ISA ideas: short-term plays and long-term holds

Markets move in cycles. At any point in time certain areas fly high while others are in the doldrums.

It is no surprise, then, that infrastructure and renewables funds are among the most popular tactical plays today.

“There’s a short-term opportunity with lots of the infrastructure trusts,” says Fairview Investing director Ben Yearsley. “Quite simply, the sector is up for sale with one or two infrastructure or real estate investment trusts getting taken over each month.

“Most trade on -30% or so discounts and get taken over much closer to NAV [net asset value]. This month has seen Care REIT Ord (LSE:CRT) and Harmony Energy Income Trust Ord (LSE:HEIT) go for substantial premiums to the previous shareholders prices.”

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There are plenty of opportunities around. We asked eight experts for their fund picks this ISA season – those to hold tactically for the short term and those to buy and hold for the long term.

The result is a range of options, from those that seek to protect investors from uncertainty, biotech, infrastructure and renewables for the short term to Asia, emerging markets, value equities and private equity for the long term.

Short term: Downing Renewables & Infrastructure
Long term: FSSA Asia Focus

There is, of course, no guarantee that an investment trust on a large discount will get taken over, so you need to be happy to hang on if a buyer fails to materialise. One that Yearsley likes on this basis is Downing Renewables & Infrastructure Ord (LSE:DORE).

“It’s got a mix of renewable assets, both here and in Scandinavia, and has something most don’t – hydro. The manager has been adding batteries to some sites to increase revenue.”

Dividends are fully covered, and the shares trade on a -32.9% discount. “Great if it gets taken out, but a long-term stable and growing income stream if it doesn’t,” he adds.

His long-term pick is FSSA Asia Focus, managed by Martin Lau. “I believe that Asia offers the best long-term structural growth opportunity. This is a long-term quality growth fund – exactly what you want in a structural growth region.”

Short term: Greencoat UK Wind
Long term: Majedie Investments

Kepler Partners likes Greencoat UK Wind (LSE:UKW) with its -26.4% discount, high yield and covered dividend.

“In an ISA, the chunky dividend yield of almost 9% is tax free,” says managing partner William Heathcoat Amory. “A high dividend yield like that rightly raises eyebrows. However, I believe this trust has high-quality assets that will continue to produce electricity and generate revenues long into the future.”

While investor sentiment has swung against green funds, the energy transition is “undeniably happening”, he adds.

His long-term pick is Majedie Investments Ord (LSE:MAJE), run by Marylebone Partners since January 2023. The portfolio combines equities selected in-house with hard-to-access special investments and funds run by boutique third-party managers.

“The strategy has shown early promise in performance terms, and is likely to contribute to portfolio diversification, given the underlying exposures look very different to any other holdings an investor might have,” he adds.

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Short term: VT Gravis UK Infrastructure Income
Long term: GS India Equity

For FundCalibre managing director Darius McDermott, a boom in activist pressure and rising corporate activity suggest that infrastructure and renewables trusts are “on the brink of a positive correction”.

VT Gravis UK Infrastructure Income is well-positioned to benefit, being primarily invested in discounted investment trusts exposed to UK infrastructure – from railways and roads to GP surgeries and solar power – as well as having some direct company investments.

“In the meantime, investors are paid a generous 6.8% dividend yield, and gain exposure to a less volatile area of the UK economy,” he says.

McDermott suggests Goldman Sachs India Equity for investors with a long horizon.

“A youthful, expanding workforce is driving India’s ‘demographic dividend’, supported by strong growth tailwinds and a business-friendly government. These dynamics, combined with its stable geopolitical positioning, could potentially make it a world superpower in the next 30 years,” he says.

Short term: NextEnergy Solar
Long term: Temple Bar

Another renewable energy sector pick, this time from James Carthew, head of investment companies at QuotedData, comes in the form of NextEnergy Solar Ord (LSE:NESF). It has a dividend yield of 12% and is trading on a -30.9% discount to NAV.

Catalysts for the shares to recover and discount to narrow include M&A activity, plans to sell parts of the portfolio, share buybacks and hope of a resolution to cost disclosure issues that “have been plaguing the [investment trust] sector”, he says.

For the longer term, he likes the value-driven approach of Temple Bar Ord (LSE:TMPL), the best-performing UK equity income trust over the past five years.

“Corporates and private equity firms are snapping up businesses at premiums to prevailing share prices,” says Carthew. “The value recovery has much longer to run.”

Temple Bar has a dividend yield of 3.7% and can be bought on a modest discount of -3.7%.

Short term: RTW Biotech Opportunities
Long term: HgCapital Trust

Biotech has also been unloved, but a recovery in sentiment, supported by rapid innovation, could prompt a rerating.

Ewan Lovett-Turner, head of investment companies research at Deutsche Numis, highlights RTW Biotech Opportunities Ord (LSE:RTW), which invests across the biotech life cycle from pre-clinical stage to commercialisation and is trading at a -30.1% discount to NAV. It invests in public and private companies, as well as royalty financing.

“The manager has built a strong reputation as a leading cross-over investor, helping to fuel impressive returns since launch in 2019, despite most of that period being a biotech bear market,” he says.

One fund he could never envisage selling is HgCapital Trust Ord (LSE:HGT), which has generated “exceptional” returns from privately owned software and tech-enabled businesses.

“It has continued to exit portfolio companies at notable uplifts in an otherwise muted environment for realisations, reflecting continued demand for businesses with mission-critical services,” adds Lovett-Turner.

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Short term: Royal London Short Term Money Market
Long term: Fidelity European

With tariff uncertainty being a prominent theme so far this year investors could temporarily park ISA capital in lower-risk assets while stock markets await clarity.

Fund analyst Tom Bigley likes the Royal London Short Term Money Market fund for its diversified range of high quality, short-term debt instruments, minimal capital risk and good liquidity.

“The yield is 4.7% for a competitive yearly ongoing charge of 0.1%. The downside is that should interest rates continue to fall as central banks unwind monetary tightening, the yields on offer in these funds will come down,” he adds.

Another takeaway from markets recently has been an uptick in the performance of European equities. A highly rated pick in this region, from ii’s Super 60, is Fidelity European W Acc.

This relatively concentrated portfolio of European equities has a highly experienced team and strong track record, says Bigley.

Short term: Man Absolute Value
Long term: Redwheel Next Generation Emerging Markets Equity

Casterbridge Wealth highlights Man Absolute Value, an absolute return fund that should serve to shelter investors from short-term volatility.

“Given the uncertainties around economic growth, inflation and debt levels it seems prudent to select a fund that is largely market-neutral yet finding opportunities in the small/mid-cap space of UK equities,” says Julian Menges, head of strategy at Casterbridge Wealth.

Man Group takes long positions in companies with assets significantly undervalued by the market, and short positions (profiting from share price falls) in companies it deems overvalued where the outlook is deteriorating.

His long-term pick is Redwheel Next Generation Emerging Makets. It avoids the likes of China, India and Taiwan and gives “exciting access” to growth opportunities in emerging and frontier markets that are under-represented in indices, such as Indonesia, the UAE and the Philippines.

Short term: Pershing Square
Long term: Fidelity Global Dividend

Luna Investment Management highlights the re-rating potential of Pershing Square Holdings Ord (LSE:PSH), managed by star fund manager Bill Ackman, which has recently sold off amid the slide in US equities. It is trading on a discount of -27.8%.

“As market conditions improve, there’s potential for the discount to narrow and the portfolio to recover, offering a double benefit,” says chief investment officer Alex Brandreth.

“The potential launch of a US closed-ended vehicle by the same management team could drive further buying activity. With several short-term catalysts in play and the trust’s strong track record in capital preservation, we see both immediate and long-term opportunities for investors.”

As a long-term buy and hold, he suggests Fidelity Global Dividend W Acc, which remains a core holding in client portfolios.

“The fund has built an impressive track record of delivering solid returns with low volatility, making it a reliable choice for long-term investors,” he adds.