3 investing strategies for your ISA: beginner, income, and value

The tax year ends 5th April. This means you have until then to use up your £20,000 per year annual allowance before you lose it and we pass into the new tax year. As you can hear in our recent pod with Ryan Hughes, diversifying across a whole bunch of investing strategies is wise because all strategies go through times where they perform better than others and times where they perform worse.

Here, we speak to the UK’s second largest online broker, interactive investor, to get their top picks across regions and asset classes, in strategies spanning multi-asset for beginners, income seeking, and value investing. Remember, just suggestions, we don’t know your personal financial circumstances.

In this article:

  • Beginner investments in multi-asset funds
  • Funds and investment trusts for income seekers
  • Defining value investing and investing ideas

1) For beginner investors

Which investments are best for beginners?

There are a number of possible funds that might be good for beginners, but broadly it’s a good idea to go as diverse as possible. When creating a portfolio of investments, ideally you want to invest in lots of different assets as they come with differing risks and their performance tends to vary depending on what’s going on in the economy. Constructing a well-balanced portfolio of assets can be tricky though. One way around this is to use ‘multi-asset’ funds – those that invest not just in shares around the world but in other assets too, for example bonds, property, commodities, currencies, and so forth. 

Watch our jargon buster video on asset classes

How do I invest in multi-asset funds?

Multi-asset funds tend to be differentiated by the risk you’re willing to take, for example cautious, balanced, and adventurous represent portfolios of increasing levels of risk. Very broadly, the more risk, the higher the percentage of shares.

Many DIY platforms such as interactive investor or AJ Bell often describe these along the lines of beginner funds, ready-made or ‘Quick Start’ in II’s case. Another route is to use DIWM platforms such as Moneyfarm or PensionBee. These platforms tend to ask some questions to determine your risk profile, and then suggest a multi-asset fund that is appropriate.

Which multi-asset fund might be good?

One suggestion might be Columbia Threadneedle’s Sustainable Universal MAP range, which come under II’s Quick Start category. Sustainable funds will analyse various environment, social and governance (ESG) characteristics of underlying investments to ensure as least damage as possible is done to people and the environment. 

Dzmitry Lipski, Head of Funds Research, interactive investor: “CT Sustainable Universal MAP range is a one-stop global investing shop that incorporates actively managed multi-asset and sustainable investing with a focus on low cost. 

“Sustainable investing has become increasingly high on many investors’ agenda. The urgency of the climate emergency has contributed to this, as well as the growing amount of evidence that shows companies which adhere more closely to environmental, social and governance (ESG) considerations can produce better long-term returns.”

2) For investors seeking income

What does income investing involve?

Income investing involves investing in assets that will kick out some income or yield as its often called in the investing world. We can receive income from numerous assets: shares, bonds, property are the main ones, but also alternative assets such as infrastructure and renewable energy. 

How do I approach income investing?

Important in income investing is the consideration of the type of investment structure you invest in, be it a fund or an investment trust. Funds are simply pooled investments. Investment trusts are the same but come with some added features. They can borrow, known as gearing, which adds firepower but also a little risk; they have an independent board, which is great for looking after shareholder interests; and they have a revenue reserve, which means in any given year they can keep back up to 15% of income from the underlying investments so that during down years when the income received might be poor, they can top up the payments made to the trust’s investors. 

Which funds might be good for income?

In the funds world, Lipski thinks the UK as a good dividend market and suggests Artemis Income as a pick alongside Vanguard FTSE UK Equity IncomeMan GLG Income Profession and Janus Henderson UK Responsible Income.

He adds: “The Artemis fund, which has experienced hand Adrian Frost as one of its co-managers alongside co-managers Nick Shenton and Andy Marsh. Shenton and Marsh have been co-managers since 2014 and 2018. The managers aim to outperform the FTSE All-Share benchmark over the long term, while providing a growing income and a dividend yield at a premium to that of the index. 

“Vanguard FTSE UK Equity Income is also a good choice for investors seeking high and rising income. This is a passive fund, and had a 12-month yield of 5.5% at the end of 2022. The fund physically invests in the constituents of the FTSE UK Equity Income index, which consists of shares ‘that are expected to pay dividends that generally are higher than average.”

What investment trusts might be good for income?

Lipski suggests: “Murray International, a global equity income trust, returned an impressive 20.7% last year. Managed by Bruce Stout, it has been a beneficiary, to date at least, of the change in macroeconomic conditions, which has resulted in sentiment shifting away from high-growth strategies. It has a value focus, and a bias towards Asia and emerging markets. 

Looking at UK equity income again, but from a trust perspective, City of London has a solid track record and a spectacular track record of annual dividend increases.”

What about income from bonds?

Sam Benstead, Deputy Collectives Editor, interactive investor, says: “Investors looking for a fixed income choice for their ISA could look at M&G Emerging Markets Bond fund. 

“The fund is well diversified with around 150 investments, with about two-thirds invested in government bonds and one-third in corporate bonds. Currency exposure is split between dollar-denominated (two-thirds) and local currency debt (one-third). Brazil is its biggest country bet at about 4% of the portfolio. 

“This fund yields 6%, which is more than investors get from high quality corporate bonds or developed government bonds.  

“Emerging market central banks have been ahead of the curve in getting control of inflation. Because they moved quicker than developed market central banks, they could therefore cut interest rates sooner as well which would boost bond prices.   

“Emerging market currencies are also cheap against the strong US dollar, so if their currencies strengthen, then the income paid to investors when converted back to sterling will be greater. 

“It is worth bearing in mind, however, emerging markets can be relatively complex and potentially higher-risk markets – with lots of different factors to consider, and therefore such strategies lend themselves towards highly experienced active managers. Ultimately, it comes down to your risk appetite. More experienced investors who can tolerate risk may want to have a small allocation to emerging markets in a global well-diversified portfolio.”

3) For investors seeking value

What is value investing? 

Value investing is a strategy involving fund managers seeking businesses that they think are being undervalued by the market, following an analysis of its financials and other fundamentally important factors that depict how business operates and makes money. Once the market corrects its mistake, supposed ‘bargains’ will increase in price. 

Which companies are typically ‘value’?

Well, there’s no clear line when it comes to defining what makes a value company because it depends on the value the fund manager thinks the company is intrinsically worth. None-the-less, we can point to some broad characteristics. One is that they tend to be more mature companies in a lower growth phase of their development, kicking out cash and paying a fairly decent dividend. Financial metrics such as the price of its shares relative to its profits tend to be low relative to other companies, hence being a bargain or good value. In addition, certain sectors will tend to contain more value stocks, such as financials, industrials, and energy. And they tend to be more economically sensitive, meaning they boom when economies do, and crash when economies fall into a downturn. (Remember though, markets are forward looking, so their performance isn’t necessarily attached to the state of the economy today). 

Should I be investing in value stocks?

Dzmitry Lipski, Head of Funds Research, interactive investor: “Within the current environment, where we have rising inflation and interest rates, quality value stocks that might trade at a lower price relative to their intrinsic worth, are interesting. Value stocks have the ability to grow profits above inflation and pay steady or rising dividends, providing extra cushion to protect real returns. As such, value-oriented sectors such as financials and energy could do well.

Which value fund might be good?

Artemis SmartGARP Global Equity Fund, covers a broad spread of countries and market sectors. The portfolio is well diversified with a bias to value stocks. It seeks long-term capital growth by investing in attractively valued high-quality companies. Drawing on Artemis’ in-house software tool, SmartGARP©, the fund adopts an objective, systematic approach to investing, overlaid by the judgement of its manager. ‘GARP’ strategies invest in stocks that not only show higher growth characteristics than the market, but that are also trading at a lower valuation than they are intrinsically worth.

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Marcus De Silva
Date published:
17 / 02 / 2023
Reading Time:
6 minutes