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A steady season

Advisers are hoping for a strong finish to the Isa season despite a quiet start to the year.

This year’s Isa season is proving hard to predict as markets are static amid concerns that some of the major problems in Europe will reappear.

Recent statistics from the Investment Management Association have failed to lift the mood.

If you strip out the March and April 2011 figures, when Isa sales are typically high in the run-up to the end of the season, the average monthly inflow for last year stood at £101m.

Isas saw a net outflow of £117m in January, the highest outflow since October 2008. January was the fourth month in a row for Isa outflows following consistent inflows between March 2009 and June 2011.

Isa limits stand at £10,680 for this tax year but will rise to £11,280 for 2012/13.

Cash Isas tend to outsell stocks and shares Isas but that trend may be starting to reverse.

Research by execution-only platform TD’s Global Investor found that of 1,008 people polled, 77 per cent invested in a stocks and shares Isa last year compared with 53 per cent in a cash Isa.

The company’s survey for 2010 saw 66 per cent invest in a cash Isa while only 47 per cent opted for stocks and shares.

Advisers say they expect stocks and shares Isas to continue to increase in popularity.

Skerritt Consultants head of investments Andy Merricks says he expects sales to be up this year as cash products continue to offer nominal rates.

Merricks says high-yield funds have been popular and remain a fantastic opportunity, pointing to the £176m JP Morgan global high-yield, £3.3bn Invesco Perpetual monthly income plus and £71m European high-yield funds.

He says: “High yield is a great option for customers. UK equity income is also a popular option, as is overseas income.”

Informed Choice managing director Martin Bamford says his firm has seen strong sales this year, pointing to the fact that a blowout in the eurozone has not transpired.

He says: “We have seen an Isa sales increase of around 20 per cent on last year and it is been pretty well spread out across equities and fixed interest. We have not had massive concerns hitting the market in the short term, such as the Japan earthquake just before the end of the Isa season in 2011.”

Chelsea Financial Services managing director Darius McDermott expects sales to be at similar levels to last year. UK equity income leads the way for his firm’s Isa sales, with 21 per cent of clients’ Isa assets going into the sector. Invesco Perpetual income guru Neil Woodford is again a top seller at the firm, courtesy of his £11.5bn high-income fund.

McDermott says: “The lion’s share of our clients’ Isa money is going into UK plc this year with more than a third of investments – 35 per cent of adult Isas and 41 per cent of Junior Isas – having gone into the UK stock-market this season.

“Within UK equities, UK equity income funds remain the firm favourite for both, with adults favouring the UK all companies sector for their own investments but UK smaller companies for their children.”

McDermott says the big surprise so far has been the lack of interest in the IMA mixed investment 20-60 per cent sector, formerly the IMA cautious sector, which has traditionally been popular.

He says: “It has fallen right down the popularity ranks. Less than 1 per cent of our clients’ adult Isa money has gone into this sector in the last three months.”

Dennehy Weller managing director Brian Dennehy also expects Isa sales to remain level.

He says: “The theme seems to be steady and unexciting. There are no interesting themes emerging. In the past we have had corporate bonds, property and gold, where the man in the street got excited. That has not happened this year.”

Dennehy says lower-risk corporate bonds have been popular. He says: “That has taken the greatest income. Then in the middle ground, you have equity income, where there are a lot of heavy-weight funds that are well known in that market.”

One story that has emerged as a potential trend is Asian income as people look to diversify away from UK income offerings. The £1.7bn Newton Asian income fund is one fund many IFA firms have seen strong Isa sales in for the past few months.

The fund, which is managed by Jason Pidcock, is top-quartile in the IMA Asia Pacific excluding Japan sector over the past 12 months. It has returned 132 per cent in the past three years compared with a sector average of 87 per cent.

Dennehy says: “I think people have gradually got the story on Asian income but I still think many will be surprised in 10 years’ time about how many people in the UK are dependent on income derived from Asia.”

Hargreaves Lansdown investment manager Ben Yearsley says: “People should expect Asia, and Asian income funds, to become more popular. It is a great diversifier and has a great long- term income story.”

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