Slow burner

24 March 2011 | By Chris Salih

Despite a slow start, advisers are predicting a good Isa season, with UK equity income funds again set to lead the way.

Recent statistics from the Investment Management Association show Isa sales in January stood at £21m, massively down on the £204m monthly average last year, excluding the March and April Isa season.

Net retail fund sales in January reached just £891m, less than half the £1.95bn recorded in January 2010.

Bestinvest senior investment analyst Adrian Lowcock says there has been no stand-out fund launches or pushes by fund firms on any particular fund, hence the slow start.

He says: “We have had a good start ourselves but it is interesting to note that last year there was a big push from Fidelity because of the China special situations fund managed by Anthony Bolton, which a few of the fund managers followed. This year we do not have anything so big.”

Informed Choice managing director Martin Bamford agrees the Isa season has been a lot quiter as fund companies have offered fewer deals. He says: “It does normally pick up from here. However, the news from Japan may slow that sort of activity this year.”

Whitechurch Securities managing director Gavin Haynes says: “There has been a lot of interest in the balanced, multi-asset and distribution-type products, which covers a number of areas and probably reflects the uncertainty in the markets right now.

“There has been more interest in dividend-yielding products so I also expect more interest in the big income funds, such as Neil Woodford’s Invesco fund and the Artemis fund run by Adrian Frost.”

Chelsea Financial Services managing director Darius McDermott says CFS’s business is about 40 per cent up on last year, with UK equity income funds again the leading asset class for investors.

He says: “UK equity income is always our biggest seller unless something major happens, as we saw with bond markets two years ago. Strategic bonds have also continued to be popular as people move out of corporate bonds.

“Investment in US funds has also increased by 3-4 per cent and we have seen more flows into emerging markets and absolute return funds.”

Invesco monthly income plus, managed by Paul Causer and Paul Reed, has been Chelsea Financial Services’ biggest seller so far, followed by JO Hambro equity income, run by Clive Beagles and James Lowen, and Neil Woodford’s Invesco Perpetual high-income fund.

Woodford has traditionally topped the best-seller list as his £10.2bn high-income and £8bn income funds have been seen as rock-solid longer-term investments by investors. However, having struggled with performance over the last three years, will investors start to look elsewhere?

Hargreaves Lansdown investment manager Ben Yearsley says: “Neil Woodford’s three-year numbers still look OK from a client perspective, simply because he is making money. They will not complain if the market is up by 30 per cent and he is up by only 10 per cent as the bottom line is that he is still up. I would expect him to be among the top performers.”

Yearsley says the disastrous effects of the tsunami in Japan may slow interest in the likes of emerging markets but there are still a number of unknowns.

He says: “Technology could surprise as there are a number of interesting sub-sectors in that market. On the whole, if I were to highlight two fund managers for Isa investors, it would be Woodford and Artemis strategic assets fund manager William Littlewood.”

Littlewood launched his strategic assets fund in May 2009. The fund now has £840m and is expected to break the £1bn barrier soon and is up by 12.4 per cent over the last 12 months.

Strategic bond funds are also expected to be popular with investors as money moves out of corporate bond funds following their strong run and inflation concerns.

Lowcock says: “I would expect those funds to sell well and they could compete with UK equity income funds if fears over Japan lead to wider concerns across equity markets. We currently recommend the Legal & General dynamic bond and the Invesco Perpetual tactical bond fund.”

Lowcock says global income may also prove popular and could start to take a bite out of UK equity income funds as investors look to diversify.

McDermott points to the Schroder UK income maximiser product, which looks to deliver a 7 per cent yield each year, as another popular seller.

He says: “The income maximiser has always been a big seller and it is in our top 10 again this year. Much like Invesco Perpetual monthly income plus, it delivers a strong, steady yield and has proven itself.”

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