Four ISA fund picks for 2019
Every year, I like to look ahead and recommend a few funds in line with my overall market outlook. I hope you find them useful when you're making your own ISA decisions, but please remember that although I rate these funds, I'm not saying they're right for you.
Sad to say, I believe there is little prospect of markets rising strongly over the next 12 months. But as long as we don't have a recession (and I think one is unlikely), there is no reason to expect a significant fall either, as valuations are far from stretched.
I have focused on the markets that I think are unfairly out of favour, although they're not necessarily 2018's worst performers. China, for example, would be a bold contrarian call today, but it is too risky for my liking. My four fund picks for 2019 are:
- Lindsell Train UK Equity Fund
It's not entirely surprising that the UK market is massively unloved, as there are still many ways that Brexit could go. As a result, valuations have reached very interesting levels. The yield on the FTSE 100 at 4.51%pc (as at 7 Feb 19)1 is compelling in an environment of lower-for-longer interest rates.
Despite my enthusiasm, I am not going the whole hog and recommending a cyclical, value fund or one focusing on companies that have been hit hardest by Brexit concerns. Rather, I am sticking with Nick Train's highly-concentrated fund, which is packed with excellent buy and hold stocks. This should provide some protection if things do not turn out as I hope, but has the potential to capture plenty of upside if 2019 turns out better than feared.
- Fidelity Global Dividend Fund
In keeping with my more defensive approach this year, I am focusing on the cautiously-managed Fidelity Global Dividend Fund. Dan Roberts invests in resilient businesses offering the prospect of long-term income growth and capital protection.
Global Dividend is well diversified and defensive, tending to perform well when recent hot sectors like technology do not. With a focus on high-quality, growing dividend streams, the fund is also designed to protect against rising inflation. It feels like 2019 could be its year.
- Baillie Gifford Japanese Fund
The Japanese Topix index has performed poorly since it hit a 27-year high in January 2018. There are some good reasons for this, but I feel investors have become too pessimistic. There's only a slim chance of recession this year, profits continue to grow and investors aren't willing to pay as much for that growth. The Bank of Japan remains supportive, deflation fears have largely evaporated and a number of structural reforms are making Japanese companies more shareholder-friendly.
The Baillie Gifford Japanese Fund is a good way to play recovery in Japan. Managed by Matthew Brett, the fund focuses on technological change, particularly robotics and factory automation, an area where Japan has a big competitive advantage.
- Fidelity Select 50 Balanced Fund
These three funds can all be found on Fidelity's Select 50 list of our favourite investments. Investors can also access the funds on this list through a balanced fund that uses the list as its starting universe of investment opportunities. Investing across different asset classes and all around the world, Fidelity Select 50 Balanced Fund, managed by Ayesha Akbar, navigated a steady course through 2018's volatile markets. At the start of another uncertain year in 2019, I believe her approach is likely to remain attractive.
Please note that Tom's picks are not a personal recommendation for you. If you're unsure about the suitability of these funds for your personal circumstances you should speak to an authorised financial adviser. Please also remember that the value of investments, and the income from them, can go down as well as up so you may not get back what you invest. Past performance is not a reliable indicator of future returns.
Tax treatment depends on individual circumstances and all tax rules may change in the future. Investors should note that the views expressed may no longer be current and may have already been acted upon.
Select 50 is not a personal recommendation to buy funds. Equally, if a fund you own is not on Select 50, we're not recommending you sell it. You must ensure that any fund you choose to invest in is suitable for your own personal circumstances.
All these funds invest in overseas markets to a varying degree, so the value of investments could be affected by changes in currency exchange rates depending on the exposure each fund has to those markets. The Lindsell Train UK Equity Fund invests in a relatively small number of companies and so may carry more risk than a fund that is more diversified.
The Select 50 Balanced Fund invests between 20-60% in bond funds. For those funds there is a risk that the issuers of bonds may not be able to repay the money they have borrowed or make interest payments. When interest rates rise, bonds may fall in value. Rising interest rates may cause the value of bonds to fall.
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