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It's ISA time again – but which to choose?

Equities? Bonds? Low-risk cash? As the end of the tax year looms, Rob Griffin asks the experts where they've put their ISA money

Saturday 21 March 2009 01:00 GMT
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Deciding where to invest your annual ISA allowance is never an easy task, but it's even more of a challenge during a vicious economic downturn. There are so many questions: does it make sense to re-enter global stock markets? Should you play it safe in cash? Are corporate bonds worth considering? To help investors make sense of it all, we have asked leading figures from the worlds of business and finance where they have been putting their money.

Their responses make interesting reading, and illustrate the different approaches that even seasoned investors are choosing to take with their available cash.

David Wells, head of investments, pensions and savings at HSBC

David Wells has decided to spread his £7,200 ISA allowance across more than 22 different funds that invest in a variety of countries and asset classes. He opted for the HSBC World Selection Cautious Portfolio, which has exposure to government and corporate bonds, as well as UK equities, which Wells considers sensible in today's economic climate.

"I can see why some people would avoid using their Isa allowance this year to invest in equities, given the bleak outlook, but I am saving for the longer term and consider that now is a good time to buy," he says. "However, I believe it makes sense to take a low-risk, highly diversified approach to investment."

Andy Gadd, head of research at Lighthouse Group

Andy Gadd likes to obtain the maximum tax benefit, so he has chosen to invest this year's ISA allowance in the M&G Strategic Corporate Bond Fund, managed by Richard Woolnough.

"He has more than 20 years of experience, places a strong emphasis on top-down macroeconomic assessment, and is supported by 50 credit analysts," Gadd explains. "The performance has been particularly strong due to being underweight in financials."

Gadd – who likes the fact that 80 per cent of this fund must be held in sterling-denominated investment-grade corporate bonds – points out that this approach gives him the most tax benefits. "I choose to hold some of my overall fixed-interest exposure within my ISA because I am able to reclaim the tax credit – which is not the case with dividends," he adds.

Mark Dampier, head of research at Hargreaves Lansdown

Mark Dampier has also bought into the M&G Strategic Corporate Bond Fund, principally because it is offering a yield of about 5.5 per cent, while cash is earning next to nothing. He also has M&G's Optimal Fund, the Invesco Perpetual Corporate Bond, and the Artemis Strategic Bond Fund, as well as exposure to equities via funds such as Jupiter Financial Opportunities.

"I don't think there's a bubble in corporate bonds and you are also being paid to take the risk at the moment," he says. "You can also benefit from the fact that it will be tax-free when held in an ISA."

Separately, he has bought BlackRock Gold and General. "Gold-mining shares look undervalued compared to physical gold, and this is a bit of an insurance policy," he explains. "I'm picking poor days in the stock market to drip-feed money in."

Justin Urquhart Stewart

Justin Urquhart Stewart, one of the founders of Seven Investment Management, is taking a multi-asset approach with the coming year's ISA allowance, and investing with a five-year time horizon in mind.

"Equities are going to be highly volatile, and fixed interest is quite attractive, but I also want other asset classes such as gold to give me some support," he explains. "If I can have a little bit of all those in an ISA, that's going to be better than taking a punt on one particular geographical sector of the equity market."

Urquhart Stewart has taken a fairly defensive stance over the past few years – last year, he invested his allocation into 7IM Balanced – but is now getting more aggressive as he sees more value in a lot of the asset classes.

As a result, this year's allocation will be invested in 7IM Adventurous, in two stages: one over the next few weeks, and the second in a few months' time. "The news is currently so appallingly awful that it's a time I believe you should be investing," he says.

Darius McDermott, managing director of Chelsea Financial Services

Darius McDermott has been drip-feeding money into the market over recent weeks to take advantage of the turbulence, and still believes that equities are a sensible longer-term play. "I've been buying the Marlborough UK Large Cap Fund because I want to be in strong companies with better balance-sheets," he says. "They tend to have a more global earnings stream, which is attractive."

He has also bought into the L&G Dynamic Bond Fund – the first time he has held such a product within an ISA. "Bonds are a shorter-term play and I expect to see decent capital growth and income over the next two to three years," he says. "This is a strategic bond fund with a proven manager and yet it is small enough to be flexible."

Richard Saunders, chief executive of the Investment Management Association

Richard Saunders prefers to pay monthly into his ISA instead of waiting to the end of each tax year and usually goes for a mixture of equity funds.

He has been adding corporate bonds into the mix. "I've always had quite an equity-heavy strategy, spread across all regions," he says. "The losses of the last year have been painful, but I'm buying in the expectation of recovery and think a number of corporate bond funds also look attractive."

Saunders sees his ISA portfolio as part of his financial planning, so prefers to use his annual allowance to make longer-term investments in a stocks and shares ISA rather than pursuing cash returns.

Dragons' deal: Where the entrepreneurs are investing their cash

Simon Woodroffe, founder of Yo! Sushi and ex-'Dragons' Den' member

Simon Woodroffe has never been tempted to invest his ISA allocation in stocks and shares, but keeps his money in cash ISAs instead. "When I first ever made money, I thought that you needed to invest in stocks and shares," he recalls. "However, I realised that you cannot do anything in this world unless you are interested in it – and I am not particularly interested in them."

While he likes property and investing in businesses, Woodroffe is quite happy not to be taking any further risks with his money. "I have always kept pretty much everything in cash, and believe that is a good place to be now."

Rachel Elnaugh, entrepreneur

Another former star of the TV series 'Dragons' Den', Rachel Elnaugh, has turned her back on ISAs, for the moment at least.

"I am not planning to put anything into ISAs because any available cash I have at the moment is going into my own business," she says. "The enterprise sector is booming. I think it's a better bet to actually invest into a business than to put it into savings of any type, with what has happened to interest rates and stock markets."

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