5 ISA and pension wrappers fund ideas for the 2021/22 tax year

by Jonathan Adams

Another tax year has come and gone and hopefully, you used up as much of your tax-efficient ISA and pensions wrappers as you realistically could. If you are investing in an ISA each year, and you really should be if you are able thanks to the lifetime tax shelter the wrapper provides for long-term returns, now is the best time to start using up your 2021/22 allowance. The same goes for your SIPP allowance if you invest towards a private pension in addition to any obligatory workplace pension schemes, or plan on starting.

While it’s not uncommon for ISA and SIPP investors to hoard cash throughout the year before using it towards their wrapper allowances by investing it at the last minute, that’s not a generally advisable approach. All of your savings from the year are exposed to market conditions at a particular moment in time if you invest them at a lump sum.

Alternatively, drip-feeding cash into investments at regular intervals throughout the year reduces your risk. It gives you the best chance of putting money in at the times of the year market conditions are optimal. And you won’t run the risk of investing all your cash at a time when the opposite is the case.

Some of your money will be invested optimally and not too much at the wrong time, evening out well overall. Trying to time the market is a well-worn road to underperformance.

This means you should already be making decisions on where you will invest your 2021/22 tax year ISA and SIPP contributions. It won’t be long until the first are made if you do take the advised drip-feed approach.

Most retail investors invest the majority of their capital into funds rather than have to put the time and effort into learning everything involved in picking individual stocks, then researching particular opportunities individually. Individual stock picks have to be kept on top of and re-assessed every few months as well. It’s an effort.

And while it is an effort some investors find rewarding or even enjoyable, the reality is it’s not for most. Or at least not when it comes to the bulk of investments. Some investors set aside a small pot to take a flutter on stocks they see potential in without putting their portfolio’s long-term performance on the line for them. A side-bet if you will.

This article’s sister article focuses on ideas for stocks for the 2021/22 tax year.

But we’re here to talk about funds today. Again, most retail investors would be best advised to put a majority of their capital into cheap index trackers and broad-based general funds like large-cap income equity options. But it can also be a good idea to use some of your capital to diversify geographic exposure (highly recommended) or take on a little more risk in the pursuit of higher returns.

The usual rule of thumb is 10%-20% of a portfolio invested in riskier investments targeting higher returns. The time to take that approach is when you are still well away from retirement, a minimum of 10 years. That gives more volatile investments time to recover if they hit a rough patch.

These ISA and SIPP fund ideas cover a range of risk profiles and offer exposure to different geographies and sectors. Keep in mind they are ideas – nothing more and nothing less. And only offer a very brief introduction to the funds in question.

Always do your own research and keep your personal financial circumstances and investment goals in mind. How much risk can you afford to take on hunting higher returns? If in doubt, always speak to a qualified, professional financial advisor.

In the context of these ISA and pensions investment ideas and any other investment you make, keep in mind these three golden rules:

  1. Don’t put all your eggs in one basket – never be over-exposed to the performance of any single investment.
  2. Diversify your savings across different types of investments and regions.
  3. Be very wary of investing in anything you don’t understand.

5 ISA and SIPP fund ideas for the 2021/22 tax year

We’ve focused on funds offering ‘alternative’ exposure in contrast to the kind of standard large-cap equity income funds that are the usual default funds the bulk of a portfolio’s allocation to actively managed funds goes to.

VinaCapital Vietnam Opportunity

Not many UK investors will have direct exposure to the Vietnam economy but its one of the world’s fastest-growing. It was even a rare exception last year by registering positive economic growth over 2020.

Vietnam is also benefiting from the large number of big companies dialling down their supply chain exposure to China by moving parts to neighbouring countries. Apple and Samsung and are just of the big names to have shifted parts of their supply chain to Vietnam over the past couple of years.

The country has good demographics with 55% of the population under the age of 35. Domestic consumption is also showing strong growth, making the country a long-term play with seemingly good prospects. A listed investment trust, the VinaCapital Vietnam Opportunity invests in a mix of publicly traded and private Vietnamese companies.

Rize Sustainable Future of Food ETF

An ETF option that offers exposure to companies expected to benefit from the trend towards changing food consumption habits. The fund invests in food technology companies such as meat alternatives including Beyond Meat. Sustainable producers such as avocados distributor Calavo Grow is another of the stocks tracked by the Rize ETF. An interesting play on the different themes expected to define the future of food.

Stewart Investors Worldwide Sustainability

Another fund with a sustainability theme, the Stewart Investors Worldwide Sustainability trust only invests in companies that meet its criteria for qualities of environmental impact, social usefulness, responsible business practises and strong financial performance.

A snapshot of its top holdings includes German semi-conductor manufacturer Infineon, Italian biotech DiaSorin and Fortinet, the U.S. cybersecurity company.

Digital 9 Infrastructure

Only launched in March 2021, this brand new trust offers direct exposure to digital infrastructure. It invests in assets including data centres, transatlantic fibre optic cables and 5G mobile towers.

An infrastructure fund for the 21st Century economy, Digital 9 Infrastructure is focused on total returns, targeting an annual 10%, however around 6% of that is expected to come from dividends making this a hybrid income investment. A holding with a long-term perspective.

Barings Global High Yield Bond

This fund invests in fixed income bonds that offer more attractive returns than lower-risk government bonds by investing in the debt of large companies. It invests in bonds issued by traditional companies such as Ford Motor and oil and gas explorer Occidental Petroleum, but also has significant exposure to new economy players like cloud storage company Veritas. It currently offers a yield of 4.8%.

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