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3 funds to buy for a Stocks and Shares ISA

Rupert Hargreaves
·3-min read
Union Jack flag in a castle shaped sandcastle on a beautiful beach in brilliant sunshine
Union Jack flag in a castle shaped sandcastle on a beautiful beach in brilliant sunshine

The Stocks and Shares ISA deadline is fast approaching. With that in mind, here are three funds to buy for the tax-efficient wrapper right now. I would buy all of these funds for my own ISA.

Funds to buy

One of the best growth funds on the market right now is the Blue Whale Growth fund, in my opinion. I would buy this fund for my Stocks and Shares ISA today to gain exposure to some of the world’s fastest-growing businesses.

At the time of writing, 8% of the fund is invested in Microsoft, 8% is invested in software group Adobe and 6% in payments processer Visa. Around 70% is invested in the US, with the remainder around the world.

The one big risk of investing in growth stocks is volatility. Growth stocks can be incredibly volatile, so this fund might not be for all investors. In recent weeks, rising interest rates have caused growth stocks to fall in value. This trend could continue. The fund also only yields 0.08%. This could make it unappealing to income investors.

Still, I think this is one of the best funds to buy now, considering its exposure to international growth investments.

Stocks and Shares ISA

The tax benefits of a Stocks and Shares ISA make them the perfect wrappers for holding income investments.

I think the TB Evenlode Income fund is one of the best funds to buy for income. The fund has a dividend yield of 3% at present. It holds some of the market’s best income stocks, such as Relx, Sage and GlaxoSmithKline.

Around 84% of Evenlode’s assets are invested in UK stocks. The rest is invested in the US and Europe. I think this provides a good level of diversification for income investors.

The most considerable risk facing this fund is the possibility of dividend cuts. Last year, many income stocks slashed their distributions to investors to preserve cash in the pandemic. As a result, income funds had to cut their dividends to investors. This is a threat that’s always going to be overhanging Evenlode. It’s the big challenge all income investors face.

Despite these challenges, I would buy the fund for my Stocks and Shares ISA today.

Local index

Both of the funds above have lots of overseas exposure. For exposure to UK stocks, I would buy a simple FTSE 250 tracker fund.

These passive funds are only designed to track the performance of the underlying index. As a result, there’s no chance of them outperforming. That’s the biggest risk of this investment. If the index struggles, the fund will struggle as well. The manager is also unable to avoid certain investments. That means the fund may own investments that do not conform to certain standards, such as weapons and oil & gas.

As a straightforward way to invest in the UK, I think this is an excellent Stocks and Shares ISA pick without paying over the odds for an expensive manager. As most active fund managers underperform the index over the long run anyway, I’m not worried about missing out on profits.

The post 3 funds to buy for a Stocks and Shares ISA appeared first on The Motley Fool UK.

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Rupert Hargreaves owns no share mentioned. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool UK owns shares of and has recommended Microsoft and Visa. The Motley Fool UK has recommended GlaxoSmithKline, RELX, and Sage Group. 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.

Motley Fool UK 2021