Where to place your bets if shares seem too cheap to shun any longer

America, Japan, the emerging economies, corporate bonds ... as time ticks away for using this year's ISA allowance, Julian Knight and Kate Hughes report on possible destinations for investors who see the chance of a profit amid the stock market turmoil

These are tough times for stock market investors as the credit crunch and recession wreak havoc on econo-mies from the US to Japan. But with the end of the tax year looming, Britons have to decide whether to take advantage of this year's individual savings account (ISA) allowance of £7,200. And those brave souls who see a potential profit amid the equity mayhem must then settle on where they are going to put their cash. Each major stock market or investment area has its pluses and minuses for the years ahead; here, we take a look at each.



America

The US was the first into the credit crunch and economic downturn, and so, according to some, it will be the first out. "The US was quicker to cut interest rates than the UK and has a dynamic economy with a history of bouncing back. I feel broadly positive," says Ben Yearsley from independent financial adviser (IFA) Hargreaves Lansdown.

However, there is a risk that currency shifts could erode returns. "When buying into the US, you're converting pounds to dollars, and when selling up, vice-versa," he adds. "If the dollar depreciates against the pound while you're invested in the US then you can find that returns are reduced."

In addition, Mr Yearsley is not impressed by many US fund managers. "The Martin Currie group has a good, consistently performing fund, but other than this perhaps the best way to enjoy market growth is through buying a tracker fund."



Emerging markets

The major emerging economies of Brazil, Russia, India and China have suffered as a result of the recession in their biggest market – the west. Russia has been worst hit as it has also seen a dramatic fall in oil and gas revenues. But, says Mr Yearsley, brighter times could be just around the corner: "As the west recovers, so will these emerging economies, and some of the stock markets are looking decidedly cheap at present, particularly Russia."

Mr Yearsley likes the look of the Hexam Global Emerging Markets fund, which he believes is well placed to take advantage of any upturn.



Corporate bonds

Investing your ISA allowance in corporate bonds can offer security and a steady income. These bonds are basically IOUs for money you lend to a private company. They are more risky than government gilts or savings accounts because the company may fail, but businesses are rated according to their reliability, and individuals can usually only invest in "A" grade bonds.

They cost around £100 each, depending on wider market conditions, and investors buy a number of bonds. Their money is tied up for a set period and fixed-interest or yield payments are made on a monthly or annual basis, ending with a final payment and the return of the original capital. People could choose to invest in a corporate bond unit trust fund, which puts money in a basket of company shares so that that even if one or two default, overall returns should be positive.



UK equity income

These funds, which can be rolled up into an ISA, spread investors' money across a number of companies. You could choose to look for ones that aim for growth in share values and a regular dividend payment.

Tim Cockerill, head of research at Rowan Capital Management, says: "Equity income funds are offering around 6 per cent average annual income at the moment. Threadneedle UK Equity Income is a highly regarded fund offering 6.5 per cent, for example. The UK stock market and economy will recover and I suspect in time, we will see this period as one offering exceptional value."



Japan

Investing in a Japanese fund isn't for the faint-hearted. The economy has been struggling for more than a decade and the global slump hasn't helped. For instance, the country's exports were down 20 per cent in 2008. Advisers suggest having only a small part of your portfolio in this sector.

"Like the rest of the world, Japan is suffering from the economic downturn," notes Darius McDermott at IFA Chelsea Financial Services. "But with its focus on car manufacturing and exporting, there are additional difficulties. Having said that, neither Japan's banks, nor its individual consumers, are close to as indebted as they are in the UK."

Fearless investors who feel that now is Japan's moment to begin recovery could consider the Jupiter Japan Income fund. It has lost 1.7 per cent over the past year, but bear in mind that, globally, equities have fallen as much as 40 per cent.



Absolute returns

These funds are designed to offer you a positive performance regardless of what the economy is doing. They aim to achieve this by putting your money into corporate bonds, cash and index- tracking investments. Last year was an incredibly difficult one, with UK equities dropping some 40 per cent, but astonishingly, some absolute return funds recorded positive performance. Two of the best are BlackRock UK Absolute Alpha and Threadneedle Absolute Return Bond, but watch out for high management fees with this type of fund.



Global growth

Investing in global funds means you have access to a far wider range of sectors and regions. But there are risks in looking overseas, particularly in terms of currency fluctuations and geopolitical risks. Some global growth funds will invest in emerging markets and some won't.

Interested investors could con- sider M&G Global Basics or the Neptune Global Equity fund, Mr McDermott suggests.



Europe excluding UK

Investing in Europe again offers a wider range of companies and industries. The euro-sterling exchange rate has been bad for holidaymakers but great for British investors in Europe: invest in this region and you could hope for 8 per cent annual growth – though again you can't depend on that given the volatility of the global economy. That said, equities are incredibly cheap right now as the downturn in underlying share prices is based on economic doubts, not the value of the companies themselves. The BlackRock Continental Europe fund is a favourite among financial advisers for this sector.

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

News
Netherlands' goalkeeper Tim Krul fails to make a save from Costa Rica's midfielder Celso Borges during a penalty shoot-out in the quarter-final between Netherlands and Costa Rica during the 2014 FIFA World Cup
newsGoalkeepers suffer from 'gambler’s fallacy' during shoot-outs
News
people
Travel
travel
Arts and Entertainment
Sydney and Melbourne are locked in a row over giant milk crates
artCultural relations between Sydney and Melbourne soured by row over milk crate art instillation
PROMOTED VIDEO
Arts and Entertainment
Adèle Exarchopoulos and Léa Seydoux play teeneage lovers in the French erotic drama 'Blue Is The Warmest Colour' - The survey found four times as many women admitting to same-sex experiences than 20 years ago
arts + entsBlue Is The Warmest Colour, Bojack Horseman and Hobbit on the way
News
Two giraffes pictured on Garsfontein Road, Centurion, South Africa.
i100
Environment
View from the Llanberis Track to the mountain lake Llyn
Du’r Arddu
environmentA large chunk of Mount Snowdon, in north Wales, is up for sale
News
Kenny Ireland, pictured in 2010.
peopleBenidorm, actor was just 68
News
i100
Arts and Entertainment
arts + ents
News
people
News
Morrissey pictured in 2013
people
News
A scene from the video shows students mock rioting
newsEnd-of-year leaver's YouTube film features playground gun massacre
News
i100
Life and Style
The director of Wall-E Andrew Stanton with Angus MacLane's Lego model
gadgetsDesign made in Pixar animator’s spare time could get retail release
News
peopleGuitarist, who played with Aerosmith, Lou Reed and Alice Cooper among others, was 71
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

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

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Training Programme Manager (Learning and Development)-London

    £28000 - £32000 per annum + benefits: Ashdown Group: Training Programme Manage...

    1st Line Support Technician / Application Support

    £20000 - £24000 per annum: Harrington Starr: A leading provider of web based m...

    Team Secretary - (Client Development/Sales Team) - Wimbledon

    £28000 - £32000 per annum: Ashdown Group: Secretary (Sales Team Support) - Mat...

    Accountant / Assistant Management Accountant

    Competitive (DOE): Guru Careers: We are looking for an Assistant Management Ac...

    Day In a Page

    Dress the Gaza situation up all you like, but the truth hurts

    Robert Fisk on Gaza conflict

    Dress the situation up all you like, but the truth hurts
    Save the tiger: Tiger, tiger burning less brightly as numbers plummet

    Tiger, tiger burning less brightly

    When William Blake wrote his famous poem there were probably more than 100,000 tigers in the wild. These days they probably number around 3,200
    5 News's Andy Bell retraces his grandfather's steps on the First World War battlefields

    In grandfather's footsteps

    5 News's political editor Andy Bell only knows his grandfather from the compelling diary he kept during WWI. But when he returned to the killing fields where Edwin Vaughan suffered so much, his ancestor came to life
    Lifestyle guru Martha Stewart reveals she has flying robot ... to take photos of her farm

    Martha Stewart has flying robot

    The lifestyle guru used the drone to get a bird's eye view her 153-acre farm in Bedford, New York
    Former Labour minister Meg Hillier has demanded 'pootling lanes' for women cyclists

    Do women cyclists need 'pootling lanes'?

    Simon Usborne (who's more of a hurtler) explains why winning the space race is key to happy riding
    A tale of two presidents: George W Bush downs his paintbrush to pen father’s life story

    A tale of two presidents

    George W Bush downs his paintbrush to pen father’s life story
    Restaurateur Mitch Tonks has given the Great Western Pullman dining car a makeover

    The dining car makes a comeback

    Restaurateur Mitch Tonks has given the Great Western Pullman dining car a makeover
    Gallery rage: How are institutions tackling the discomfort of overcrowding this summer?

    Gallery rage

    How are institutions tackling the discomfort of overcrowding this summer?
    Louis van Gaal has £500,000 video surveillance system installed to monitor Manchester United players

    Eye on the prize

    Louis van Gaal has £500,000 video surveillance system installed to monitor Manchester United players
    Women's rugby: Tamara Taylor adds fuel to the ire in quest to land World Cup

    Women's rugby

    Tamara Taylor adds fuel to the ire in quest to land World Cup
    Save the tiger: The day America’s love of backyard tigers led to a horrific bloodbath

    The day America’s love of backyard tigers led to a horrific bloodbath

    With only six per cent of the US population of these amazing big cats held in zoos, the Zanesville incident in 2011 was inevitable
    Samuel Beckett's biographer reveals secrets of the writer's time as a French Resistance spy

    How Samuel Beckett became a French Resistance spy

    As this year's Samuel Beckett festival opens in Enniskillen, James Knowlson, recalls how the Irish writer risked his life for liberty and narrowly escaped capture by the Gestapo
    We will remember them: relatives still honour those who fought in the Great War

    We will remember them

    Relatives still honour those who fought in the Great War
    Star Wars Episode VII is being shot on film - and now Kodak is launching a last-ditch bid to keep celluloid alive

    Kodak's last-ditch bid to keep celluloid alive

    Director J J Abrams and a few digital refuseniks shoot movies on film. Simon Usborne wonders what the fuss is about
    Once stilted and melodramatic, Hollywood is giving acting in video games a makeover

    Acting in video games gets a makeover

    David Crookes meets two of the genre's most popular voices