBC FTSE-All World Index

As investor confidence returns amid global disinflation and possible interest rate cuts, Watts highlights the iShares Core MSCI World ETF USD Acc (LSE:IWDA) as another passive option for exposure to developed markets. “The charge of 0.2% makes the fund a competitive option in its sector,” he says.

Over to the investment trust world, and there is another shout out for Bankers, which Leatham likes as a “solid core global equity allocation for investors”.

Finally, Kepler Partners recommends AVI Global Trust Ord (LSE:AGT) for investors looking for differentiated, value-focused global equities exposure.

“The team looks for investment opportunities in three distinct categories: closed-ended investment funds, family-backed holding companies and Japanese-asset-backed special situations,” says analyst Nicholas Todd. “The portfolio is very different to any global equity index, providing a genuinely active portfolio which offers diversification and alpha generation potential.”