Isas are increasingly being promoted as a long-term savings vehicle which could have a role in filling the pensions gap. So it is unsurprising that when the economy took a turn for the worse in 2008, investment into the tax-free products rose.
In 2011 the Government made the decision that children should also have access to the vehicles; in one of the biggest changes in the Isa market since its inception. The introduction of the Junior Isa (Jisa) on 1 November 2011, to replace Child Trust Funds, was expected to boost Isa sales, but – at least so far – this has not been the case.
Sales have in fact dipped again since 2011, as Graph 1 shows. According to the Investment Management Association (IMA), Isa fund sales in 2012 were £1.3bn, less than in recent years, although still higher than any of the years between 2004 and 2008.
Attempts to enhance Isa and Jisa sales have been seen in the cash Isa market with providers such as Halifax, for example, boosting its 3 per cent rate Jisa to a 6 per cent AER when the person with parental responsibility for the child also has their own Isa with Halifax.
Elsewhere, at the more adventurous end of the Isa market, the most popular IMA sector in terms of net sales in 2012 was Strategic Bonds with a total of £448m. The best-selling sector of the year saw inflows of £2.2bn. This was followed by Mixed Investment 20-60% shares, Global Emerging Markets, Corporate Bond and Global Equity Income. The least popular sector in 2012 was UK All Companies, which saw net outflows of £1bn.
Table 1 shows the top and bottom 20 performing funds available for Isas over a three-year period based on a £1,000 lump-sum investment. The top performers are dominated by the UK Smaller Companies sector with nine of the 20 funds listed falling into the category.
Conversely, 10 of the 20 worst performing funds over the past three years have been from the Specialist sector, as funds with commodity-specific mandates have fallen out of favour.
Darius McDermott, managing director of Chelsea Financial Services, says the Specialist sector was one of the top “money-taking” sectors for client Isas. “The Specialist sector is very broad but the best sellers are likely to be dominated by funds focusing on either natural resources or country-specific emerging-market funds such India, Brazil or new Europe.”
