Interactive Investor

ISA tips: around the world in eight funds  and trusts

14th February 2023 09:51

by Sam Benstead from interactive investor

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Invest your ISA in different global regions with these fund ideas from our experts.  

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From the comfort of their home, British investors can take stakes in companies from every corner of the world, from India to America, to China and beyond.  

Investing internationally to diversify a portfolio away from UK shares is extremely important, as different financial markets can deliver markedly different returns and come with different risk profiles.   

For example, the FTSE 100 has taken nearly five years to reach a new record high, while America's S&P 500 index is up about 50% over the same period.   

Interactive investor takes you around the world in eight funds, giving investment ideas from our expert fund pickers as the 5 April ISA deadline approaches.   

The focus is on smaller company funds, as they provide the most authentic access to a region/country’s economy than larger companies, where the profits are more likely to come from abroad.   

All funds are members of interactive investor’s Super 60 or ACE 40 investment ideas, compiled by head of funds research Dzmitry Lipski.   

UK: Henderson Smaller Companies  

Smaller British companies – which are more sensitive to the domestic economy than larger firms – underperformed larger companies in 2022 as giant energy and mining stocks led the charts.  

The FTSE 250 index fell 20% last year, while the FTSE 100 index was flat. This year, both indices have risen around 5%, but the FTSE 250 is still around 15% below its all-time high set in 2021, while the FTSE 100 is setting new records.   

But as the interest rate-hiking cycle from the Bank of England reaches its end, opening the way for interest rate cuts to spur economic growth, smaller companies could rebound.  

The Henderson Smaller Companies (LSE:HSL) investment trust, managed by Neil Hermon since 2002, is one of interactive investor’s top picks for UK smaller companies. It has outperformed the Numis Smaller Companies index in all but three years since Hermon has been in charge, returning 613% versus 520% for its benchmark.   

It looks for quality growth companies but will only invest at a reasonable price. It currently yields 2.7% and trades at an 11% discount. Its biggest investment sectors are industrials, consumer discretionary and financials.  

Europe – Man GLG Continental European Growth  

Europe has fewer well-known “growth” shares than the US, but investors can still find exciting companies there, as long as they are ready to look outside the technology sector.  

Super 60-member Man GLG Continental European Growth includes luxury fashion group LVMH, diabetes medicine firm Novo Nordisk, and beauty giant L’Oreal among its top holdings.  

Over the past decade it has returned 238% compared with 144% for its benchmark, the FTSE World Europe ex UK index. It has just 6% invested in tech, while more than half is in consumers staples, and healthcare and medical equipment, making it a very different fund to US or global trackers.  

Japan – Baillie Gifford Shin Nippon  

Investing in smaller Japanese companies, this investment trust has an excellent long-term track record but has underperformed recently due to its bias for fast-growing rather than mature businesses.  

Over 10 years, Baillie Gifford Shin Nippon (LSE:BGS) has returned 254% compared with 144% for its benchmark, the MSCI Japan Small Cap index. However, over the past two years shares have fallen 36% versus a 4% drop for its benchmark.  

This trust invests in Japanese shares that most investors won’t have heard of due to its small company focus. Therefore it’s a fantastic way of making a bet on the Japanese economy and innovation within it. 

Its top stocks are Snow Peak, an outdoor clothes maker, Shoei, which makes motorbike helmets, and RakSul, a software company. The trust is a member of interactive investor’s Super 60 list.  

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China – Fidelity China Special Situations  

Chinese shares have started the year with a bang, as investors bet on an economic recovery after the end of its zero-Covid policy and fewer interventions from the government in the private sector.  

Fidelity China Special Situations (LSE:FCSS) shares have risen 14% so far in 2023, but are still 42% below their high point reached in February 2021. The trust is a member of the Super 60.  

The trust’s portfolio aims to benefit from the emerging middle class in China, and counts Alibaba and Tencent ,the consumer-facing internet firms, as its two largest companies. It also has an allocation to private companies, including TikTok owner-Byte Dance, which could give investors an edge over owning a passive index, which just holds public stocks. The trust is a member of interactive investor’s Super 60 list. 

Lipski says: “It provides broad, diversified exposure to Chinese equities, including 'H' shares listed in Hong Kong and mainland-listed 'A' shares. It has been managed by Dale Nicholls since April 2014.  

“He focuses on faster-growing, consumer-oriented companies with robust cash flows and capable management teams. Due to the trust's single country exposure, its bias to small and mid-sized companies and its ability to use gearing, its return profile is likely to be more volatile, making it higher risk and a satellite (adventurous) holding in a well-diversified portfolio.” 

US – Artemis US Smaller Companies  

Managed by Cormac Weldon, who has more than 20 years experience investing in US shares, this £1 billion fund buys companies with market caps below $10 billion (£8.2 billion).  

He says that the “smaller companies effect” is a reason to invest, as academic studies suggest that, over the long term, smaller companies tend to outperform their larger peers. America is also a particularly supportive environment for small companies, Weldon argues.  

Due to its smaller companies approach, the Artemis US Smaller Companies portfolio is very different to the S&P 500 index, which investors tend to track when they invest in the US.  

Top holdings include Valmont Industries, a manufacturer of irrigation equipment, windmill support structures, lighting and traffic poles; and Clean Harbors, a provider of environmental and industrial services, including hazardous waste disposal for companies. 

The trust is a member of interactive investor’s Super 60 list. 

Asia ex Japan - Pacific Assets Trust  

A sustainable fund on our ACE 40 list, Pacific Assets (LSE:PAC) Trust buys companies across Asia, excluding Japan (although it does have permission from its board to invest here).  

Managed by David Gait and Douglas Ledingham, it has 43% of its portfolio in India and just 10% in China, reflecting the managers’ views that India has higher-quality companies than China due to better corporate governance.   

Taiwan, Japan, Hong Kong, Singapore and Indonesia are the other major countries it invests in. Over the past decade, it has returned 183% compared with 98% for the MSCI Asia ex Japan index.  

Speaking to interactive investor last year, Ledingham said “India is home to some of the greatest opportunities for long-term capital growth.” 

Ledingham argued that companies in India offered decades’ worth of growth thanks to a growing middle class, increasing technological adoption, increasing financial penetration, and India's emergence as a manufacturing hub. 

Global – abrdn Global Smaller Companies 

For investors looking to own smaller companies globally, picked out by a fund manager, then Super 60 member abrdn Global Smaller Companies fund could be a strong option. 

Managed by Kirsty Desson, the £1.1 billion fund contains 45 stocks, with 40% invested in the US, followed by 7.3% in Australia and 6.6% in Japan. Its biggest sector positions are in information technology (26.4%), industrials (23.3%) and consumer discretionary (15.2%).  

The fund aims to identify companies that exhibit a range of high-quality characteristics, operate in growing markets and display positive business momentum. 

Lipski said: “The process uses the group's proprietary quantitative tool, ‘the matrix’, which ranks over 6,000 companies on a variety of quality, growth, momentum and valuation factors. 

“Fundamental research by the team targets higher-scoring names and focuses on identifying sustainable growth characteristics and management capability.” 

This means the fund has a clear bias towards growth and earnings momentum, with limited exposure to more cyclical sectors and an overweight to tech stocks, notes Lipski. 

Emerging markets – JPMorgan Emerging Markets  

While investors can focus on a single emerging market, such as China or India, taking a more broad approach could be beneficial as it reduces single-country risk. 

Super 60-rated JPMorgan Emerging Markets (LSE:JMG) investment trust is one option. China is its biggest position, at 24.4% of the portfolio, followed by India (21.2%) and Taiwan (12.4%). Its biggest sector bets are financials, information technology and consumer staples 

Lipksi said: “This is one of the largest global emerging market trusts and has been managed by the experienced emerging markets investor Austin Forey since 1994. More recently, Forey was joined by John Citron as a co-manager.  

“They favour well-managed companies at sensible prices and have a strong record in selecting mid- and larger-sized companies. The team takes a long-term approach and focuses on businesses that have attractive earnings, strong balance sheets, excess returns on capital, sustainable competitive advantages, an ability to grow market share and potential to generate significant shareholder value.” 

Overall, the strategy is typically focused towards the domestic consumption growth theme, and the portfolio tends to favour sectors such as financials and information technology. 

Fund/trustOngoing charges figure (%)Yield (%)Size (£m)Investment sector
abrdn Global Smaller Companies1.0401,160Global
Artemis US Smaller Companies0.8701,045North American Smaller Companies
Baillie Gifford Shin Nippon0.660498Japanese Smaller Companies
Fidelity China Special Situations1.041.981,412China/Greater China
Pacific Assets Trust1.130.51433Asia Pacific
Henderson Smaller Companies0.392.72646UK Smaller Companies
JPMorgan Emerging Markets 0.91.141,367Global Emerging Markets

Man GLG Continental European Growth

0.90.47928Europe Excluding UK

Source: FE FundInfo, data to 13 February 2022.

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

Please remember, investment value can go up or down and you could get back less than you invest. If you’re in any doubt about the suitability of a stocks & shares ISA, you should seek independent financial advice. The tax treatment of this product depends on your individual circumstances and may change in future. If you are uncertain about the tax treatment of the product you should contact HMRC or seek independent tax advice.

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