The Share Centre urges investors to be ISA efficient this year
As we begin the new tax year, Sheridan Admans, investment research manager at The Share Centre, explains the benefits of regularly investing in an ISA and highlights his top fund picks.
"The ISA allowance is very much ‘use it or lose it', which means it can't be carried over to the following year. Our research revealed that nearly half (46%) of ISA investors weren't planning to utilise their full 2011/2012 allownance and this is understandable from the point of view of a cash ISA saver. They have suffered considerably in recent years with interest rates held so low resulting in cash returns struggling to beat inflation.
"Providing investors are comfortable taking the risk, a low interest rate environment should favour those using the Stocks and Share ISA allowance. Investing in an ISA allows investors to protect what they can from the taxman. Those looking to invest should make as much use of the full increased allowance of £11,280 for 2012/2013 as they can.
"Pound cost averaging takes the worry out of timing the purchases of your investment and can be a benefit of investing small amounts regularly.
"Applying this strategy means fewer shares or units are purchased when prices are high and more are bought when prices are low. So over a 5 to 10 year time period the regular investor will achieve an average buying price between the highs and lows. This helps them avoid miss timing the market and only buying when prices are high.
"In addition, the strategy allows investors to make regular affordable investment out of their income and creates a habit of saving. They do not have to worry about when prices fall as more units can be purchased and they resist the temptation to buy more when the price is high."
Admans picks three funds that should help grow your income over time:
Invesco Perpetual High Income fund
"This fund is run by one of the most highly respected fund managers, Neil Woodford and is one of the largest actively managed funds within the UK, with assets under management currently totalling around £10.7bn. The size of the fund ensures it sits very comfortably as the largest in terms of assets under management within the highly competitive UK Equity Income arena.
"Neil's reputation is based on his consistent and well-established management style; he is not afraid of being contrarian or to back his convictions and beliefs. He has held firm in the belief that solid defensive companies with strong earnings growth is the place to be.
"The fund looks to identify long term themes and attractive valuations in companies. With the current turmoil and uncertainty, the portfolio is tilted towards sectors such as 'Health Care', 'Consumer Goods', and 'Industrials'.
"For those investors unsure which UK Equity Income fund to choose and preferring to follow a manager with a proven track record, then this fund could suit."
First State Global Listed Infrastructure fund
"Infrastructure investment as a theme remains relatively new to the collective arena, however we believe it is likely to become more prominent in the ensuing years. The types of companies found in funds such as this would be involved with projects such as airports, sea ports, gas, electric and water utilities, toll roads, oil and gas pipe-lines.
"Investment in infrastructure as a theme is a strong long-term argument, particularly given the continuing economic global slow down. Focus in many countries around the world is on the stimulation of economic growth and where better for governments to direct stimulus packages than on improvement to their internal strategic assets. In regions like China this is likely to mean new facilities, where as in the US and Europe it is likely to result in upgrading current facilities and the improvement of their efficiency.
"These companies tend to be defensive and mature, suggesting reasonable levels of dividends and dividend growth. This is further aided by high barriers to entry, strong pricing power, sustainable growth and predictable cash flows making the asset class a relatively safe haven in an uncertain financial world.
"This fund is suitable for investors wanting global equity exposure, whilst retaining a defensive and more balanced return."
JPM US Equity Income fund
"The US as a region has rarely before been considered as an income producing nation for a variety of reasons, such as corporate behaviour and taxation issues. Yet it is home to many of the world's largest, most innovative and strongest brands.
"With many US corporate balance sheets being the healthiest they've been in for many years, alongside an aging population, with an increasing demand for income, companies are paying or raising their dividends. And in addition, changes to the US taxation rules, have assisted in companies seeing the return of capital through dividends to shareholders as an increasingly attractive proposition.
"The fund is managed by Clare Hart who has been at the helm since the fund's launch back in December 2008 and during that time it achieved first quartile performance for the calendar year of 2010 and was ranked number one within its sector for 2011.
"The fund looks for companies they believe are under valued, have strong and durable franchises, a consistent pattern to their earnings and cash flow, offer above average dividend yields and are able to sustain the payments and finally have good management."