It has been a tough few years on the stock market, leading many investors to
question the value of using individual savings accounts (Isas) to save for
their future.
However, as the Government prepares to boost the annual Isa allowance to
£10,200 — a £3,000 increase — for those aged 50 and over, research carried
out for Times Money suggests that there are considerable long-term
benefits to be had by investing in the tax-efficient schemes.
If you had invested £7,000 each year in a stocks-and-shares Isa since they
were introduced in April 1999, you could now be sitting on a tax-free nest
egg worth more than £265,000. Obviously, you would have to have played your
cards spectacularly well to achieve this. You would have to have put all
your £7,000 lump sums — the previous maximum permitted annually — into the
JPMorgan Indian investment trust, which was the best-performing collective
fund between April 1999 and last month.
However, it does show how the snowball effect of regular saving plus
reinvestment of dividends, coupled with stock market growth, can create a
substantial cash sum from quite modest beginnings.
It is no accident that the top fund invests exclusively in an emerging
economy. No fewer than six of the top ten over the past decade were funds
investing in emerging markets, with Latin America taking four of those six
slots. The remaining places were taken by funds investing in mining and
natural resources and Asian smaller companies. In terms of fund groups,
BlackRock had three entries in the top ten.
Here we analyse the top performers (with the nest egg that they would have
accrued) and ask the experts which funds they think will shine over the next
decade.
The past decade’s winners
1. JPMorgan Indian Investment Trust (£265,942)
The fund is run by a trio of managers headed by Edward Pulling, who has been
at the helm since 1998. It is focused entirely on India with more than half
the portfolio invested in financials and basic materials. The fund has
participated in both the sharp rises and the sharp falls of the Indian stock
market but, because the rises have heavily outweighed the falls, the high
risk/high reward approach of investing in a single-country fund has paid
off.
2. BlackRock Gold & General Fund (£262,706)
At £1.7 billion this is one of the largest funds on the market. It has
performed outstandingly well on the back of soaring metal prices. Evy
Hambro, the manager, has been with BlackRock since 1994 and has much
experience of running gold and mining funds. The fund is quite heavily
weighted towards North America, where nearly 50 per cent of the companies in
the portfolio are based. In contrast, South Africa, a leading gold producer,
accounts for only 10 per cent.
3. BlackRock Latin American Investment Trust (£249,829)
Latin America has been the best-performing region over the past decade,
propelling a number of Latin American funds to the top of the tables.
BlackRock’s investment trust, headed by Rupert Brandt for more than six
years, has been the best of the bunch. Like other Latin American funds, it
is primarily invested in Mexico and Brazil, which means that it is heavily
dependent on the performance of those two stock markets.
4. JPMorgan Natural Resources Fund (£241,136)
Another large fund, weighing in at £1.3 billion and with the very experienced
Ian Henderson as the lead manager since 2000, it has grown dramatically as
mining companies’ profits have soared on the back of China and India’s huge
demand for raw materials. The portfolio’s two largest sector holdings are in
industrials and precious metals, with about 35 per cent each. Like emerging
markets stocks, the mining companies that make up the bulk of the fund have
treated investors to a rollercoaster ride in recent years.
5. BlackRock World Mining Investment Trust (£240,750)
Graham Birch, the manager since 1993, has more than 20 years’ experience of
researching gold, mining and energy companies. Unlike the JPMorgan fund,
which is split almost equally between industrials and precious metals, the
BlackRock fund has nearly three quarters of its portfolio in industrials and
more than a quarter in precious metals.
6. Scottish Widows Latin American Fund (£228,706)
Once again a top-performing fund has a long-standing manager, with Rory
Hammerson at the helm for more than ten years. It also shows the value of
being in the right geographical region — there are no fewer than four Latin
American funds in the top ten. Many of the biggest holdings in the Scottish
Widows portfolio, such as Petrobras, the Brazilian energy company, and
América Móvil, the Mexican mobile phone company, are common to the other
Latin American funds, which may explain why several have produced similar
performances.
7. Threadneedle Latin American Fund (£221,981)
This fund is another to benefit from the Latin American effect. Responsibiity
for managing the fund was handed over recently to Julian Thompson, who has
been with Threadneedle since 2003. Like other funds from the same region, it
has a large stake in Petrobras and América Móvil. Basic materials and
financials make up more than half the portfolio.
8. Invesco Perpetual Latin American (£217,664)
Dean Newman, the highly experienced manager, has been running the fund for 15
years. While the largest individual holdings are familiar names, the sector
holdings show a different pattern to some other funds, with basic materials
relegated to fourth place, below financials, telecoms, media and technology,
and consumer products.
9. Scottish Oriental Smaller Companies Investment Trust (£215,516)
Susie Rippingall has managed the fund since 1995. As its name suggests, she
focuses on smaller companies in the Pacific Basin. Consumer products, with
30 per cent, and financials, with 22 per cent, make up the largest sector
holdings.
10. Templeton Emerging Markets Investment Trust (£210,823)
The Templeton fund is both the oldest and, at £1.2 billion, the largest
emerging markets investment trust.
It has been run since its 1989 launch by Mark Mobius, the doyen of emerging
markets investors. His biggest geographical weighting is in the Pacific
Basin (43 per cent), followed by the Americas (22 per cent). His largest
sector weightings are in basic materials (41 per cent) and financials (25
per cent).
Tipped for the top
1. First State Indian Subcontinent Fund
Ben Yearsley, of Hargreaves Lansdown, the independent financial adviser, says:
“Emerging markets are where the biggest growth potential for the future
lies. I am going for a high-risk, high-reward option and picking a single
country fund rather than a more general emerging markets fund.
“India has a vast untapped potential and is arguably some way behind China in
development, so there is plenty to go for. First State has a huge amount of
experience in emerging markets, including India.”
2. Jupiter Financial Opportunities Fund
Mick Gilligan, of Killik & Co, the stockbroker, says: “There are several
reasons for selecting this fund. To start with, Philip Gibbs is an
outstanding manager and the fund has a consistently good track record. Mr
Gibbs has shown considerable skill and flexibility in negotiating the storms
that have buffeted the financial sector in recent years, and financials now
look set for several years of good growth.
“One final reason to pick him is that he is not only good at making money, but
also at preserving it once he has made it.”
3. Advance Developing Markets Trust
John Newlands, of Brewin Dolphin, the stockbroker, says: “Those seeking the
very best returns are unlikely to achieve them by confining themselves to
domestic markets. It seems likely that emerging markets will offer the best
prospects. I would go for a broadly-based investment trust, such as Advance,
rather than a fund in which you are gambling heavily on a single country and
a single currency.
“The Advance fund invests in a wide spread of countries, from Bahrain to
Zimbabwe. Both the fund group and Slim Feriani, the fund manager, cover
nothing but emerging markets. Mr Feriani invests mainly through funds of
funds, which helps to spread the investment risk in what can be pretty
volatile markets.”
4. Jupiter India Fund
Brian Dennehy, of Dennehy Weller & Co, the independent financial adviser,
says: “India has fantastic potential, with 25 per cent of the world
population of under-25s. The victory of the Congress Party in the recent
general election should enable it to move forward and start to harness more
of its potential.
“The Indian economy is more self-contained than most, so it should be able to
thrive regardless of what is happening in the global economy. There are a
limited number of good fund managers covering India. Avinash Vazirani, head
of the Jupiter fund, is one of them.”
5. First State Global Emerging Markets Leaders Fund
Tim Cockerill, of Rowan & Co, the independent financial adviser, says:
“Over a ten-year timeframe, emerging markets are the place where the
strongest growth is likely to be. They have the big populations, low labour
costs and the sheer energy to succeed.
“First State adopts a fairly conservative approach, looking for quality
businesses whose earnings are clearly visible. This style works well in
fairly volatile markets. Angus Tulloch, the fund manager, is a safe pair of
hands and has huge experience investing in emerging markets.”
Case study: Topping up for tax-free monthly income
Giles Ellis has been investing in stocks-and-shares Isas since the products
were introduced in 1999. Mr Ellis, a retired chartered engineer from
Wimbledon, southwest London, has now built a nest egg worth £85,000. As
someone who will be aged over 50 on October 6 he is planning to top up his
stocks-and-shares Isa with the maximum permitted £3,000.
Mr Ellis says: “I have not decided on a fund but it will be a corporate bond
fund. My strategy has been to invest primarily in corporate bond funds,
which enables me to generate tax-free monthly income.”
This is because the interest on bond funds within an Isa is not liable for
income tax. Equally, if Mr Ellis sells any of his corporate bond funds,
there will be no capital gains tax to pay. At the moment Mr Ellis receives
average income of 5.4 per cent on his portfolio.
Among the funds he holds are Artemis Strategic Bond, M&G High Yield
Corporate Bond Fund and JPMorgan Sterling Corporate Bond Fund.
He also holds several funds designed to permit the payment of a regular
monthly income. They include the Fidelity Moneybuilder Income Fund, Investec
Monthly Income Plus Fund and Invesco Perpetual Monthly High Income.
Mrs Ellis also holds some stocks-and-shares Isas, into which she has put a
number of the same corporate bond funds that her husband holds.
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