Where pro fund buyers are investing their ISAs in 2025

As the 5 April ISA deadline approaches, professional and amateur investors alike will be looking at how best to make the most of their £20,000 allowance, either for this tax year or the next.

Over the past 12 months, funds in the Investment Association’s (IA) China, Financials and Technology sectors have performed best, while Latin America, Index-Linked Gilts and India funds performed worst.

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But investment outcomes could be very different over the next year, as well as over the medium and long term.

To gain insights into markets right now, and to provide inspiration for investment ideas, we spoke to five professional fund analysts and investors about where they are investing their own money as the new tax year approaches.

Thematic

A “thematic” fund owns companies that are all exposed to a similar business theme, such as artificial intelligence (AI) or cryptocurrency.

One theme that interactive investor’s head of funds research Dzmitry Lipski likes at the moment is “ageing populations” - where a fund owns companies that should benefit from populations becoming older and older.

Lipski  says: “People are living longer than ever, with global life expectancy projected to rise to 77 years. By 2050, the population of adults aged 60 and above could surpass two billion.”

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His fund pick is iShares Ageing Population ETF, which tracks the performance of companies that provide essential products and services to the world’s ageing population, defined as individuals aged 60 and above.

The fund focuses on businesses in healthcare, pharmaceuticals, financial services, and other sectors that provide products and services tailored to older adults, such as medical devices, elder care, and retirement services.

With over 340 holdings, the exchange-traded fund (ETF) allocates nearly 90% of its portfolio to the healthcare, financial services, and insurance sectors, with more than half of its investments in US stocks. Over the past 12 months it has risen 13% in value. Yearly fees are 0.4% on this ETF.

UK

There has been a lot of pessimism around the UK small-cap market, but Juliet Schooling Latter, research director at fund research group FundCalibre, is very excited about the sector’s prospects and is adding two UK funds to her ISA.

The first is fund is IFSL Marlborough UK Micro Cap Growth A Acc, where more than 90% of the portfolio is companies with less than a £1 billion market capitalisation. The top stocks include TrustPilot, GlobalData and IG Design Group.

Schooling Latter says: “The fund’s team is renowned for its small-cap expertise and has delivered exceptional performance for investors over a very long period.

“The team has a proven capability of adding value through stock selection as a result of company meetings and diligent research. Investors should be aware that this fund is a unit trust, and because it invests in small-caps, it is sometimes subject to swings between the bid and the offer price depending on fund flows.”

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She is also buying the Liontrust UK Micro Cap fund. The largest positions are Netcall, ActiveOps and Science Group and the most dominant sector is technology.

Schooling Latter says: “It’s rare for a smaller companies fund to have such a well-defined and disciplined framework. The alignment with management, focus on capital-light businesses which can scale quickly, and emphasis on company meetings are all very sensible. The team’s track record with other funds that use this process is outstanding.”

Global

Smaller companies are not only a UK story, but a global one too, with global smaller companies outperforming broader markets over the long term, according to Schooling Latter.

Therefore she is also buying M&G Japan Smaller Companies, a bottom-up, valuation-sensitive fund that aims to provide a combination of strong capital growth and income by investing in Japanese mid and small-caps.

She says: “The management team’s investment philosophy is focused on using their rich understanding of the region and breadth of analytical expertise to uncover the most attractive opportunities. I have also added this fund to my ISA; and I believe this fund should be a strong consideration for anyone looking for Japanese smaller companies exposure.”

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Leetal Stark, investment manager at Canaccord Wealth, says that amid geopolitical uncertainty, elevated interest rates and gradually easing yet persistent inflation, ISA investors should look to construct a resilient and diversified ISA.

A well-balanced approach in a volatile market environment can be achieved with a combination of funds, such as iShares MSCI World Quality Dividend ESG UCITS ETF and JPMorgan Global Growth & Income, according to the fund buyer.

Stark says: “The iShares ETF enhances portfolio stability and provides steady exposure to high-quality, dividend-paying companies across developed markets, delivering reliable returns with lower volatility.

“JCGI blends global growth opportunities with a strong dividend yield, making it a solid core holding. The fund’s portfolio is comprised of established blue-chip stocks with the potential for capital appreciation, while also offering an attractive dividend yield that can enhance long-term compounding.”

China

China is on the radar of Nathan Sweeney, chief investment officer of multi-asset at fund manager Marlborough. The best-performing fund sector over the past 12 months, he backs it to keep performing and is investing in KraneShares CSI China Internet ETF, which is packed with Chinese tech stocks such as Tencent Holdings Ltd (SEHK:700), Alibaba Group Holding Ltd ADR (NYSE:BABA) and PDD Holdings Inc ADR (NASDAQ:PDD).

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Sweeney says: “China’s internet sector has been through a tough period, but President Xi Jinping is pivoting back towards supporting the tech industry.

“Recent policy shifts suggest a more pro-business approach, with Beijing offering stimulus measures and regulatory relief to spur economic growth. With valuations at historically low levels, investor sentiment improving and a renewed focus on innovation, China’s internet giants could be poised for a strong recovery.”

US

While the US stock market may look expensive, Lucie Meagher, private client investment director at Tyndall Investment Management, says there are still areas of opportunity.

She likes the Findlay Park American, which has a lower weighting to the Magnificent Seven group of large tech shares than the index. This means that it has underperformed over the past 12 months, but could do better if there is a backlash against tech shares.

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Meagher says: “It has a lower allocation to the Magnificent Seven (it currently owns just Microsoft) but has a strong track record of delivering compound returns over the long term.

“The team are currently seeing opportunities in the mid-cap space where the companies tend to be more domestically focused and therefore less exposed to geopolitical uncertainty.”

The fund has a record going back to 1998 and has delivered more than three times the return of the S&P 500 index since then, in dollar terms.

Source: FE Analytics. Past performance is not a guide to future performance.