ISA investors uncertain where to invest 2006/7 allowance

One in four ISA investors are uncertain about where to invest their allowance this year, according to the annual “Investor Watch” survey from Fidelity International.

Of the people surveyed by Fidelity, the UK’s leading mutual fund manager, 75% of those who intend to take out an equity ISA this year are cautious about traditional equity-based funds.

A quarter of those polled in the “Investor Watch” survey state that they were cautious because of concerns about a downturn in the economy. One in ten have had their fingers burnt in the past or think equities are too risky, and a further 11% are unsure which asset class they should be investing in altogether. Many are therefore hesitant about where to invest as the tax year end draws closer and others are actively seeking funds with a broad mix of asset classes.

Richard Wastcoat, UK managing director of Fidelity International, says: “When the survey took place, people were still feeling cautious about equity investments after the market correction in 2006. Two weeks ago we saw another correction across global markets which will no doubt have increased investor worries. For those people wanting to spread the risk of their investment, a balanced fund that invests in a variety of asset classes could be the answer.”

The survey reflects a desire among some investors to diversify their portfolios outside of traditional equity or bond funds this coming ISA season. One in ten (11%) say they will invest in a fund that offers access to a broad mix of asset classes, including cash and property, as well as some more exotic assets such as commodities.

Richard Wastcoat continued: “What is notable in the survey is that some investors are looking to diversify their portfolios outside of pure bonds and equities and invest in a spread of asset classes, including property and cash. The message that you can reduce risk through asset diversification appears to be gaining traction with many savers.”

A balanced “all-terrain” investment vehicle such as Fidelity’s Multi-Asset Strategic Fund aims to provide diversified long-term capital gains with low volatility. It makes for an ideal core holding that can perform relatively well in both bull and bear markets for equities.

A new breed of balanced fund

The Fidelity Multi Asset Strategic Fund is primarily a fund of funds: almost all the underlying holdings are single-strategy Fidelity funds incorporating the stock selection decisions of a broad range of specialist Fidelity fund managers. Commodity index and additional equity sector exposure will be achieved using liquid derivative instruments.

Fees are highly competitive: the fund’s estimated Total Expense Ratio (TER), a measure of all costs including management charges, is 1.63%. The initial charge is 3.5% and Fidelity is offering a 0.5% discount on any ISA and Pep transfers received before 5 April 2007.