Investments to consider for a Stocks and Shares ISA, ahead of the ISA deadline on 5th April.
- 3 stocks
- 3 investment trusts
- 3 funds
Sophie Lund-Yates, Lead Equity Analyst, Hargreaves Lansdown:
“Choosing shares, investment trusts or funds in the current environment is an especially difficult task. The Ukraine crisis, soaring inflation and the resulting lower investor confidence mean it’s more important than ever to make sure you have a diversified portfolio. For share investors it’s a good time to consider investing in companies that offer vital products or services as those with evergreen demand tend to be less affected by inflation.
Q4 2021 hedge fund letters, conferences and more
Even with the current market uncertainty, it’s still important to use your ISA allowance to protect your money from tax. If you’re not keen to invest your entire ISA allowance right now, you can still secure your allowance. You can open a stocks and shares ISA and park the money in cash, then gradually drip feed it into stock market investments when it suits you best.”
Stocks
Lloyds Banking Group
“The current higher interest rates benefit banks, as they earn money by lending it out at higher rates than they pay on deposits. As a traditional lender, Lloyds Banking Group PLC (LON:LLOY) is set to feel the benefit of rising rates more dramatically than those that have bigger sources of alternative income, like fees for corporate and investment banking.
Lloyds also has an impressively low cost:income ratio, making it more resilient in tough times. Cost savings are being achieved through increased digital services – which are also another area of future growth as more people shift to online banking. Lloyds’ capital position is miles ahead of the 12.5% minimum set by the board, which is behind the group’s increased shareholder returns, adding weight to the noteworthy prospective yield. Lloyds is also more interesting now than it’s been for a while. Spades of excess capital, possible further interest rate rises and opportunities for growth are a tempting cocktail. But remember if interest rates remain historically low, Lloyds will likely struggle to improve profitability.”
Microsoft
“There aren’t many businesses that can say they make software the world doesn’t know how to live without. Those traditional software sales are a cash cow, since each new customer costs basically nothing and a high proportion of revenue drops through to cash. That’s why Microsoft Corporation (NASDAQ:MSFT) has annual operating margins of over 40%.
While core business simmers away, Microsoft’s cloud computing business is taking off. New working from home cultures, plus businesses looking for efficiency in the wake of rising costs, means cloud has a lot of growth potential. Microsoft is one of only a handful of tech companies that returns some of its impressive $72.1bn net cash to shareholders. The prospective yield isn’t exactly huge, but it’s better than nothing. The impending acquisition of Call of Duty maker, Activision Blizzard, marks an expedited effort to grow gaming revenues. This should feed well into existing subscription-based revenue from Xbox’s Game Pass.”
Smith & Nephew
“Smith & Nephew plc (LON:SN) is a medical device maker. The group offers products involved in hip and knee replacements, soft tissue repair and materials to manage injuries and prevent infection. All three were stunted by the pandemic as elective surgeries plummeted and long-term care facilities closed to new patients. That should offer a strong tailwind for Smith & Nephew over the next few years as the elective surgery backlog is worked through. The group’s also been optimising the manufacturing network and outsourcing warehousing and distribution. Crucially, none of these changes should hinder capacity, leaving room for margin improvement. The green shoots are already emerging. Revenue for Sports Medicine and Wound Management is above pre-pandemic levels. Operating margins are expected to climb to at least 21% over the next two years. The shares could rerate substantially if Smith & Nephew can protect its new lower cost base as demand for surgeries returns. And the prospective dividend sweetens the deal somewhat.”
Investment Trusts
Kate Marshall, Lead Investment Analyst, Hargreaves Lansdown:
Personal Assets Trust
“Sebastian Lyon aims to grow investors' money steadily over the long run, while limiting losses when markets fall. Lyon does this by investing in a mix of assets, including well-established US and UK companies, UK government bonds, US inflation-linked bonds, gold and cash. The cash and gold could help provide some stability when economic and stock market conditions are tougher. The trust tries to experience fewer ups and downs than the broader global stock market or a portfolio that's mainly invested in shares. It could form part of the foundation of a broad investment portfolio, bring some stability to a more adventurous portfolio, or provide some long-term growth potential to a more conservative portfolio.”
Bankers Investment Trust
“Bankers Investment Trust is run by Alex Crooke with the support of an experienced team from Janus Henderson. Crooke aims to deliver growing income and capital by investing in companies worldwide. The trust is one of the AIC’s (Association of Investment Companies) Dividend Heroes – trusts that have consistently increased their dividends for 20 or more years in a row. Bankers has a long history of increasing dividends, with 55 years of consecutive dividend increases. The income focus of the trust means that it looks quite different from the average global investment trust. It has less investments in North America, where dividends tend to be lower, and a higher amount invested in the UK and Japan. Because of this, the trust could add some global diversification to an income-focused portfolio, or balance well with a more growth-focused global trust.”
Aberdeen Asia Focus
“Hugh Young is lead manager of Aberdeen Asia Focus, alongside other experienced fund managers including Flavia Cheong and Gabriel Sacks. This trust mainly invests in small businesses based across Asian markets. The trust invests across both established and less-developed economies like Thailand, India, Taiwan and Singapore. It has a bias towards businesses that rely on growing consumer wealth, but aims to have at least some exposure to most major sectors. The trust could help diversify a global investment portfolio, or the Asian part of a portfolio that’s focused on larger businesses. A combination of younger, smaller businesses with exposure to emerging markets makes the trust a higher-risk option.”
Funds
Kate Marshall, Lead Investment Analyst, Hargreaves Lansdown:
Troy Trojan
“With an expectation that markets will be volatile while there is continued economic uncertainty, a total return fund could be a good choice. Total return funds are more conservative than funds that invest fully in company shares. They normally invest in a mix of investments including shares, bonds, commodities and currencies. They could help provide modest growth for your investment portfolio over the long term, and help shelter your money when stock markets fall, but are unlikely to keep up with stock markets when they rise quickly. The fund could form the foundation of a broad investment portfolio, has the potential to bring some stability to a more adventurous portfolio, or provide some long-term growth potential to a more conservative portfolio.”
Legal & General Future World ESG Developed Index
“Responsible investment funds give you the chance to make money in a way that’s in line with your principles. Some avoid investing in areas that do harm, like tobacco producers, weapons manufacturers or alcoholic drinks makers. Others invest in companies that have a positive effect on society – from those that treat their employees well, to those that create clean energy through wind farms or solar panels. This fund invests in broad developed stock markets while being mindful of environmental, social and governance (ESG) issues. It aims to track the performance of the Solactive L&G ESG Developed Markets Index. It won’t invest in tobacco companies, pure coal producers, makers of controversial weapons or persistent violators of the UN Global Compact Principles. An index tracker fund is one of the simplest ways to invest, and this one could be a good addition to a broader investment portfolio aiming to deliver long-term growth in a responsible way.”
ASI Asia Pacific Equity
“Over the years, rapid industrialisation, growing populations, and a desire to succeed have helped transform countries in the Asia Pacific region. Domestic consumption is set to be a key driver of growth over the coming years, helped by a young and growing population, and rising wealth. Continued innovation from companies at the forefront of technology based there could also provide exciting growth opportunities for investors. However, younger economies mean the risks are greater and more volatility should be expected. While Asia is home to developed markets such as Hong Kong and Singapore, others, including China and India, are still emerging so a long investment horizon is essential to help ride out the ups and downs.”
About Hargreaves Lansdown
Almost 1.7 million clients trust us with £141.2 billion (as at 31 December 2021), making us the UK’s number one platform for private investors. More than 98% of client activity is done through our digital channels and over 600,000 access our mobile app each month.
