Three fund ideas for your ISA

With the end of the tax year fast approaching (the ISA deadline is midnight on 5 April 2024), interactive investor, the UK’s second-largest platform for private investors, shares last-minute ideas for investors.

There are three picks – one for growth, one for income, and one for capital preservation. However, as always with investing, diversification is the name of the game. This means owning a range of different investments (asset classes, styles, regions) as a way to reduce risk within your portfolio.

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interactive investor has a range of tools available to help investors become more confident investors and choose investments that suit their individual goals. This includes ii’s Super 60 and ACE 40 rated investment lists, as well as its Quick-start funds.

Below, Alex Watts, Investment Data Analyst at interactive investor, outlines some options for investors.

Investing for growth: Scottish Mortgage Investment Trust

First up, we have a fund to cater for those looking to grow their portfolio. Scottish Mortgage Ord (LSE:SMT) is a familiar name with interactive investor customers, and often features on its monthly list of most bought investments.

This trust, run by Scottish investment firm Baillie Gifford, seeks to identify major drivers of change in the world and invest in a select number of companies poised to capitalise and benefit from those shifting themes.

This investment style, which seeks to home in on fast-growing and visionary companies that are anticipated to be future winners, can make for relatively extreme short-term performance, both to the upside and the downside.

The investment trust structure does allow for it to borrow to enhance returns to investors, and this facility is readily used by the trust. While this can augment returns, it means that negative returns can be exaggerated also. Accordingly, this is a trust more appropriate for investors with longer investment horizons (at least 5 years).

Management are fairly unconstrained in where and how they can invest and, in order to capitalise on the growth of these future winners, regardless of the company’s stage in its growth journey, the trust can allocate nearly a third of the portfolio to private companies. The thesis is not one of early-stage venture capitalism, but rather that companies are taking the decision to stay private for longer and much growth takes place prior to any exchange listing.

The unlisted companies within the portfolio are broadly sizeable and established businesses, a number of which have been valued in excess of $10 billion (e.g. Epic Games, Stripe, Bytedance and SpaceX). 

Managed by Tom Salter and Lawrence Burns, the trust is on ii’s Super 60 rated list as a Global Equities option.

Investing for income: PIMCO Global Investment Grade Credit Fund

For those seeking an income from their investments, the PIMCO Global Investment Grade Credit fund seeks to maximise total returns to investors and outperform the Bloomberg Global Aggregate Credit Index. It tries to do this by focusing on the higher-quality end of the bond market.

The majority of the portfolio is invested in investment grade bonds (60%), while government-related debt accounts for the second highest portion (27%). Investors should note the bias towards the US, which comprises 68% of the fund.

While recent performance has been challenging, there’s now some consensus that bond yields are at attractive levels and the easing of monetary policy across markets may reward holders of high-quality debt. 

This fund offers diversification benefits and strong income potential from a broad portfolio of investment grade corporate bonds while seeking to retain many of the defensive features of government bonds. The fund’s current yield of 4.3% is one of the best in category and the charge of 0.49% is compelling given the resource and experience behind the management team. 

The fund is also on ii’s Super 60 list within the Global Bonds category.

Investing for capital preservation: Capital Gearing Trust

Capital Gearing Ord (LSE:CGT) Trust has a goal of preserving and growing clients’ capital over time above the rate of UK Inflation (measured by CPI). The trust can invest across a range of asset classes, including equities, funds, corporate and government bonds, property, commodities, and cash. Rather than using exotic strategies or derivatives, the trust’s approach to avoiding drawdowns has been to hold a highly diversified portfolio of assets with some to be negatively correlated to risk assets. 

Currently, the trust has a notable emphasis on Index Linked Government Bonds, which make up almost half of the portfolio. These bonds can offer protection when stock markets fall. Plus, they can hedge against rising inflation as coupons and principal payments are adjusted in line with the consumer price index. 

Peter Spiller, the founder and CIO of CGAM, has managed the trust since 1982 - now alongside Alastair Laing and Chris Clothier. Although the recent spike in inflation and two years of weaker performance for investment trusts have meant returns to shareholders have not outpaced UK price rises in the past two years, the trust has achieved positive returns in 16 of the past 20 years. Plus, it has bested inflation in 15 of those.

The trust is a constituent of the mixed-asset offerings of ii’s Super 60 list.