Equities  

Isa season bargains

Isa season bargains

This time last year, the FTSE 100 was nudging ever closer to its all-time high of 7,103. For the first time to date, the UK’s largest companies managed to stay around 7,000 for about a month. Then it all started to go pear-shaped and – roll on 12 months – the FTSE 100 is down just over 15 per cent from its peak, at 5,837. Good news is thin on the ground and market volatility is likely to continue throughout 2016.

That makes this Isa season a bit of a hard sell to many clients. Times of market stress can often be a good moment to take the plunge, but pronounced market falls have historically deterred all but the most practiced investors.

While we all like to wait until something is reduced or on offer for almost every other purchase we make in life, the same cannot be said for our investments, when actually the same rationale should hold true. Look at it this way: a long-term investor prepared to buy shares last Isa season should really be prepared to do the same thing now, when they can buy exactly the same companies for less.

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However, there are a lot of worries in the investment world right now and these worries are plain to see when you look at where those still investing are putting their Isa money, or rather, not putting their money.

Most notable by their absence among clients are Asia and emerging market equities. Both have fallen well out of the top 10-selling sectors on the back of lower market returns and increased volatility in the past couple of years, as well as the more recent headline concerns over slowing Chinese growth.

Arguably, they are some of the areas showing the most value right now, and while stock markets may fall further in the short term, hindsight may tell us that now is a good entry point for medium to longer-term investments. No one likes losing money though, and, with up to £15,240 lump sums now possible in Isas, even a 10 per cent fall can be eye-watering when seen in pounds and pence. It would take a brave investor to go down this route – though perhaps one for consideration by monthly savers for next year’s Isa allowance. Who knows though, Jason Pidcock’s imminent return to the market with the launch of Jupiter Asian Income may result in a last-minute return to the area.

Also out of favour are bond funds – even strategic bond funds, which have, until now, been holding their own. It is the only fixed-income sector in the top 10, and sales into the asset class have halved compared with last year.

PositionIA Sector% of overall Isa investments
1stUK Equity Income26%
2ndUK All Companies14%
3rd£ Strategic Bond12%
4thGlobal12%
5thEurope excluding UK8%
6thSpecialist7%
7thAsia Pacific excluding Japan5%
8thTargeted Absolute Return4%
9thNorth America4%
10thProperty4%

Most of 2015 was spent wondering if and when the US Federal Reserve would raise interest rates, and bonds were relatively volatile as a consequence. When the Fed finally did move in December, however, the fixed-income markets took it pretty much in their stride, with the exception of high yield, which fell a couple of percentage points.