When choosing funds for an Isa, ensure you have a diversified mix of investments. By investing across a range of asset classes and sectors, savers have a much better chance of achieving sustainable returns, whatever the market environment. Here are three to consider.
With all the positive news stories in recent years about emerging markets, this region is hard to ignore. Funds that take advantage of the opportunities in emerging-market countries have the potential to deliver substantial growth.
However, while there is the potential for impressive returns, you need to be comfortable with the volatility (see below) that is associated with emerging-market funds, and be prepared for any rough patches along the way.
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One fund investors might like to consider is the JP Morgan Global Emerging Markets Fund (tel: 0800-727770). The fund is run by Austin Forey, who has a wealth of experience, having run emerging-market portfolios at JP Morgan since 1994. While based in London, he can draw upon JP Morgan's considerable emerging-markets resources, based in nine main centres around the world.
The fund is run primarily on a stock-picking basis, and looks to invest for the longer term. It tends to have a bias towards growth stocks, and while it can invest across the board, it will predominately hold larger-sized companies. The fund is relatively concentrated, with 50-75 holdings, and can differ significantly at times from the benchmark index.
While many commentators believe the economic balance of power is shifting from the old' developed markets, such as the UK, Europe and America, to the new' emerging markets, such as China and Latin America, it is important to maintain an allocation to developed markets in your portfolio to ensure appropriate diversification. Global equity funds allow you to access a number of developed markets in one place.
The Schroder Global Equity Alpha Fund (020-7658 6000) is one that particularly stands out. This fund is managed by Virginie Maisonneuve and Jonathan Armitage, both long-standing members of Schroder's global equity team. This fund has an unconstrained and relatively concentrated portfolio of 40-60 names.
The managers use key investment themes to guide their stock-picking for the fund. They call on various expert analysts for in-depth research and knowledge of industries and companies in order to select the best ideas.
Specifically, they look for high-quality companies where future earnings growth is underestimated by the market place. A sustainable competitive advantage and an attractive price help too.
Bond-fund performance has been so strong over the past few years that the prospects for capital gain are more limited than they have ever been historically. Nonetheless, an allocation to the fixed-income markets can still make sense as the asset class offers relatively lower volatility than equities and will help diversify your portfolio.
A solid fixed-income fund is the Threadneedle Global Bond Fund (0800-068 4000). The fund is managed by Dave Chappell and Martin Harvey. Although their tenure on this fund is just over two years, Dave Chappell has been at Threadneedle for 15 years and is a 25-year veteran of the global bond markets, with a particular focus on the US.
The fixed-income team benefits from the interaction with Threadneedle's experts across other asset classes and regions. The key drivers of return are interest rates, currencies and key sector decisions (the fund rotates between countries and between government and non-government bonds). The fund will tend to invest mainly in government bonds, with up to 20% of its allocation in corporate bonds.
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