Now’s the time to give your ISA a makeover

More than two decades after its debut, the Isa (individual savings account) is set for a new look.

Jeremy Hunt is expected to unveil plans to ‘glow up’ the tax-free scheme in his Autumn Statement.

Currently you can stash £20,000 tax-free in an Isa every tax year. But there could be an additional allowance introduced by the Chancellor to encourage us to back British companies.

I would suggest that these reforms should spur a critical assessment of your existing Isas. Could they too need a makeover? Most experts believe that the main ingredient of an Isa should be a ‘one-and-done’ fund or trust, with a broad range of exposure.

This cornerstone of your portfolio should focus on ‘companies with a dominant position within their industries that should be able to grow for many years to come’, as Juliet Schooling Latter of Fund Calibre puts it.

Makeover: Most experts believe that the main ingredient of an Isa should be a ‘one-and-done’ fund or trust, with a broad range of exposure

Or it can hold lower risk assets, providing a buffer if you are more cautious.

Not so long ago, the first choice would have been a fund presided over by a star manager. But the celebrity culture has been called into question by new performance data for the £5.5billion Lindsell Train Global Equity fund, managed by Nick Train, whose star has been on the wane. Over the past five years, the fund has returned 23.3 per cent, against 38.3 per cent for the average fund.

By contrast, the £22.7billion Fundsmith fund, run by Train’s star manager rival Terry Smith, has returned 52 per cent – this is thanks to bets on the likes of Novo Nordisk, the Danish maker of the Wegovy slimming drug.

Zoe Gillespie of RBC Brewin Dolphin highlights Fundsmith’s ‘highly structured and disciplined approach’. I am a Fundsmith fan. But the picks from the range of experts that I quizzed this week also include low-cost passive funds such as Fidelity World Index and HSBC FTSE All World Index, which rely more on algorithms than humans.

Other options are led by managers who are not famous.

Jason Hollands of Bestinvest, for example, suggests Alliance and the F&C, two investment trusts set up in the 19th century.

Craig Baker, global chief investment officer at Willis Towers Watson, Alliance Trust’s overall manager, delegates chunks of the portfolio to different external teams, providing a spread of expertise. The largest holdings include Alphabet – owner of Google – Microsoft and ASML, the Dutch manufacturer of chip- making equipment.

On the wane: Nick Train

Over the past five years, the average global trust has gained 29.3 per cent. Alliance has risen by 49 per cent, while F&C is up by 32 per cent. F&C also focuses on Microsoft and other US technology names, but it has stakes in private equity too.

Chris Metcalfe of asset manager IBOSS likes Rathbone Global Opportunities, whose manager James Thomson has outperformed the average global fund in 17 of 20 years in charge.

This is again partly the result of a focus on Microsoft and fellow tech titan Nvidia. The sheer scale and potential of these ground-breaking companies make them an almost automatic choice. Schooling Latter’s pick is Troy Income whose largest holding is Paychex, the HCM (human capital management) specialist which performs duties for employers, such as checks on remote workers.

If you would prefer a different bias, Schooling Latter also suggests Orbis Global Balanced. This fund owns a slice of iShares Physical Gold fund, on the basis that ‘gold has outperformed everything over 6,000 years’, as its manager puts it.

A combination of gold, cash, plus corporate and government bonds make up the portfolio of the defensive trusts which are designed for those who do not care for too much risk. Ben Yearsley of Shore Financial Planning suggests Troy Trojan, where US Treasury bonds (T-bonds) form more than a third of the portfolio, and Personal Assets, a trust where gold bullion and T-Bonds account for 40 per cent of holdings.

Good return: Terry Smith

Hollands cites as his sleep-easy pick the Ruffer trust whose varied portfolio includes T-Bonds, shares in BP and the Taiwan Semiconductor Manufacturing Company, maker of the chips for ChatGPT AI (artificial intelligence) system.

The share prices of both Personal Assets and Ruffer are at a small discount to their net asset value (NAV) making them a bargain, provided you can be patient.

If the Chancellor decides to offer the extra allowance for UK shares, Dan Boardman-Weston of BRI Wealth Management proposes Gravis UK Listed Property and Time UK Infrastructure Income.

These funds put money into investment trust shares.

With luck they should benefit from a narrowing of discounts, presenting what he calls ‘a fantastic long-term opportunity’ particularly for younger investors.

When Isas arrived in 1999, data on the content and returns from funds was difficult to source. Such information is now freely available online. Use it to buff up the Isas you hold and to make sure that you should be enriched by the Chancellor’s improvements.

This post first appeared on Dailymail.co.uk