Mark Dampier: Picking a winner from the field of ISA runners

The Analyst

Whether you are looking for a last-minute ISA before 6 April, or an early bird for the new tax year, you may be interested in my current ISA suggestions. As usual, there is a bewildering choice of funds for a stocks and shares ISA. Choosing the right one depends on your circumstances, opinions of markets as well as objectives and tolerance to risk.

In some respects you could make a case for virtually any kind of fund for a specific type of investor. The investment environment, though, is particularly tricky at present with plenty of potential sources of market volatility. These include the continued problems in Europe (I am sure we will have more problems in Greece coming our way, possibly Portugal and Spain too), softening Chinese economic data suggesting a marked slowdown, and continuing geopolitical risk in the Middle East.

Additionally, the western world still has a huge sovereign debt problem, and in the UK I see GDP growth remaining muted at sub-2 per cent for quite some time.

Yet against these risks we must balance the fact that equities in general are reasonably cheap. They could also get a boost if the oil price falls, which would temper inflation. It is quite possible then that we will continue to see the "risk on, risk off" mini cycles we have experienced in the last couple of years.

However, it doesn't mean there is a lack of opportunities, especially if you are prepared to take some risk and go against the crowd. Europe, for instance, has been written off by investors and valuations remain low, providing excellent, long-term prospects for experienced fund managers such as Richard Pease of Henderson European Special Situations.

Japan too looks interesting. After decades of poor returns, a catalyst to unlock value in the Japanese market looks to have emerged with the Bank of Japan setting a firm inflation target. This should weaken the yen and make the nation's exporters more profitable. GLG Japan CoreAlpha is a fund to consider here.

With a difficult economic backdrop, managers that have demonstrated excellent stock-picking skills through thick and thin should be a priority for investors. Nigel Thomas of AXA Framlington UK Select Opportunities would be an excellent UK fund to consider, as well as Tom Dobell of M&G Recovery. I also remain a fan of UK equity income funds with their focus on companies paying good dividends.

It's a good idea to blend funds of different types here to get a good spread of underlying investments. For instance, I would tend to dovetail the defensive stance of Neil Woodford's Invesco Perpetual Income with Clive Beagles' J O Hambro UK Equity Income, a fund which has a leaning towards more economically sensitive areas.

If you want a more flexible, multi-asset fund that can respond to global events, Artemis Strategic Assets is worth considering. The manager, William Littlewood, chose to short the gilt market last year, which was costly to performance, but this could easily turn in his favour as they continue to look expensive.

Jupiter Absolute Return, under the management of Philip Gibbs, has had an even harder time. The fund launched over two years ago and is only just over its offer price. Mr Gibbs is probably the most bearish fund manager I know currently, so avoid the fund if you believe Armageddon will be averted, or at least consider it as part of an insurance policy should things go horribly wrong. Notably, when the markets fell heavily last August the fund rose by over 3 per cent.

Finally, 2012 could be a better year for emerging markets. Interest rates are typically falling, and providing a hard landing is averted in China this area should do relatively well.

Options have been narrowed by fund closures, notably at Aberdeen, so consider JPMorgan Emerging Markets (available as an investment trust or unit trust) or Templeton Emerging Markets investment trust.

Whatever you decide, if you have the money and opportunity to use your ISA allowance I wholeheartedly suggest you do so. For this tax year it is set at £10,680 and for next year it rises to £11,280 – the RPI index linking is compounding the allowance very nicely for investors. How much longer will politicians tolerate this bearing in mind the pressure to raise funds? Grab it while you can.

Mark Dampier is head of research at Hargreaves Lansdown, the asset manager, financial adviser and stockbroker. For more details about the funds included in this column, visit www.hl.co.uk/independent