How to build a medium-risk ISA portfolio

Investors who want to build a cautious ISA portfolio have all manner of dilemmas to confront, especially when it comes to whether they should stick with classic safe havens such as bonds or instead pile into real assets in the hope of heading off inflation.

The so-called balanced portfolio, where investors still want a good deal of asset growth but with a bit of ballast, feels a little simpler by contrast.

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Investors with a balanced approach still do need to work out whether the defence of their portfolio should largely rely on bonds, but the growth side of things feels a little more straightforward.

Once again, we map out some of the options and construct our own hypothetical portfolio.

Core holdings

For the cautious portfolio we landed on a meagre 20% equity allocation, although the hypothetical portfolio built did technically include a slightly higher equity content than that via the long/short Janus Henderson Absolute Return I Acc.

For the balanced portfolio, the approach is to keep it simple and stick with the commonly adopted idea of 60% in equities.

The wealth preservation investment trusts we discussed in the cautious portfolio might be a bit too defensive for the balanced investors we envisage, given that all three have less than 40% of their assets in shares. But multi-asset funds of different stripes might still serve a purpose.

Once again the popular Vanguard LifeStrategy franchise might seem like an obvious option, with its Vanguard LifeStrategy 60% Equity A Acc matching the allocation we sketch out here.

But a criticism of the LifeStrategy range is that it only uses equities and bonds. While this might work out fine in the longer run, it could prove painful at moments of higher inflation and interest rates – as we saw in 2022 when the LifeStrategy funds with lower equity allocations had a rougher time.

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And it’s worth noting that some of LifeStrategy’s rivals do take a (slightly) more diversified approach.

The L&G Multi-Index 5 I Acc fund, for example, has a 53% allocation to equities and roughly 35% in various bonds.

But it also has 7% in alternatives, which includes property, commodities, infrastructure and even forestry. Having said that, the performance of the two is not hugely different over the popular time frames.

Source: FE Analytics, 24/03/2026. Ordered by five-year returns. Past performance is not a guide to future performance.

LifeStrategy does have a handful of rivals, from the L&G range to BlackRock’s MyMap funds. There is also interactive investor’s Managed ISA range.

There are also actively managed multi-asset funds, with options including the popular Orbis OEIC Global Balanced Fixed Fee. But these arguably require more due diligence than their passive counterparts.

Our portfolio

If those funds work well for a hands-off approach, or as a core holding, we have also mapped out a hypothetical portfolio that might meet the needs of a balanced investor. As mentioned, this in some ways feels simpler than building a cautious portfolio.

An old-fashioned way of building a balanced portfolio has been to put 60% in equities and the rest in bonds. However, we stay mindful of inflation risks and diversify within that defensive 40% bucket.

As such, the defensive portion of the portfolio includes a 10% allocation to the iShares Core Global Aggt Bd ETF USD HAcc (LSE:AGGU), with 10% in the Amundi Core UK Govt Bd ETF Dist (LSE:GILS), 10% in the iShares Physical Gold ETC GBP (LSE:SGLN) and 10% in the Invesco Bloomberg Commodity ETF GBP (LSE:CMOP). That commodity allocation, while volatile, may provide a good form of insurance in the event of resurgent inflation.

The growth engine

We only use four funds as a source of ballast, given that they tend to offer broad enough exposure to a given area. The iShares Global Aggregate Bond ETF, for example, has almost 20,000 holdings.

By contrast, our approach to generating growth feels simpler in one respect, but more complicated in another.

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We have kept things simple and allocated to some of the main equity markets out there, and in this instance tended to make sure that the exposure to each region is diversified by style. But this does mean using a couple of different funds per region and driving up the number of holdings.

There are therefore 11 different equity funds in the portfolio.

Investors who are used to talk of US equities accounting for 70% of the MSCI World might baulk at our seemingly low 30% allocation to an S&P 500 exchange-traded fund (ETF), but this does give a level of balance. It’s also roughly in line with Vanguard LifeStrategy 60% Equity fund, which has around half its equity allocation in the US.

However, the diversification starts here, too. While we back the world’s biggest companies via the S&P 500, we seek to add some diversification via the value-minded small-cap fund VT De Lisle America B GBP.

The fund has decent levels of exposure to industrials, energy and consumer cyclical shares, with top holdings including uranium fuel provider Cameco Corp (NYSE:CCJ), Everus Construction Group Inc (NYSE:ECG) and, very differently, Build-A-Bear Workshop Inc (NYSE:BBW).

The fund tends to benchmark its performance against the Investment Association’s (IA) North America sector, not the most useful given its small-cap bias. But it has fared well versus both the US smaller company index, the Russell 2000, and the IA North American Smaller Companies sector.

Beyond the US

We have otherwise sought to pair funds in the main equity regions with contrasting approaches, on weightings of 3% apiece.

In the UK, there’s Artemis UK Select I Acc, a flexible fund that has captured many of the winning segments of the market in the last year, having backed large-cap names and sectors like financials.

As we outlined in December, this could pair well with the battered IFSL Marlborough Special Sits A Acc, which has a growth bias and has focused on the likes of small and micro-cap shares, with very different sector preferences too.

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Beyond that we like BlackRock European Dynamic A Acc, which has a flexible approach but has often focused on quality growth stocks, and can at times take big bets on its preferred shares. Its top holding, ASML Holding NV (EURONEXT:ASML), accounts for around 8% of the portfolio.

We pair that with WS Lightman European R Acc, which seeks out “undervalued companies with positive operational momentum” and lists Roche Holding AG Ordinary Shares new (SIX:ROP), Orange SA (EURONEXT:ORA), Bayerische Motoren Werke AG (XETRA:BMW) and The Magnum Ice Cream Co NV (LSE:MICC) among its top holdings.

Pairing funds can work well when we see a shift in market conditions. Note, for example, that BlackRock European Dynamic took a beating in the growth sell-off of 2022, but Lightman European prospered.

Source: FE Analytics. 2026 figure is YTD, as at 24/03. Past performance is not a guide to future performance.

Asian picks

In Asia and the emerging markets it’s hard to escape the pull of the big market constituents, be it China, Taiwan Semiconductor Manufacturing Co Ltd ADR (NYSE:TSM) or South Korean stars such as SK Hynix. Here, we back two funds that take different approaches but do share some traits.

There’s M&G Asian GBP I Acc , which backs companies based on the “future profitability, the valuation and the system of rules, practices and processes by which a company is managed” and seeks out undervalued businesses.

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There’s also Artemis SmartGARP Glb EM Eq I Acc GBP, which combines a variety of investment factors in its approach and, like others in the SmartGARP range, has delivered the goods on the performance front. These two funds do share big allocations to China and (like most Asia and emerging market funds) a big TSMC position.

In Japan, we opt for two very different funds. There’s Nippon Active Value Ord (LSE:NAVF), which has capitalised on the corporate reform story by taking big stakes in smaller companies and agitating for improvements. But we also back the large-cap focused, value-minded Man Japan CoreAlpha Eq I GBP.

We also seek to provide some global small-cap exposure, via a moderate allocation to abrdn Global Smaller Companies I Acc.