Although the overall subscription limit has not increased from its current level of £20,000, ISA investing continues to have great appeal for many investors. Whether it is for a start-up contribution of £50 per month, or a transfer for a larger sum, there are still plenty of opportunities for investors to consider this coming ISA season.
According to the latest figures from HMRC published in August 2018, the market value of investments held in ISAs was £608bn at the end of the ISA year 2017/18. This figure is split 44% in cash and 55% in stocks and shares, the balance being held in innovative finance. Interestingly, the subscriptions in the year 2017/18 were again dominated by cash, with £39.8bn. Stocks and shares ISA had subscriptions of £28.7bn, which itself was nearly a 29% increase on the previous year. So, the amount held in cash ISAs, and the subscription rate, continues to surprise given the background of interest rates continuing at historically low levels.
So, are investors missing out? Is there an argument that holding cash, with little or no return prospects in the short term, is a waste of a tax wrapper? Without coming down on either side of that debate, let's consider some of the investment opportunities that Prudential can offer.
Firstly, it should of course be pointed out that where someone invests is combination of answers to different questions:
- Why are you investing?
- How long are you investing for?
- How much risk are you willing to take on?
Secondly, there will be some clear-cut reasons why a cash ISA is the way to go; for example, where the aim is to build up some emergency funds or perhaps where there is a short-term spending requirement coming in, say, 3 to 5 years.
But, for those with a longer-term investment horizon, and the ability and willingness to take on board some risk, there are many opportunities available and cash might not be the best thing for them.
Single contributions and ISA consolidation
Whilst it might be attractive to follow the latest trend and invest in that exciting looking new fund launch; the reality is that just like any other significant investment, the key is to get the asset allocation right first. There are many headwinds and challenges in the global economy at present and, for those with a longer-term horizon and greater risk capacity, the best way to weather the potential storms is a well-diversified, risk-controlled solution.
Over the last 2 years, PruFund has been available through an ISA and has proved extremely popular with investors. Here we have a current choice of 6 different versions; PruFund Growth and PruFund Cautious plus 4 risk managed funds, all actively managed by M&GPrudential Treasury & Investment Office (T&IO), includes the team formerly known as PPMG, who manage the Strategic Asset Allocation (SAA) and will select funds from our With-Profit Investment universe. They also provide the robust governance and risk management processes that underpin all our funds. All the versions benefit from our established PruFund smoothing process and are suitable for clients looking to invest for 5 to 10 years or more.
The PruFund range has recently undergone a slight refresh, with new names and objectives for the risk managed funds (PruFund Growth and PruFund Cautious remain unchanged). The new names are shown below, and the funds now have an objective to meet volatility ceiling limits, which allow us to manage the fund risk profile over time and help to align it closer to your client's risk assessments.
|
Old name |
New name |
|
Risk Managed PruFund 0-30 |
Risk Managed PruFund 1 |
|
Risk Managed PruFund 10-40 |
Risk Managed PruFund 2 |
|
Risk Managed PruFund 20-55 |
Risk Managed PruFund 3 |
|
Risk Managed PruFund 40-80 |
Risk Managed PruFund 4 |
Regular contributions
For those just starting an ISA with a small investment, or those thinking more strategically and "drip feeding" their investment throughout the year, regular contributions can take the worry and emotion out of trying to time the market. In this regard, the last few years, and 2018 in particular, have been something of a roller coaster ride for investors.
This is the so called "pound cost averaging" approach where there will be periods when you are buying funds when the price is up, and you buy less units, and periods when the price is down, and you buy more. The idea is that the cheaper units then offer the potential for greater returns when the fund has risen in value.
In the pensions, or decumulation, world, where we have the opposite situation of someone taking regular withdrawals from their investment pot, there is a strong argument for the use of a smoothed fund to negate some of the risk of short-term volatility. In the investment, or accumulation world, we might want to embrace this short-term volatility, so an unsmoothed fund makes sense.
At Prudential we have a couple of choices here and crucially both use the same approach to asset allocation as the PruFund range; with T&IO at the heart of things, managing the process using the same philosophy across all our multi asset funds.
The Risk Managed Passive and Active ranges offer 5 different risk levels and use a similar volatility ceiling objective to the Risk Managed PruFunds. As with the PruFund range, all our funds follow a well-diversified, risk-controlled approach.
The Passive range is the lowest cost approach, with Ongoing Charge Figures (OCFs) of between 50 and 51bps per annum, when held within the Prudential ISA and including the costs of that tax wrapper. These funds will invest at least 70% in passive investments and will give globally diversified exposure to equities, fixed interest, alternative assets and cash.
The Active range has OCFs of between 80 and 82bps per annum, again when held within the Prudential ISA. These funds will invest at least 70% in active investments and will offer additional diversification by investing into commercial property alongside the equities, fixed interest, alternative assets and cash found in the Passive range.
One final point is that, unlike the PruFund range, both the Passive and Active ranges can be invested in directly as OEICs or through a wide variety of platform-based ISA wrappers. This would have the effect of reducing the OCFs to between 25 and 26bps for the Passive range and to between 55 and 57bps for the Active range.
So, if you like our philosophy and the way in which T&IO manage your client's money; we can now offer a comprehensive range of Smoothed, Active and Passive alternatives to suit a wide variety of different requirements.
Learn more about Prudential's investment options.
