Are you an ISA adventurer or belt and braces investor?

There's no one-size-fits-all answer to choosing where to put your savings, says Simon Read, but there's a fund to suit, whatever your style

Choosing where to put your annual ISA allocation is no easy task. There are so many possibilities, variables and conflicting opinions that deciding which areas will deliver the best returns with any degree of certainty can feel like mission impossible. This is understandable. While everyone wants to invest in the best-performing funds the reality is there is no one-size-fits-all solution. The decision on which funds to choose – and the returns they can deliver – depends on several factors.

In many cases investors faced with such a conundrum may seek inspiration by considering what has performed – or failed – in the past. After all, it can be hard to ignore a fund that has supplied double-digit returns in recent years. Past performance might not be a guarantee of future success but it can be a good starting point and shouldn't be ignored, according to Andy Gadd, head of research at Lighthouse Group.

"It can be a useful tool in searching out investment managers who consistently outperform or indeed underperform their benchmarks," he says. "These figures can sometimes tell you where you are in an economic cycle and whether you should be looking at defensive or growth oriented investments."

Sector sales and performances

So what do the statistics tell us? Well in 2010 ISA providers enjoyed their most lucrative year since 2001 with net retail sales of £3.9bn and ISA funds under management reaching a whopping £105.5bn – the highest figure on record.

In terms of gross sales, the most popular IMA Sector chosen for ISAs in 2010 was Cautious Managed (£1.7bn), followed by UK All Companies (£1.6bn), Unclassified (£1.4bn), Corporate Bond (£1.2bn) and Strategic Bond (£1.1bn).

However, were the investors that opted for those sectors correct? Yes and no. The best-performing sectors last year were North American Smaller Companies, where the average fund rose 32.91% , and UK Smaller Companies – up 30.73%.

Cautious Managed, meanwhile, enjoyed only a 9.16% uplift, while UK All Companies achieved 17.19%, according to Morningstar. The IMA £ Corporate Bond, however, was up only 7.76% and £ Strategic Bond by 8.64%. These weren't bad performances, only comparatively lower than other areas.

Fund performances

There is a huge gulf between the best and worst performing funds – regardless of the time period in which you analyse them. The stars can generate double or triple-figure returns while the poorest will be mired in nega tive territory.

For example, let's take a look at the figures for the past decade that have been compiled for us by Morningstar.

The stand-out performer over this time has been the BlackRock Gold and General fund that has delivered a simply stunning return of 998.66%, according to the data to February 25, 2011.

This is more than 200% more than its nearest rival – JPM Russia – which managed a highly respectable 765.92% return over the same period. JPM Natural Resources was next up with a rise of 758.95%.

However, at the other end of the scale you have the Newton Osprey fund which is down 58.8% and Invesco Global Technology that lost 55.56%. A further 16 have shed more than 20% of their value.

Over the past five years the best performers have all hailed from a relative handful of areas. Seven out of the top 20 funds are in the IMA China/ Greater China sector, while six are in Asia Pacific excluding Japan. Others represented include funds focused on the likes of India, Latin America and resources.

The figures don't come as a surprise to Darius McDermott, managing director of Chelsea Financial Services. "Funds with access to natural resources have done very well – particularly those linked with gold," he says. "Therefore if you think the gold price will continue to rise you might want to invest in such past winners."

So how should you choose?

As always, it depends on your investment goals and attitude to risk. If you don't need the money over the next few years and losing it all – in the worst case scenarios – holds no fear, then it might be worth investing it in areas that offer more potential upside, along with an increased amount of risk.

Many investors place too much emphasis on short-term past performance and market sentiment, assuming that if an asset has performed well it will continue to do so, points out Patrick Connolly, head of communications at AWD Chase de Vere. The net result is that they may end up buying at the top of the market.

"Past performance should be an important consideration when selecting investment funds," he says. "However, the key is to understand why an investment has performed well or badly and what is likely to change in the future."

Nobody should put money in a Stocks & Shares ISA if they can't invest for at least five years, but how much emphasis is placed on past performance will depend largely on what type of fund they are investing in, according to Darius McDermott.

"If they just want a standard UK fund then they can look at the fund mangers that have performed consistently well," he says. "All managers are allowed the odd bad year but the likes of Tom Dobell at M&G Recovery and Nigel Thomas of Axa Framlington UK Select Opportunities tend to do well at least three years out of five."

What are people buying now?

Sales figures compiled during January 2011 by discount broker Willis Owen suggest investors are continuing to look for adventurous global funds with which to populate their ISA portfolios.

Neptune Global Equity, First State Asia Pacific Leaders, Aberdeen Emerging Markets and JPM Natural Resources are among the 10 most popular funds, alongside more traditional names such as Invesco Perpetual Income.

Alan Easter, director of Willis Owen, attributes this to a combination of rising levels of inflation and savings rates at historically low levels forcing people to consider looking at alternative investment options.

"The Neptune Global Equity fund is one for the more adventurous investors because there is often reasonably high exposure to higher- risk markets within this globally invested fund," he adds.

It's a similar story with online execution only stockbroker Selftrade, which states that resources and financial services stocks were firm favourites for ISA investors, the former making up 42% of the top 20 ISA trades.

David Baker, dealing danager at Selftrade, added: "We believe that hard resources like metals will continue to be popular choices among investors. However, we are also seeing a growing appetite for soft commodities like corn and wheat."

Over at Chelsea Financial Services, Darius McDermott has noticed increased interest in funds that focus on smaller companies. "We like Marlborough Special Situations and that is proving popular," he says. "Clients are also buying Standard Life UK Smaller Companies and BlackRock UK Smaller Companies."

Many investors tend to be either emerging market or income oriented at the moment but the fact is there is no stand out themes, according to Mark Dampier, head of research at Hargreaves Lansdown. "I don't think there's any one favoured area because sales are happening across the board," he says. "Invesco Perpetual Income is a perennial favourite, as is Aberdeen Emerging Markets, but natural resources funds are also selling well because they have all done well in the recent past."

So what is the overall conclusion? Well the evidence suggests investors must not be influenced by short-term past performance, market sentiment or hype as these can cause problems, points out Patrick Connolly at AWD Chase de Vere.

"They should establish a long-term investment strategy determined by their financial objectives, circumstances and attitude to risk and then stick with this until or unless their circumstances change," he says. "Chasing the next big winner is a high- risk strategy which could be successful but is more likely to end in tears."

Independent Partners; request a free guide on NISAs from Hargreaves Lansdown

Welcome to tinsel town: retailers such as Selfridges will be Santa's little helpers this Christmas, working hard to persuade shoppers to stock up on gifts
Arts and Entertainment
Architect Frank Gehry is regarded by many as the most important architect of the modern era
arts + entsGehry has declared that 98 per cent of modern architecture is "s**t"
Arts and Entertainment
Soul singer Sam Smith cleared up at the Mobo awards this week
arts + entsSam Smith’s Mobo triumph is just the latest example of a trend
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Compensation and Benefits Manager - Brentwood - Circa £60,000

    £60000 per annum: Ashdown Group: Compensation and Benefits Manager - Compensat...

    Data Analyst/Planning and Performance – Surrey – Up to £35k

    £30000 - £35000 Per Annum plus excellent benefits: Clearwater People Solutions...

    IT Systems Business Analyst - Watford - £28k + bonus + benefits

    £24000 - £28000 per annum + bonus & benefits: Ashdown Group: IT Business Syste...

    Markit EDM (CADIS) Developer

    £50000 - £90000 per annum + benefits: Ampersand Consulting LLP: Markit EDM (CA...

    Day In a Page

    Wilko Johnson, now the bad news: musician splits with manager after police investigate assault claims

    Wilko Johnson, now the bad news

    Former Dr Feelgood splits with manager after police investigate assault claims
    Mark Udall: The Democrat Senator with a fight on his hands ahead of the US midterm elections

    Mark Udall: The Democrat Senator with a fight on his hands

    The Senator for Colorado is for gay rights, for abortion rights – and in the Republicans’ sights as they threaten to take control of the Senate next month
    New discoveries show more contact between far-flung prehistoric humans than had been thought

    New discoveries show more contact between far-flung prehistoric humans than had been thought

    Evidence found of contact between Easter Islanders and South America
    Cerys Matthews reveals how her uncle taped 150 interviews for a biography of Dylan Thomas

    Cerys Matthews on Dylan Thomas

    The singer reveals how her uncle taped 150 interviews for a biography of the famous Welsh poet
    DIY is not fun and we've finally realised this as a nation

    Homebase closures: 'DIY is not fun'

    Homebase has announced the closure of one in four of its stores. Nick Harding, who never did know his awl from his elbow, is glad to see the back of DIY
    The Battle of the Five Armies: Air New Zealand releases new Hobbit-inspired in-flight video

    Air New Zealand's wizard in-flight video

    The airline has released a new Hobbit-inspired clip dubbed "The most epic safety video ever made"
    Pumpkin spice is the flavour of the month - but can you stomach the sweetness?

    Pumpkin spice is the flavour of the month

    The combination of cinnamon, clove, nutmeg (and no actual pumpkin), now flavours everything from lattes to cream cheese in the US
    11 best sonic skincare brushes

    11 best sonic skincare brushes

    Forget the flannel - take skincare to the next level by using your favourite cleanser with a sonic facial brush
    Paul Scholes column: I'm not worried about Manchester United's defence - Chelsea test can be the making of Phil Jones and Marcos Rojo

    Paul Scholes column

    I'm not worried about Manchester United's defence - Chelsea test can be the making of Jones and Rojo
    Frank Warren: Boxing has its problems but in all my time I've never seen a crooked fight

    Frank Warren: Boxing has its problems but in all my time I've never seen a crooked fight

    While other sports are stalked by corruption, we are an easy target for the critics
    Jamie Roberts exclusive interview: 'I'm a man of my word – I'll stay in Paris'

    Jamie Roberts: 'I'm a man of my word – I'll stay in Paris'

    Wales centre says he’s not coming home but is looking to establish himself at Racing Métro
    How could three tourists have been battered within an inch of their lives by a burglar in a plush London hotel?

    A crime that reveals London's dark heart

    How could three tourists have been battered within an inch of their lives by a burglar in a plush London hotel?
    Meet 'Porridge' and 'Vampire': Chinese state TV is offering advice for citizens picking a Western moniker

    Lost in translation: Western monikers

    Chinese state TV is offering advice for citizens picking a Western moniker. Simon Usborne, who met a 'Porridge' and a 'Vampire' while in China, can see the problem
    Handy hacks that make life easier: New book reveals how to rid your inbox of spam, protect your passwords and amplify your iPhone

    Handy hacks that make life easier

    New book reveals how to rid your email inbox of spam, protect your passwords and amplify your iPhone with a loo-roll
    KidZania lets children try their hands at being a firefighter, doctor or factory worker for the day

    KidZania: It's a small world

    The new 'educational entertainment experience' in London's Shepherd's Bush will allow children to try out the jobs that are usually undertaken by adults, including firefighter, doctor or factory worker