Yahoo Finance The best all-weather stocks to add to your Isa revealed
When weighing up how to use the annual Isa allowance, most investors stick to funds – and for good reason. They can own hundreds of stocks, so one dud firm will not do too much damage to a portfolio. It also helps that professional stockpickers are at the helm, ready to steer the fund through difficult markets.
But owning lots of stocks through funds also limits how much money an investor can make. By investing in top shares directly, they can increase returns – the hard part is finding the companies which can be left alone to make money, rather than requiring constant monitoring.
We asked fund managers which “all-weather” companies they would recommend a DIY investor added to their Isa if they wanted to increase their returns.
First, investors must take a step back and review where they are in their investment journey. Young people can afford to take on more risk in the pursuit of higher returns, as they will not cash out until far into the future. Any short-term volatility can be absorbed without too much worry. Older people need to be more careful, as they may depend on investments for retirement income.
Young investors
For those in their twenties, Ben Barringer, of investment research group Quilter Cheviot, said big technology companies were a perfect fit for their Isas.
Software giant Microsoft was his top pick. He said: “It has lots of recurring revenue from subscriptions, so keeps making money no matter what the economy does, and has a strong position in the booming cloud computing market.”
It is dominant in other technology areas, such as gaming via Xbox and social media with LinkedIn. Microsoft makes money in many ways, so if it fails to keep up in one area then it will not have too much of an impact on the company, Mr Barringer said.
Middle-aged investors
Middle-aged investors, because they are closer to retirement, should add established consumer brands to their portfolios, as they are less risky than technology companies, but also have lots of potential to keep growing and pay dividends. The best are Diageo, which owns Smirnoff vodka and Guinness, and Unilever, owner of brands such as Marmite and Wall’s ice cream, according to Rob Burgeman, of wealth manager Brewin Dolphin.
“These are fantastic companies for middle-aged investors as they are mature businesses which are still growing, but also generate income. Unilever has a yield of 3.9pc and Diageo yields 2.4pc,” he said.
Each has a foothold in growing areas such as beauty and personal care, for Unilever via its Dove and Sure brands, and non-alcoholic spirits, for Diageo via Seedlip. They both make money around the world, meaning an economic downturn in one country will not crash sales.
Unilever makes just 5pc of its revenue in Britain. Its largest markets are America and China, which both account for about one sixth of revenue, according to Factset, a data group. Diageo’s biggest markets are America and India.
However, investors in this age bracket should not shun technology stocks completely just because they can be volatile over short periods. Some firms behave like consumer goods companies because their services are deeply rooted in our daily lives.
Mr Barringer said Adobe, the company behind picture editing software Photoshop, would be a great investment.
“With 92pc recurring revenue, it has a diversified portfolio of services that help businesses globally. Like Microsoft, it is also seeing growth as our lives become more digital,” he said.
Older investors
Investors approaching, or already in, retirement should stick to established companies which can keep up with technological trends and also pay good dividends.
Mr Burgeman recommended Legal & General, the insurer and investment manager. “It is a well-run business in mature industries, and is Britain’s largest investor. The stock is not expensive and has a good dividend yield of 6pc,” he said.
Oli Creasey, of Quilter Cheviot, said property group Assura was a strong choice for older investors. Assura owns and builds GP surgeries across Britain, which are then rented on long-term leases with payments coming straight from the NHS or similar Government bodies.
“The pandemic has demonstrated that, in the worst cases, rent is not guaranteed, particularly in the retail sector – but Assura has sailed through the crisis without issue.
“Britain’s healthcare plan includes a need for increased primary care, such as that offered in Assura’s surgeries, and the demand for their type of properties is likely to keep growing. Assura’s 3.8pc Government-backed dividend income is a rare opportunity,” he said.
