Where are Isa investors putting their money in 2017?
This year almost a third of January Isa investments have gone into UK equity funds, which invest in the shares of companies listed on the London Stock Exchange.
Income generators popular
UK equity income funds, which invest in dividend-paying firms, are top of the pops, having attracted more than 15% of inflows. Strategic bond funds – which invest in government and corporate bonds, and were out of favour last year – attracted almost 8% of Isa money.
Winners and losers
The big loser is the property fund sector. After some commercial property funds suspended trading following the Brexit vote, their popularity plummeted. The sector has fallen from 6th to 21st spot, having attracted less than 1% of Isa inflows. It’s a shame. The ‘gating’, although frustrating if you needed your money, stopped investors panicking and incurring big losses, and I believe these funds still have a place in a diversified portfolio.
Global emerging market funds remain unloved, having attracted a fraction over 1% of Isa investment. In contrast, Asia Pacific ex Japan funds have made a modest comeback, accounting for 4% of Isa sales.
Familiar fund faces
The top-selling funds are CF Woodford Equity Income*, followed by Fundsmith Equity*. Stewart Investors Asia Pacific Leaders* and Invesco Perpetual Monthly Income Plus regained the top 10 status they lost in 2016.
There are fewer medium and smaller companies funds among the top-sellers. Investors may be waiting out Brexit uncertainty by favouring larger, US dollar-earning businesses in the FTSE 100.
Despite having 12 months to make use of their annual Isa allowances, investors always seem to leave it to the last minute. March is by far the busiest month for Isas as people rush to meet the 5 April deadline.**
March could be especially busy, as Neil Woodford, one of the UK’s most successful fund managers, is launching an income fund at the end of the month. When he launched CF Woodford Equity Income in 2014, it fast became the best-selling fund in the UK and has topped the charts since.
The new fund, Woodford Income Focus, is set to pay a higher dividend, which will appeal to investors looking for income. Don’t be surprised to see the name Woodford in the top two fund positions by the end of this tax year.
*Member of Moneywise’s First 50 Funds for beginners
** Source: Chelsea Financial Services. Average level of Isa
Darius McDermott is the managing director of Chelsea Financial Services and FundCalibre.
- Past performance is not a reliable guide to future returns. You may not get back the amount originally invested, and tax rules can change over time. Mr McDermott's views are his own and do not constitute financial advice.
Invidivual Savings Accounts were introduced on 6 April 1999 to replace personal equity plans (PEPs) and tax-exempt special savings accounts (TESSAs) with one plan that covered both stockmarket and savings products, the returns from which are tax-exempt. The ISA is not in itself an investment product. Rather, it’s a tax-free “wrapper” in which you place investments and savings up to a specified annual allowance where the returns (capital growth, dividends, interest) are tax-exempt (you don’t have to declare ISAs and their contents on your tax return). However, any dividends are taxed within the investment, and that can’t be reclaimed.
A market-weighted index of the 100 biggest companies by market capitalisation listed on the London Stock Exchange. It is often referred to as “The Footsie”. The index began on 3 January 1984 with a base level of 1000; the highest value reached to date is 6950.6, on 30 December 1999. The index is “weighted” by how the movements of each of the 100 constituents affect the index, so larger companies make more of a difference to the index than smaller ones. To ensure it is a true and accurate representation of the most highly capitalised companies in the UK, just like football’s Premier League, every three months the FTSE 100 “relegates” the bottom three companies in the 100 whose market capitalisation has fallen and “promotes” to the index the three companies whose market capitalisation has grown sufficiently to warrant inclusion. Around 80% of the companies listed on the London Stock Exchange are included in the FTSE 100.
If you own shares in a company, you’re entitled to a slice of the profits and these are paid as dividends on top of any capital growth in the shares’ value. The amount of the dividend is down to the board of directors (who can decide not to pay a dividend and reinvest any profits in the company) and they will be paid twice yearly (announced at the AGM and six months later as an interim). Dividends are always declared as a sum of money rather than a percentage of the share’s price. Although dividends automatically receive a 10% tax credit from HM Revenue & Customs (HMRC), which takes the company having already paid corporation tax on its profits into account. Dividends are classed as income and, as such, are liable for personal taxation and so shareholders have to declare them to HMRC.