With the 2021/22 ISA deadline not far off, I’ve been thinking about investment funds to buy for my Stocks and Shares ISA. Buying funds within this kind of account can be an effective wealth-building strategy, as all capital gains and income are tax-free.
Here, I’m going to highlight two that strike me as great ISA investments now. I think they have the potential to boost my wealth significantly in the future.
Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.
A top fund for my ISA
When it comes to top picks for an ISA, it’s hard to look past Fundsmith Equity, in my view. This is a global equity fund with an incredible long-term track record.
Fundsmith is managed by portfolio manager Terry Smith, who has a very strict investment process. Unlike a lot of other portfolio managers, who try to get in and out of hot sectors, Smith sticks to investing in high-quality businesses that have solid growth prospects, are very profitable, have strong balance sheets, and are resilient in the face of change.
This approach seems to work very well. Since the fund was launched back in late 2010, it has generated strong returns when markets have been rising. And it has often minimised falls during periods of market weakness. Overall, it has produced a return of around 17% per year since launch, which is very impressive. However, past performance is not an indicator of future performance, of course.
One issue to consider with Fundsmith is that it tends to avoid highly cyclical areas of the market, such as oil companies and banks. Most of it is invested in three main sectors – consumer staples, technology, and healthcare. This could potentially lead to periods of underperformance at times. This year, for example, oil stocks are flying.
Overall, however, I see Fundsmith as a top fund. I’d be very comfortable investing some of my ISA allowance in it this year.
A high-growth fund
For a more adventurous ISA play, I like the Sanlam Artificial Intelligence fund. This aims to provide long-term capital growth through diversified exposure to one of the global economy’s most important and enduring investment themes – artificial intelligence (AI).
When it comes to powerful long-term growth themes, it’s hard to ignore AI. In the years ahead, it’s likely to have an enormous impact on a wide range of industries, transforming many business models in the process. This is likely to create some lucrative opportunities for investors.
I see this fund from Sanlam Investments as a good way to get exposure to the theme. That’s because it seeks to invest in companies whose engagement with AI is likely to make a material difference to their value. Top holdings at present include the likes of Alphabet, Tesla, and Nvidia, all of which look set to be major players in AI.
It has a good performance track record since its launch in 2017 (an annualised return of 22%), However, I’d expect it to be volatile going forward as it’s a higher-risk product. And if tech stocks continue to fall on the back of interest rate rises, it could underperform in the short term.
However, as a long-term investor, I’m not concerned about what the fund does in the next six months. I’m looking for gains over a five-to-10 year period. And over that timeframe, I expect this fund to generate good returns for my ISA.
The post 2 top funds to buy for an ISA this year appeared first on The Motley Fool UK.
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Edward Sheldon owns shares in Alphabet (C shares) and Nvidia and has positions in Fundsmith Equity and Sanlam Artificial Intelligence. The Motley Fool UK has recommended Alphabet (A shares), Alphabet (C shares), and Tesla. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
