Alternatives to the most-popular ISA funds

When it comes to choosing an investment, popularity can be reassuring. The most-bought funds, investment trusts and exchange-traded funds (ETFs) on the interactive investor platform have earned their place in thousands of portfolios. But the most popular choices are not the only options.

In this feature, we look at alternatives to five of the most widely held active and passive funds among interactive investor customers. Drawing on insights from multi-asset fund managers and fund analysts, we reveal one or two credible alternatives for each case.

The aim isn’t to dismiss the favourites, but to offer fresh ideas as you shape your portfolio this ISA season.

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Alternatives for traditional S&P 500 tracker

Both share class versions of Vanguard S&P 500 ETF (accumulating and distributing) often appears at the top end of our monthly rankings of the most-bought ETFs.

The iShares S&P 500 Equal Weight ETF USD Acc GBP (LSE:EWSP) offers a diversified alternative to the traditional market-cap weighted S&P 500, significantly reducing the “concentration risk” posed by a handful of mega-cap technology stocks, argues Rob Burdett, head of multi-manager at Nedgroup.

“By assigning every company an equal 0.2% weight, the equal weight approach provides greater exposure to mid-cap and value-oriented stocks, which have historically driven long-term outperformance,” he says.  

Another alternative for the popular Vanguard S&P 500 ETF, could be the Schiehallion Fund Ord (LSE:MNTN), says Adam Norris, co-fund manager of CT Global Managed Portfolio Trust. The fund has over 50% of its assets in North American Equities. Norris explains that it is a late-stage private equity investment company managed by Baillie Gifford.

However, investors do need a stomach for risk as this fund adopts an adventurous approach.

“The company has had a tricky few years as late-stage growth investing moved sharply out of favour. However, we now see clear ‘winners’ of its investment approach, with some of its largest holdings,” Norris says, namely Elon Musk’s SpaceX (circa 14% of teh portfolio) and digital acquisition-focused Bending Spoons (c.15% portfolio), achieving valuation levels rarely found within private equity. 

“With the IPO market potentially warming up once again, the Schiehallion Fund contains valuable assets which may potentially be revalued further into a public market listing,” adds Norris.

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Other routes to owning gold or silver

iShares Physical Gold ETC GBP (LSE:SGLN) and iShares Physical Silver ETC GBP (LSE:SSLN) have both proved popular ways to gain exposure to play the respective spot prices. However, there are other options to gain more diversified to commodities, including WisdomTree Enhanced Commodity ETF - USD Acc GBP (LSE:WCOB). It adopts a flexible weighting approach across sectors. The ETF has 16.5% in precious metals more broadly (the vast majority of which is gold), with energy accounting for 40% of the portfolio and agricultural commodities comprising 30%.  

Burdett suggests the BlackRock Gold and General D Inc fund as an alternative. “The primary argument for the BlackRock Gold & General Fund is its potential for outsized capital growth through “operating leverage” – a mechanism where gold mining stocks can amplify the gains of physical gold during a bull market,” he says.

While the iShares Physical Gold and Silver ETCs merely track the metals’ prices, this actively managed fund invests in the businesses that produce the metals, offering a more aggressive “growth” play on the sector, notes Burdett.

Money market funds

Money market funds have proven a popular place for investors to park cash in recent years, as fund yields have risen in line with UK interest rates.

However, with UK interest rates now at 3.75%, fund yields have fallen, although still do offer inflation-beating income.

For investors looking for higher yields and happy to take on a bit more risk versus money market funds, iShares £ Ultrashort Bond ETF GBP Dist (LSE:ERNS)is worth considering says Burdett. “It generally has a higher yield: by moving slightly further out on the “risk curve” (investing in bonds with 0-1-year maturities rather than 0-3 months). It often yields 0.30% – 0.50% more than the Royal London Short Term Money Mkt Y Acc fund.”

Norris suggests Invesco Bond Income Plus Ord (LSE:BIPS),an investment trust managed by Rhys Davies, Invesco. “The trust benefits from the extensively resourced Invesco fixed-income team and focuses on in higher-quality bonds, generating a yield in excess of cash,” says Norris.

Although not without credit risk, if investors wish to generate yield, without positioning for a “flight to safety” through a cash fund, compounding the 7% dividend yield from the trust may generate returns in excess of overnight deposits.

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An alternative for Scottish Mortgage

Alex Watts, senior investment analyst at interactive investor, highlights an interesting alternative for Scottish Mortgage Ord (LSE:SMT): the ARK Innovation ETF A USD Acc (LSE:ARKK). ARKK is a benchmark-agnostic, highly differentiated strategy, led by Cathie Wood. ARKK invests in “disruptive innovation” globally (although it exhibits a substantial bias to the US – 85% of portfolio). “ARK are known for their bold predictions and unique research that underpin their stock selection and thematic positioning,” says Watts.

ARKK, which has £240 million in assets, is a concentrated portfolio, with 42 holdings with near half of the portfolio in the top 10 stocks. This active ETF was introduced to European investors from the US in the first half of 2024. The objective is to invest in a set of transformative companies across key themes of innovation: artificial intelligence (AI), robotics, energy storage, multiomic sequencing (such as genomics) and public blockchains.

“Crucially, the approach is high-conviction and long-term in nature,” says Watts. Unlike Scottish Mortgage, which allocates a greater portion towards large/giant-cap companies, ARKK’s portfolio is more multi-cap in nature, with around 28% of the portfolio held in SMID-cap ($300 million to $10 billion).

“ARKK has through its lifetime (including the US ETF’s record) exhibited a huge degree of volatility, notably suffering a dire drawdown in 2022, followed by outsized returns in 2023,” says Watts. “Like Scottish Mortgage, ARKK would only suit patient investors with long time horizons and substantial risk tolerance given both are prone to dramatic underperformance when growth investing falls out of favour. The ETF better suits a satellite allocation, rather than a core part of a portfolio.

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Artemis Global Income

As an alternative for Artemis Global Income I Acc, which wasthe most-popular fund among ii customers in February, Norris suggests Invesco Global Equity Income Trust ord (LSE:IGET), a trust managed by Henley-based Stephen Anness and Joe Dowling. The trust focuses on quality companies at attractive prices. “The team’s investment approach is on cash-flow growth, which they believe can support the ability for companies to provide not just income, but also capital growth to investors,” says Norris.

The portfolio is focused with just 40 holdings. “The portfolio managers take an agnostic approach to the benchmark, which has itself become more and more concentrated over recent years,” adds Norris.

Meanwhile, Burdett has another alternative in mind for Artemis Global Income’s contrarian investment style. He says: “If you feel a value-driven approach in this environment of higher interest rates and stubborn inflation, then TM Redwheel Global Equity Income R Acc could be an option.”

Redwheel are a specialist manager known for high-conviction investing. The fund yields a little over 3% at the moment, with every stock needing a prospective yield 25% higher than the market or more, at the time of purchase. “The ideal holding is a quality company, currently facing an issue that takes it out of market favour, exposing value,” says Burdett. It has a more balanced geographic allocation than sum with around 35%-40% in the US.