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Investment analysis: US and UK equities lead the way as advisers welcome ‘busiest Isa season in years’

As advisers welcome the ‘busiest Isa season in years’, clients are getting back into equities, with the US and UK leading the way


Advisers say UK and US equity funds have led the way as investors’ willingness to take on more risk has resulted in a strong 2012/13 Isa season.

According to the Investment Managment Association fund flow figures for February, Isa funds saw an outflow of £103m, ahead of the usual rush before the 5 April deadline. This compares to an outflow of £122m the previous year.

This outflow is typically down to investors looking to switch funds ahead of the new Isa season, although there will have been some who looked to take money off the table due to the recent strong performance in the markets.

The IMA’s figures show the best-selling sector for Isas in February was global emerging markets with £16m worth of net sales. UK all companies was the worst-selling sector for Isas, with an outflow of £88m in net sales.

However, with the majority of Isa sales occuring in the weeks running up to 5 April, it appears the argument for UK and US equities has gathered momentum.

Investment Quorum chief executive Lee Roberston describes the 2012/13 Isa season as “the best season in five years” at the wealth manager. He says: “We have had the busiest tax year end that we have had in a long time.

“Markets have been pretty benign and fairly buoyant, so that has helped. There is also a growing acceptance of the current situation and clients are beginning to feel more confident again.”

Robertson highlights the situation affecting Southern Europe as something that may still be creating an element of caution among investors. However he believes investors are realising “the world does not end because of this”, and are prepared to invest again.

Robertson sees a general theme of clients getting back into equities, with America and the UK proving popular sectors.

He says: “Investors have understood that fixed interest is probably not the best place to be. They like America, they certainly like the UK and they are still quite interested in emerging markets.”

He highlights the CF Lindsell Train UK Equity, Cazenove UK Opportunities and Franklin Templeton UK Mid Cap as standouts funds the wealth manager has been recommending.

Hargreaves Lansdown says equity income dominated its Isa sales during March, accounting for seven of its top 10 best-selling funds last month and in the first quarter of 2013.

Hargreaves Lansdown senior investment manager Adrian Lowcock (pictured) says  “investors are clearly looking overseas for both income and growth”. Among the firm’s top 10 best-selling Isa funds is the First State Asia Pacific Leaders and First State Emerging Market Leaders, as well as the Newton Global Higher Income fund.

The top 10 also includes the Cazenove UK Smaller Companies and JO Hambro UK Equity Income fund. Neil Woodford’s Invesco Perpetual High Income fund also sits in the top 10.

Lowcock says global bonds remain popular with investors. Elsewhere, given the “resilience of equity markets” Lowcock says he is “not surprised to see money flow out of the IMA corporate bond sector in February”, noting that no bond funds were featured as part of its top 10 Isa funds.


Capital Asset Management chief executive Alan Smith (pictured) agrees the 2012/13 Isa season was “probably the busiest in several years.” However he has taken a somewhat different approach to what he describes as buying into “flavour of the month” funds.

Smith says the firm continues to hold a mix of equities and bonds in order to create “blended and risk-rated portfolios”, namely passive funds and UK government sovereign debt.

He says: “What we as a business aim to avoid is the concept of ‘hot funds’ or whichever sector is ‘the place to be’. We will always build blended investment portfolios regardless of the tax wrapper, we will not be lead by flavour of the month.”

Smith highlights the Vanguard range of index funds as a way of capturing equity returns at a low cost. He says: “We are very focused on keeping a lid on overall costs for clients, so we only buy passive funds. We then blend this with bond and gilt-type funds to reduce volatility.”

Smith avoids corporate bonds in favour of UK Government sovereign debt, such as  the Dimensional Global Short dated bond, Vanguard UK Inflation Linked Gilt, Vanguard UK Long Duration Gilt and Dimensional Sterling inflation linked Fixed Income.

AWD Chase De Vere head of communications Patrick Connolly says there was increased exposure to America during the Isa season through both active and passive funds. He mentions specifically the HSBC American Index fund, as well as the JPM US Equity Income and Threadneedle American fund as other active opportunities.

He focuses particularly on the Axa Framlington American Growth fund as a different addition this year. He says: “It is an interesting fund because, as the name suggests, it is far more growth oriented and much more into technology-style companies which have not performed as well over the past couple of years but potentially are better priced than many other sectors.”

Cazenove UK Opportunities cumulative performance to 10 April 2013

Fund 5.95% 18.65% 30.85% 61.42% 101.42%
6.01% 13.09% 18.09% 27.45% 30.90%
-0.05% 4.92% 10.81% 26.66% 53.87%
  127 / 282 14 / 282 10 / 279 10 / 268 6 / 246
2 1 1 1 1

Source: FE Analytics

Axa Framlington American Growth cumulative performance to 10 April 2013

Fund 6.13% 5.24% 4.02% 34.13% 67.23%
12.04% 15.20% 16.71% 30.48% 53.72%
-5.28% -8.65% -10.88% 2.79% 8.79%
  101 / 103 102 / 102 100 / 101 32 / 90 13 / 80
4 4 4 2 1

Source: FE Analytics



Isa analysis –  fund focus

£12bn Cazenove UK Opportunites

Julie Dean manages the fund with the aim of achieving long-term capital growth whilst delivering an income. The top holdings in the fund include BP and L&G, with its largest sector exposure in consumer services and financials.

£710m Axa Framlington American Growth

The fund is managed by Stephen Kelly and contains mix of mid and large cap US business, with an emphasis on the technologies sector. The fund’s biggest exposure is in technologies, with Apple and Google making up its largest holdings.


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