Three fund ideas for your stocks and shares ISA

As we get into ISA season, you may be looking at ways to make use of your allowance before the cut-off on 5 April 2024.

ISAs are a great way to keep your savings shielded from the taxman, especially as the capital gains tax was reduced from £12,300 to £6,000 in April 2023 and is set to be cut again to £3,000 in April 2024.

This could see more investors paying capital gains tax when selling assets.

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If you have yet to use your ISA allowance for the current tax year, you have a number of options – you could put the money into a cash ISA, park it as cash in your investment account, or invest it immediately. 

While cash ISAs have gained popularity due to rising rates, we also look at the most popular funds for ISAs in our article.

Recent research by MoneyWeek revealed that the stock market beat cash ISAs last year, despite rising interest rates. What’s more, when inflation was factored in, cash savers actually made a loss.

If you are looking to add some funds, then here are three funds worth considering for your ISA according to experts at Hargreaves Lansdown.

Funds to add to your ISA

Artemis Income

If you are looking to bolster your ISA with dividend income, then this fund is worth a look. It primarily invests in UK companies with strong cash flows. The aim is to provide investors with steady and growing income, as well as capital growth, over a five-year investment horizon. 

On the one hand, UK equities have lagged behind their international peers in recent years when it comes to investment performance. The Brexit referendum in 2016 caused them to fall in price, and their valuations haven’t fully recovered since. 

However, they do still offer a very attractive level of income – and their lowly valuations mean investors have the opportunity to snap them up at a bargain price.

“UK equity income funds are a convenient way to invest in a mix of dividend-paying UK companies, and to access one of the highest-yielding stock markets in the world”, says Kate Marshall, lead investment analyst, Hargreaves Lansdown.

“An equity income fund can be a great addition to an ISA portfolio for different reasons. You can take the pay-outs to supplement your income and have a bit of extra cash in your back pocket. Or if you’re targeting growth and aiming to build your portfolio for longer, reinvesting dividends can help grow your pot thanks to the beneficial effect of compounding.”

Legal & General Future World ESG Developed Index

If you’re looking to align your portfolio with your values, then you might want to think about an ESG fund. 

There are a huge number of ESG funds available on the market, all taking a slightly different approach. For example, some screen out controversial industries or investments, such as oil and gas companies. Others target companies which are having a positive impact.

This fund from Legal & General applies both positive and negative screening processes. Examples include excluding tobacco companies, while investing more in companies with lower carbon emissions.

As well as allowing you to invest responsibly, this fund can give you broad exposure to companies from across a range of different developed markets, including the US, Japan and Europe. 

“Global equity funds provide a good foundation to an investment portfolio focused on long-term growth”, Marshall explains. She adds that “investing in companies across the globe provides a good level of diversification in a single fund”. 

Finally, this fund takes an index-tracker approach, which may be an attractive feature if you are looking for broad market exposure while keeping fees to a minimum.

FSSA Asia Focus

Investors often look to Asia for the strong growth potential on offer. 

In the past, this has come from a range of economic and demographic shifts, from industrialisation to population growth. However, going forward, there are some new trends to keep an eye on too. These include a growing middle class and the rise of technology. 

This fund aims to tap into that growth potential by investing in large and mid-cap companies in the Asia Pacific region. It looks to achieve capital growth over an investment horizon of three years or more.

One factor that might be attractive if you are looking to invest in Asia is the broad range of regional opportunities on offer. The region is large, and each market is idiosyncratic. 

For example, China is facing some challenges right now, including slow growth and headwinds in the real estate sector. Meanwhile India is flying, and has been the world’s fastest-growing major economy for two years running. 

As well as emerging market opportunities, there are also developed markets that investors can consider when investing in Asia, including Hong Kong and Singapore. 

This fund has the ability to invest across all of these markets and more. Its top three weightings are currently China, India and Taiwan. 

“This fund is run by a manager and team with a great pedigree of investing in Asia”, Marshall explains, adding that “lead manager Martin Lau has an impressive track record of picking some of the region's best-performing companies over the long run”. 

Fund performance

Source: Hargreaves Lansdown as of 31 January 2024.