ISA deadlines for investors amid tax changes, and Terry Smith’s Fundsmith Equity insights.
Tax year end is nigh, and interactive investor customers are keen to make use of their £20,000 annual ISA allowance, and £9,000 Junior ISA allowance, before the 5 April ISA deadline, especially given changing tax allowances from the start of the new tax year.
Both dividend and capital gains tax allowances are shrinking, but investors can avoid paying tax on their investments by sheltering them in an ISA. Expert writer Rachel Lacey explains that: “From 6 April this year, the capital gains tax allowance will fall from £12,300 to £6,000, while the dividend tax allowance will fall from £2,000 to £1,000. Then, in April 2024, both those allowances will be halved again to just £3,000 for CGT and £500 for dividends.”
The annual ISA allowance works on a ‘use it or lose it’ system and it is not possible to carry forward any unused allowances from previous years. For most Britons, being able to invest the maximum amount in an ISA each year is not realistic, especially given that high inflation, rising interest rates and bill hikes are making saving money challenging. However, for some investors, using their annual ISA allowance, in some if not all tax years, is an achievable feat. My colleague Sam Benstead interviewed one of interactive investor’s ISA millionaires, about their route to £1 million.
So, how have investors behaved when it comes to investment funds? In March, there were no new funds in the top 10, according to the number of ‘buys’ among our customers, and little movement in the rankings, with the top four funds unchanged since last month.
Terry Smith’s Fundsmith Equity is still the only active fund in the top 10. Despite the fund’s worst ever year – it lost 13.8% in 2022 compared with a 7.8% drop for global shares – it remains the most-bought fund on our platform.
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At this year’s AGM, Smith and Fundsmith head of research Julian Robins discussed topics including the one stock they are waiting to buy, the potential of the metaverse, emerging markets, and how Fundsmith Equity will perform in the ‘new macroeconomic paradigm’. You can read coverage of the AGM here. However, despite Fundsmith Equity’s poor performance, Smith is sticking to his ‘quality’ investing style – a topic that one of our specialist writers Jennifer Hill addresses in her article “Buy and hold versus changing style: which fund approach is best?”
In March, Silicon Valley Bank collapsed, and Credit Suisse (SIX:CSGN) was bought by Swiss peer UBS (SIX:UBSG). Given the turmoil in the banking sector and the FTSE 100’s exposure to banks, as well fears of further interest rate increases and recession jitters, investors sought out diversified strategies to reduce risk and volatility and largely stuck to global passive funds, with just one fund solely focused on the UK, Fidelity Index UK (eighth place) in the top 10. The equity fund, which is part of ii’s Super 60 investment ideas, tracks the performance of the FTSE All-Share index and its yearly ongoing charges figure is very low, at 0.06%.
As the table below illustrates, Vanguard remains popular among ii customers, with six of its funds in the top 10, while Fidelity boasts two, and HSBC one.
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When it comes to saving for children in Junior ISAs, Fundsmith Equity is also the most-popular investment on our platform.
Myron Jobson, senior personal finance analyst, says: “Cash Junior ISAs are frankly pointless other than as an option for teenagers approaching adulthood, who might shortly need to use their pot and, therefore, want to remove the short-term risk of a sudden loss of value.”
He adds that most Junior ISAs are going to be inherently very long term because they cannot be accessed until the child is 18, and while there are no guarantees when it comes to investing, “there is ample time for short-term bumps in stock markets to be ironed out”.
The average balance of an ii JISA is £12,472, with an average age of 10, although there are 1,211 Junior ISA pots on ii worth between £50,000- £100,000, with an average age of 13.5. It’s possible that some of the largest JISA pots may have started out as Child Trust Funds.
At ii, Junior ISAs are free with adult accounts under the Investor and Super Investor plans, and we offer free regular investing.
Top 10 most-popular funds in March 2023
|Rank||Fund||IA sector||Ranking change since previous month||1-year return to 1 April (%)||3-year return to 1 April (%)|
|1||Fundsmith Equity||Global||No change||3.20%||48.20%|
|2||Vanguard LifeStrategy 80% Equity||Mixed investment 40%-85% shares||No change||-2.80%||39.80%|
|3||Vanguard LifeStrategy 100% Equity||Global||No change||-0.80%||57.30%|
|4||Vanguard US Equity Index||North America||No change||-4.00%||70.10%|
|5||Vanguard FTSE Global All Cap Index||Global||Up one||-2.20%||58.90%|
|6||Vanguard LifeStrategy 60% Equity||Mixed investment 40%-85% shares||Down one||-4.80%||23.90%|
|7||Vanguard FTSE Dev World ex-UK Equity Index||Global||No change||-1.70%||62.60%|
|8||Fidelity Index UK||UK Companies||Up one||2.70%||54.40%|
|9||Fidelity Index World||Global||Up one||-2.40%||61.00%|
|10||HSBC FTSE All-World Index||Global||Down two||-2.10%||56.10%|
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.