Where to invest your ISA - Mediahill · ISA and Share Plan At Aberdeen, we believe there’s no substitute for getting to know your investments face-to-face. That’s why we make

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Why Latin America?It’s been common to hear financial pundits and fund managers talk about “opportunities in Latin America.”

Investment optionsThere are many different investment vehicles that allow investors to profit from Latin America’s growth

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5 tips for investment trust investors

Investment trusts are set to jump in popularity this ISA season following the introduction of the Retail Distribution Review.

10 steps to success this ISA season

A ten-step plan that will provide the framework upon which you can decide where to invest your 2013 ISA money

in 2013

We explore further.Aberdeen Investment Trusts ISA and Share PlanAt Aberdeen, we believe there’s no substitute for getting to know your investments face-to-face. That’s why we make it our goal to visit companies – wherever they are – before we ever invest in their shares and again when we hold them.

With 17 investment companies investing around the world – that’s an awfully big commitment. But it’s just one of the ways we aim to seek out the best investment opportunities on your behalf.

Please remember, the value of shares and the income from them can go down as well as up and you may get back less than the amount invested. No recommendation is made, positive or otherwise, regarding the ISA and Share Plan.

The value of tax benefits depends on individual circumstances and the favourable tax treatment for ISAs may not be maintained. If you have any doubts about the suitability of any investment for your needs, please consult an independent financial adviser.

Request a brochure: 0500 00 40 00 invtrusts.co.uk

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Sponsored byAbout Aberdeen Asset ManagementAberdeen Asset Management PLC is a global investment group, managing assets for both retail and institutional clients from offices around the world. Listed on the London Stock Exchange since 1991, the group had over £193.4 billion under management as at 31 December 2012.

The group’s headquarters is in Aberdeen, but it prefers to locate its fund managers near the companies and markets in which they invest. Today we operate from 31 offices in 23 countries around the world. Our goal is to deliver superior and consistent fund performance across asset classes in which we believe we have a sustainable competitive edge.

Aberdeen Asset Management is one of the UK’s largest investment trust managers and manages or advises 17 UK investment companies with assets in excess of £5.5 billion. The range of investment trusts from Aberdeen Asset Management brings together our knowledge and experience across the UK, UK High Income, Asia, Global Markets, Latin America, North America and Specialist Sectors. The majority of these investment trusts and companies are on offer through the Aberdeen Investment Trust ISA or Share Plan, available at the award winning Aberdeen Investment Trust Centre: www.invtrusts.co.uk

We explore further.Aberdeen Investment Trusts ISA and Share PlanAt Aberdeen, we believe there’s no substitute for getting to know your investments face-to-face. That’s why we make it our goal to visit companies – wherever they are – before we ever invest in their shares and again when we hold them.

With 17 investment companies investing around the world – that’s an awfully big commitment. But it’s just one of the ways we aim to seek out the best investment opportunities on your behalf.



Request a brochure: 0500 00 40 00 invtrusts.co.uk

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Market Views™ ISA INVESTMENTS 2013

WelcomeMarketViews™ provides free, unbiased information for consumers who want to make better-informed financial decisions.Written by prominent financial journalists, our range of free guides and reports provide original, high quality financial content focused on actionable investing ideas.

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04 Summary

05 10 Steps to success This ISA season

09 Where to put your ISA investment

14 5 Tips For investment trust investors

JENNIFER HILL is an award-winning financial journalist who has written on financial matters for publications including The Independent, City AM, FT.com and thisismoney.co.uk. She was previously deputy Money editor of The Sunday Times, personal finance correspondent of Reuters, the global news service, and personal finance editor of The Scotsman. She has won or been shortlisted for six Headlinemoney awards, the ‘Oscars’ of personal finance journalism.

Contributor

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Market Views™ Market Views™ ISA INVESTMENTS 2013 ISA INVESTMENTS 2013

Making an investment purely due to tax breaks is never advisable: ‘Don’t let the tax tail wag the investment dog’, so the saying goes. But sheltering your hard-earned cash in a tax-privileged individual savings account (ISA) is a no-brainer.

In an ISA, income and gains roll up tax-free and the accounts are flexible, giving you access to your money whenever you want.

Investors who have fully utilised their tax-efficient investment allowance since personal equity plans (the predecessor of ISAs) were introduced in 1987 could have sheltered a whopping £206,760 from the taxman. If this was invested in funds yielding 5% a year, using the tax wrapper would save a higher-rate taxpayer £4,135 and a basic-rate taxpayer £2,067 per year on an annual income of £10,338.

If you haven’t used your allowance for the 2013-14 tax year, you can invest up to £11,520 in an ISA on or before 5 April. Half of that amount (£5,760) can be saved in cash or you can put the entire amount into a stocks and shares ISA.

Most of the top cash ISAs pay around 2.5%, with one or two accounts offering rates around the

3% mark. These often include an introductory bonus and entail giving notice (typically 60 or 90 days) before you can withdraw your money. With inflation running at around these levels even savers in tax-free accounts are struggling to get a real return – leading many to turn to investment markets.

With so many options, where should you invest your ISA allowance this year? This guide, written independently by an experienced financial journalist, aims to give ISA investors all the information required to make wise choices this ISA season.

Firstly, we offer a ten-step plan that will lay the foundation upon which you can build and manage your ISA portfolio. Investing is not about picking a random collection of once-tipped funds and leaving them to gather dust.

As much as it’s important to regularly review your portfolio – each year when you use your

ISA allowance is an ideal time – you shouldn’t be tempted to tinker with your portfolio too often. After all, investing is a long-term game.

Once you have a solid foundation, you can start to consider potential investments. Are you looking for a good core holding? Is income the most important thing for you? Or are you willing to move up the risk scale into areas that stand to net big returns, albeit with greater capital risk?

Where are the contrarian investors investing this year? Some of the world’s best stock-pickers, such as Warren Buffett and the late Sir John Templeton, can be described as contrarian: they buy when others are selling and sell when others are buying. Buying into the next stellar growth area before others catch on is how the best returns can be made.

We look at all of these areas and more, giving concrete fund recommendations along the way.

Summary

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Let’s start by setting out a ten-step plan that will provide the framework upon which you can

decide where to invest your 2013 ISA money.

1 Know your goals

Understanding what you want to achieve with your investments – whether that is funding a dream holiday when you retire decades from now or your children’s education in the not-so-distant future – is essential to success and should be at the core of any good financial management plan. Review your short and long-term goals: have they changed at all?

2 Think about risk

Review your risk tolerance. Has it changed? Does your existing portfolio reflect it accurately? Over time, your portfolio can move hugely out of line with your tolerance to risk as the value of your

investments rises and falls. This is particularly true during periods of high volatility, as we have experienced in recent years.

Say you originally had 70% of a £100,000 ISA portfolio in medium and high-risk asset classes, such as shares, and 30% in lower-risk areas, such as bonds. If the medium and high-risk investments had grown by 20% over the past year, that part of the portfolio would have gone from being worth

£70,000 to £84,000. If the remaining £30,000 in lower-risk assets grew at just 2%, it would be worth £30,600.

Overall, the portfolio is now worth £114,600 – a very healthy 14.6% return over a year. However, 73.3% of the new total is now invested in medium and higher-risk assets, with just 26.7% in lower-risk areas: as an investor you are now taking more investment risk

than you originally intended.

steps to success

this ISA season

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An extra 3% invested in equities might not sound like a huge amount, but if stock markets continued to rally, then the amount invested in this asset class could easily edge up year-on-year and exceed 80% in just a few years.If your risk profile hasn’t changed, you should rebalance: take profits from the areas that have performed the best and reinvest them in areas with weaker performance to bring the portfolio back to its original asset allocation.

This process should be repeated regularly – say, once a year. Regular rebalancing means that you tend to buy low and sell high – the Holy Grail of investing.

3 Review asset mix

Look at your underlying holdings. Have any biases crept in or are there any obvious gaps? For example, if you invest in funds that are highly exposed to large caps are you aware that the FTSE 100 is becoming increasingly concentrated?

Most investors looking for a low-cost way to track the UK market will buy a FTSE 100 tracker or exchange-traded fund, but what exactly are you buying? The answer is 38.9% exposure to the two largest sectors (financials and oil and gas) – areas that some fund managers are actively avoiding.

FTSE 100 WEIGHTINGS (TABLE)

Financials 20.62%Oil & Gas 18.3%Consumer Goods 14.88%Basic Materials 11.25%Consumer Services 8.43%Healthcare 7.95%Industrials 6.88%Telecommunications 6.50%Utilities 4.17%Technology 1.02%

Source: Hargreaves Lansdown 11.01.13

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Patrick Connolly, head of communications at AWD Chase de Vere, the independent financial adviser (IFA), says: “Investors shouldn’t look at new ISA investments in isolation, trying to pick which sector or fund they think will perform well. Instead, they should review all of their existing ISAs and other investments, then determine any areas where they need to increase exposure to meet their requirements.”

4 Review fund performance

Review the individual funds and stocks you hold within your portfolio to see how they have performed.

Are you still happy with them? “If you’re not, consider switching, which can be done free of charge with some companies,” says Darius McDermott, managing director of Chelsea Financial Services, the investment fund broker.

Make sure you don’t base investment decisions on short-term performance figures or market sentiment: all asset classes and most investment funds have periods when they perform well and periods when they perform badly.

Connolly says: “Many investors make the mistake of selecting funds that have produced strong short-term returns and where positive sentiment abounds. They often jump in after gains have already been made and when the period of good performance is coming to an end, then face losing money as the period of poor performance begins.

“Rather than looking at performance figures in isolation, understand why a fund has performed well or badly and if that’s likely to change before making any decisions.”

5 Consolidate

Are all your investments in different places? Consider consolidating them onto one platform.

McDermott says: “Platform-to-platform re-registration is up and running now so you won’t have any time out of the market and could be rewarded for putting your money in one place as many platforms provide incentives.”

As well as being able to see your entire portfolio at a glance, you could benefit from being able to buy funds at cheaper institutional prices, rather than retail rates.

6 Know your limits

In the 2012-13 tax year (so on or before 5 April this year) each adult couldshelter up to £11,280 in an ISA, up to half of which (£5,640) could be savedin a cash ISA. Chancellor George Osborne announced in the AutumnStatement that the overall ISA contribution limit will be increased to£11,520 for the 2013-14 tax year. The 2.1% rise means that £5,760 can beplaced in a cash ISA.

If you are a regular saver make sure you increase your monthlycontribution (from £940 to £960 for stocks and shares investors and from£470 to £480 for cash savers) to reflect these new limits.

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7 Shop around

The golden rule of getting the most out of your finances is to shop around – and this applies just as much when using your ISA allowance.“Shop around to make sure you’re getting value for money and aren’t paying over the odds for a fund, advice or service, but equally getting a quality service and a good performing investment,” says McDermott.

8. Don’t spread too thin

You have the choice of either investing your ISA allowance in an existing investment or choosing a new one.

As much as you should make sure you have a good mix of assets – what is known as a ‘well-diversified’ portfolio – make sure you don’t spread your investments too thin. You want to make sure that any fund you hold can have a noticeable impact on your portfolio.

McDermott says: “Anyone with less than £100,000 should really only have a maximum of 10-15 funds; a rough guide for a pot of £100,000 would be around 20 funds.

“This number would give you a sensible amount of diversification and you wouldn’t really want many more as you would end up having such a mixture of styles and geographies that you would effectively have an expensive global index.”

9. Be a trend setter

Beware of jumping on the latest investment bandwagon, following a fad or getting carried away by a trend. Instead, invest in a fund that you fully understand and which fits your existing portfolio and goals.

Adrian Lowcock, a senior investment manager at financial adviser Hargreaves Lansdown, says: “The main thing investors should remember is an ISA is not just for 2013, but beyond.”

10. Do it for the kids

Don’t forget to top up your child’s junior ISA or child trust fund (CTF). Launched on 1 November 2011, the junior ISA is available to UK resident children under the age of 18, excluding the six million children (born between 1 September 2002 and 1 January 2011) who received a CTF voucher.

The junior ISA allowance has risen to £3,720 in 2013-14, up from £3,600 in2012-13. The government has said that the limit for CTFs will move in linewith that for junior ISAs.

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Core holdings

Finding a good core fund can make all the difference to the overall performance of your portfolio.

Lowcock says: “For me, I want a manager who is

committed to the fund and will be around for the foreseeable future. We look at the fund manager, not the fund, so when a manager moves from a fund we think it’s time to re-evaluate that fund and decide if the incoming manager is worth recommending. Investors should look at existing holdings and do the same.”

FUND TIPS

Lowcock has recently added the Troy Trojan fund, managed by Sebastian Lyon, to his portfolio and will look to add to holdings in 2013. “The manager has excellent asset allocation skills which he combines with decent stock selection,” says Lowcock. “His focus has been on defensive shares and capital preservation, something that will provide stability to my portfolio over the longer term.”

The top two Citywire Selections star picks in the global equities space are Murray International Trust, a generalist investment trust managed by Bruce Stout, and Aberdeen Global Equity fund, managed by Stephen Docherty since he was appointed head of global equities in 2002.

Jonathan Miller, head of research at Citywire, says: “Our Citywire Selection picks are based on our totally impartial analysis of the funds and managers we believe have established the best track records, operate the best investment strategies and offer the best potential for investors.”

Where to put your ISA investment

So, you’ve done the groundwork. Now it’s time to figure out the best home for

your ISA investment this tax year.

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Dividends make a difference

McDermott believes that income-producing equity funds will remain popular this ISA season, not only for their yields, but also for the comfort the underlying companies can give to investors – healthy balance sheets and a clear respect for shareholders, for example. “Given the huge amount of money already in UK equities, I’d say global dividend funds are worth a look to add an extra level of diversification,” he says.

Lowcock also recommends looking beyond the traditional equity income funds and going overseas. “Europe offers some exciting potential returns and great income yields,” he says.

If you don’t need the income reinvest the dividends: this has been shown to be one of the biggest determinants of returns. If you invested £100 in the UK stock market in 1899, it would

today have grown to £160 in real terms without the reinvestment of dividends, according to the Barclays Capital Equity Gilt Study 2012. Had you reinvested the dividends it would be worth a mammoth £22,239.

FUND TIPS

McDermott likes the M&G Global Dividend and Newton Global Higher Income funds, while Lowcock tips the Standard Life European Equity Income fund, managed by Will James.

“Although European stock markets have rallied in recent months, they continue to look good value,” says Lowcock. “European companies are well run, have an international presence and are being shunned by investors. In 2012 I took the strategy of building up some European equity exposure in the Standard Life European Equity Income fund. I will continue to add to this fund in 2013.”

If you don’t need the income reinvest the dividends: this has been shown to be one of the biggest determinants of returns

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Smaller companies for big profits

Killik & Co, the advisory stock broking and investment service, believes UK small caps are an attractive asset class for 2013 ISA investors.

Over the last ten years, the small cap sector has traded at an average 9% premium to the FTSE All-Share index, whereas it is currently on a 9% discount. Shareholder returns since 1999 have revealed only two years (2000 and 2007) when

UK small caps failed to either outperform a rising UK stock market or underperform a falling market.

Mick Gilligan, head of research at Killik, says: “As a consequence, small cap has come to be perceived as something of a ‘risk-on’ trade, worthy of only a relatively small asset allocation.

“We believe this represents something of a misnomer, with London Business School professors Dimson and Marsh receiving growing recognition for their work showing that, since 1955, UK small cap has outperformed large cap threefold.”

The small cap universe gives exposure to faster-growth companies, where there is a greater prospect of merger and acquisition activity, says Gilligan. He adds: “At the same time, the level of coverage across the analyst community has reduced, providing the opportunity to uncover undervalued companies.”

Lowcock points to the “excellent run” smaller companies experienced during 2012 despite the weak economic outlook. “I don’t expect that performance to be repeated in 2013,” he says. “That aside, good smaller companies managers are some of the best stock-pickers and are able to add significant outperformance over the longer term.”

FUND TIPS

Lowcock likes the Legg Mason US Smaller Companies fund against the backdrop of an “improving” outlook for the US economy.He says: “The country could become nearly energy self-sufficient by 2020, which has significant implications for the US manufacturing sector, making it more competitive. Smaller companies are likely to be at the forefront of any American industrial renaissance.”

Gold shares to shine

There is usually a high correlation between the performance of gold as a precious metal and gold shares, yet in recent times there has been a huge disconnect.

Connolly at AWD Chase de Vere believes the sector could be set to shine in 2013. “Many gold and natural resources shares have had a torrid time over the past couple of years and now stand at what could be attractive valuations,” he says.

FUND TIPS

For those willing to accept the high risks involved Connolly recommends BlackRock Gold & General (down 24% over two years) and JPM Natural Resources (down 35% over two years).

“Many gold and natural resources shares have had a torrid time over the past couple of years and now stand at what could be attractive valuations” Connolly at AWD Chase de Vere


FUND TIPS

McDermott recommends the JOHCM Japan and Jupiter Japan Income funds.

Thematic investing

Another way to seek out growth is to look for big global themes that are set to change the world. Tapping into sectors such as growing Asian consumption, the need for new infrastructure, rising demand for energy, water scarcity and advances in technology could bode well for investors, as performance here is not dependent on economic growth.

The price of soft commodities, like wheat and corn, should increase on the back of soaring demand for food and water, while as the use of the internet via a mobile connection booms certain technology stocks should benefit.Gilligan says: “Following a period of rapid growth in smartphone adoption, use of the internet via a mobile connection has soared. This has had an impact on the way that consumers shop, both in terms of increasing online sales, as well as driving the convergence of online and offline commerce. It is also driving the adoption of mobile payment systems, to be used both online and offline.”

FUND AND STOCK TIPS

McDermott at Chelsea recommends tracking soft commodities by investing in exchange-traded commodities, such as those offered by ETF Securities.

Citywire Selections likes a range of thematic funds, including Henderson Global Technology, First State Global Listed Infrastructure, Pictet Clean Energy and iShares S&P Global Water, which tracks the largest companies operating in water-related sectors, be that utilities, infrastructure or equipment, with a focus on the developed world.

Miller says: “Many of these companies pay handsome dividends and have good solid business models. This ETF [exchange-traded fund] has handsomely outperformed any of the passive options available to investors.”

Meanwhile, Killik recommends playing the mobile internet theme through stocks such

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McDermott at Chelsea likes the Investec Global Gold and Smith & Williamson Global Gold & Resource funds – two funds he personally holds.

Contrarian investing

McDermott’s contrarian bet for 2013 is Japan, following the election of the Liberal Democratic Party, led by Shinzo Abe, at the end of 2012.

“After all its false dawns, it is the least loved developed market by UK investors,” says McDermott. “It did little to help its cause last year by being the only market to be in negative territory, but the policies introduced by the new government should be pretty market-friendly. The Yen has also weakened recently and, if this remains the case, foreign investors should start to address their underweight positions in the asset class, which would further boost markets.”

Gilligan also thinks Japanese equities could be the “investment dark horse of 2013” on the back of the new ruling power, expected earnings growth, attractive valuations and low investor positioning. He says: “After trending sideways for the past four years, there are signs that Japan’s time is coming. The Japanese market could be the surprise performer of the year.”

Tapping into sectors such as growing Asian consumption, the need for new infrastructure, rising demand for energy, water scarcity and advances in technology could bode well for investors

PAGE 13


as eBay, owner of PayPal, fellow mobile payments site Bango and digital security business Gemalto.

“eBay is in a very strong position to benefit from the shift in the way that consumers shop and interact with merchants, and this is not properly reflected in the current valuation,” says Gilligan.

Remember that picking individual stocks is a high-risk business. Lowcock urges investors to play to their strengths: “Don’t spend time and energy on things you are not good at or don’t have the resources to do,” he says.

Trust in investment trusts

Investment trusts are set to jump in popularity this ISA season following the introduction of the Retail Distribution Review which has levelled the playing field between these closed-ended funds and their open-ended counterparts.

In the past, only open-ended investment companies (OEICs) and unit trusts paid commission to financial intermediaries, but from the start of 2013 this practice was banned.

Annabel Brodie-Smith, communications director at the Association of Investment Companies (AIC), says the investment company sector has some “unique characteristics” which have helped deliver strong long-term returns for shareholders.

Research commissioned by the AIC and undertaken by Canaccord Genuity shows that investment trusts have beaten OEICs and unit trusts in 14 out of 16 sectors – 87.5% of the time – over the past ten years.

“As listed companies with a fixed pool of assets in issue at any one time, investment companies do not have to sell stock to meet redemptions,” says Brodie-Smith. “This can be very useful when markets are volatile since it allows managers to take a long-term view. It is also for this reason that investment companies are ideally placed to invest in illiquid assets, such as property, infrastructure and private equity.”Another main reason for outperformance is that investment trusts can use ‘gearing’ – borrowing money to invest alongside shareholders’ funds – to help boost performance. Conversely, being heavily geared can magnify poor performance in a falling market.

“Gearing enhances performance both on the upside and the downside, so whilst investors might get a bumpier ride along the way, over the long-term markets have generally risen so investment companies have tended to outperform,” says Brodie-Smith.

Research commissioned by the AIC and undertaken by Canaccord Genuity shows that investment trusts have beaten OEICs and unit trusts 87.5% of the time over the past ten years.

PAGE 14


1Check gearing levelsLook at gearing levels when choosing

an investment trust to make sure you are comfortable with the level of additional risk. The average gearing for the sector is currently around 6%, but some companies have no gearing, whereas others might have considerably more than average.

2Consider market sentimentRemember that, as listed companies,

investment trusts are affected by market sentiment, as well as the performance of the underlying assets. This means that they can trade at a discount or a premium to the net asset value (NAV) per share. Many investment companies have tools at their disposal to help control the absolute level of the discount or

premium to NAV, but this is something to be aware of.

3Look at chargesSome investment company sectors have

lower ongoing charges than others. Investors also pay to buy and sell stocks and this will vary according to where you buy your investment. If you take advice there will be an additional charge for this and there is also stamp duty to pay at 0.5%.

4Research wrappersSome investment company management

groups run their own ISA and savings scheme wrappers for investment trusts. In some cases these can be very cost-effective. Of course, this does mean that your investment

choices are limited to those investment trusts managed by a single ISA provider.

5Keep up to dateThe AIC publishes in-depth data on

member investment companies on its website (theaic.co.uk), which is updated daily. This includes performance data, ongoing charges, gearing, discounts/premiums, top holdings and geographical exposure. It also includes detailed commentary from fund managers, which can give a good insight into their investment process and rationale.

Keep an eye on the investment calendar, too. As an investment trust shareholder you have the right to attend AGMs, pose questions to the manager and board, and vote on key issues.

Five tips for investment trust investors

“With an independent board of directors to represent shareholders and a wide variety of sectors to choose from, investment companies can be a good complement to a balanced portfolio.”

FUND TIPS

Mick Gilligan recommends RIT Capital and Law Debenture for 2013, while Dennis Hall, managing director of IFA Yellowtail Financial Planning, holds two private equity trusts in his pension fund in the form of HgCapital and Electra.

He also likes the Aberdeen New Thai Investment Trust. “I like smaller and difficult-to-access markets where an investment trust manager can hold stocks without having

to sell just because investors take fright,” he says. “Last year’s darling market was Thailand, and I favour this Aberdeen trust for those willing to take a punt on continued strong growth.”

Tim Cockerill, head of collectives research at fellow IFA Rowan Dartington, tips JP Morgan European Smaller Companies, Polar Capital Technology, Perpetual Income and Growth Investment Trust and Aberdeen New Dawn,

which aims to provide shareholders with a high level of capital growth through equity investment in the Asia Pacific countries, excluding Japan.

“The Asian region is likely to provide higher levels of investment return than in the West as wealth grows and living standards rise,” says Cockerill. “Aberdeen is one of the most experienced management groups in this area and has a strong record.”

“The Asian region is likely to provide higher levels of investment return than in the West as wealth grows and living standards rise.”

PAGE 15


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Aberdeen’s Asian Investment Trusts ISA and Share Plan When you invest halfway around the world, it’s good to know someone is there aiming to locate the best investments for you.

At Aberdeen, we make a point of meeting every company in whose shares we might look to invest. From Japan to Singapore, from China to Vietnam, we go wherever is required to get to know companies on-the-ground, face-to-face. Which is how we have built a solid record of investing in quality Asian companies.

To steer your portfolio in the right direction, be with the fund manager who goes further in Asia.



Request a brochure: 0500 00 40 00 invtrusts.co.uk/asia

We discover more.

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Documents

Where to invest your ISA - Mediahill · ISA and Share Plan At Aberdeen, we believe there’s no substitute for getting to know your investments face-to-face. That’s why we make