Brexit-proofed funds for ISAs

Writer, Ryan Hughes
Wednesday, March 13, 2019 - 16:18

Tuesday's defeat of Theresa May’s Brexit deal confirms investors continue to face a period of uncertainty as they approach the important tax year end deadline.

The latest fund sales data from the Investment Association showed that £506 million was withdrawn from funds held in ISAs during January, the ninth month of outflows in a row. Whilst it is understandable that investors are monitoring the Brexit debacle, is it is important they do not let short term political wranglings harm their long term investments.

“Whatever you think of Brexit, one thing you shouldn’t let it affect is making the most of your annual ISA allowance. Even if you’d rather not make investments decisions until we know more about the Brexit outcome, if you have money you want to invest for the long term make sure you get it into your ISA before the end of the tax year. The Brexit fog should lift eventually and you can always hold cash in your ISA until you feel ready to invest. On the other hand this year’s ISA allowance will be gone forever if you don’t use it," says Ryan Hughes, Head of Active Portfolios at AJ Bell.

“It is also important to remember that timing the market is notoriously difficult. Markets are a bit jittery at the moment but if there is a breakthrough in the Brexit negotiations, things could stabilise and if you are sitting in cash you could miss out on any improvement in share prices. There are funds out there that investors could consider if they are worried about the Brexit negotiations but don’t want to wait them out in cash. We’ve looked at three different risk levels and an income option.

Cautious – Janus Henderson UK Absolute Return

“The flexible approach of the Janus Henderson UK Absolute Return fund could be useful if there is a period of extended market volatility. The fund has the flexibility to move both long and short, which means it can benefit from falling as well as rising share prices and fund managers Luke Newman and Ben Wallace have proven before that they have the skillset to profit when markets become difficult. While it’s not a cheap fund, if the managers are able to deliver positive returns when the market is down, they will have earned their fees.”

Balanced – Newton Global Income

“Focusing on a fund with a proven and repeatable investment process may also be a sensible strategy for those wanting to remain invested. The Newton Global Income fund has a simple approach that looks at large companies that offer a dividend yield of 25% greater than the FTSE World Index. Focusing on high quality, cash generative companies tends to offer defensive characteristics when markets become volatile but importantly the strategy over time looks to deliver steady long term returns underpinned by the dividend yield. The fund is tried and tested with a very experienced manager in Nick Clay, which makes this fund a solid core for a balanced investor.”

Adventurous – Polar Capital Global Insurance

“Insurance never sounds like the most exciting of investment ideas but in many ways that’s precisely the appeal. It’s a sector that often goes under the radar but insurance companies have a fantastic ability to generate cash regardless of the economic environment, as we all know through our ever increasing insurance premiums! Polar Capital Global Insurance is highly unusual in focusing on this area but they are experts in this specialist field and this comes through in the quality of management. The strategy has relatively low correlation with global equities and therefore adds useful diversification to an existing portfolio of traditional equities.”

Income seekers – Troy Trojan Income

“UK equities have become well and truly out of favour not just with UK investors but with overseas investors too. This has seen many traditional UK equities sell off to the point when many are yielding well above long term levels. The Troy Trojan Income fund, managed by Francis Brooke, takes a long term approach with an aversion to capital losses and a focus on companies that others are shunning. As a result, this UK equity income fund with a strong long term record is now yielding over 4%. Should Brexit take a turn for the worse, this fund is defensive and may offer some protection from any sharp equity falls in the UK market.”

These articles are for information purposes only and are not a personal recommendation or advice.

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Written by:
Ryan Hughes

Ryan Hughes is Head of Active Portfolios at AJ Bell. He has 20 years of experience in finance and investments and started his career working as a financial adviser before becoming an investment analyst and discretionary fund manager as well as twice being named one of the most influential financial advisers in the UK. In 2006, Ryan joined Skandia Investment Management as a fund manager, sitting on both the investment committee and global asset allocation committee before then joining Apollo Multi Asset in 2013. In October 2016, Ryan joined AJ Bell to help establish the investment research capability.