The one thing you should put in your Isa this year

The traditional fund-management industry appears to be having some trouble keeping up with the way the investing world is going.

Consider the news out in a press release from Allchurches last week. Clearly the company's Isa sales have not been going quite as well as it would like, so it has decided to give us a bit of a carrot. It is offering a discount on the upfront fee on all their funds from 5 per cent to 4 per cent.

How uninspiring is that? It amazes me that there are still fund managers out there who think it's OK to charge the equivalent of more than most savings accounts would pay in a year just for the privilege of buying units in their funds. And that is on top of their 1.5 per cent annual fee. Buy into an Allchurches fund via your Isa and its managers will have to make you more than 5.5 per cent just for you to break even on the year.

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Maybe they will. Who knows? But given that the FTSE 100 has fallen more than 3 per cent since the start of the year already and 6 per cent-plus since February 26 alone, and that it has more reason to fall further than to rise, I think they'd be lucky. And I suspect that the nation's investors know it.

They should also know that if they still want to get into the market, they should not fall for the idea put about by fund-manage-ment companies that an Isa must be bought from them.

An Isa is merely a wrapper into which you can put a wide variety of investments created by any provider at all, and is therefore best bought from an online stockbroker and filled with some of the many cheap, simple and flexible exchange-traded funds (ETFs) now on offer. ETFs trade like shares but act like trackers in that they follow a market index.

You could also add in some individual stocks. Earlier this year I suggested Shell, HSBC, Rexam, the packaging company, and BHP Billiton, the miner. I'm still keen on all of them, and I'm also increasingly thinking that the metals and mining part of the portfolio should be increased.

I was told by a fund manager the other day that it isn't possible to be, as I am, bearish on the American economy and bullish on the commodity markets. Commodities are in demand, he said, because China is growing and that is only because the US is consuming. So if America stops consuming, China will stop growing, and that will be that for commodities.

I don't think he is right. Sure, Chinese growth was kicked off by the gobbling greed of the US consumer for cheap jeans and flat-pack furniture.

But it isn't really about that any more. Instead, it's about the rush to build infrastructure all over the emerging world the new airports outside every Chinese city and the thousands of miles of motorways leading to them; the extraordinary reconstruction of Beijing in advance of the 2008 Olympics; the desperate need to improve India's road and rail network; the brand-new (if not quite finished), four-lane highway from Malabo, the capital of Equatorial Guinea, to the growing free port in Luba, and so on.

The UN estimates that the urban population of the emerging-markets countries will grow at about 1m a week for the next 25 years something that means there has to be ongoing spending on water, electricity and transport.

Add it all up, and Merrill Lynch, the investment bank, estimates that more than $1 trillion (£516 billion) will be spent in the next three years alone on infrastructure projects.

There is a momentum behind the growth in Latin America, Africa and Asia in particular that I don't think can be suddenly stalled by the end of the American shopping boom.

You can buy into this theme through emerging-market-based construction companies. Merrill Lynch highlights firms such as Mexico's Cemex, the world's third-largest cement maker, and Shanghai Electric. Or you could buy the iShares Macquarie Glo-bal Infrastructure ETF (listed on the London Stock Exchange).

Or you can extrapolate it out a step further, noting that the construction boom across Asia is creating the kind of employment that can support a huge rise in domestic consumer spending and looking to invest in firms that will benefit from this trend.

However, it is also worth remembering that all these projects gobble up commodities you can't build much in the way of electricity or telecoms infrastruture without copper, for example and that a consumer boom will push up the prices of precious metals along with the base.

Commodity prices and mining-share prices are going to be volatile over the next few years, but look at commodity demand from the point of view of emerging markets rather than from that of America, and it seems to be perfectly possible to expect simultaneously a recession in the US and an ongoing, secular bull market in metals prices.

The fact that my fund manager and so many other people think it is not possible can only be good news for those of us who do: their pessimism is holding down the shares of the big miners, which means that right now we can buy the likes of Rio Tinto and BHP for just nine or ten times earnings.

First published in The Sunday Times 18/3/07