DIY InvestorMagazine
/
March2014
DIY InvestorMagazine
/
March2014
20
21
IN ISAs
1
Stocks and Shares ISA allowance 2013/2014
£11,520
1
THE GOVERNMENTALLOWS YOU FORA STOCKS& SHARES ISA INA SINGLE TAX
YEARCOULDWELLMEAN THEMAKINGOF SIGNIFICANT FUTURE FINANCIAL RETURNS
WETRUST
ISA season is upon us andmany a fundmanagement
house will be paying testament to the tax wrapper’s
advantages. We agree. At Henderson Global Investors
we view it as one of themost efficient ways to invest
for your future and if managed well the £11,520 the
government allows you for a Stocks & Shares ISA
in a single tax year could well mean themaking of
significant future financial returns.
Deciding what to put in it is difficult though and we do
not deny the sea of choice out there. Because of this,
Henderson brings you one (largely unknown) corner of
the investment market that we think may be perfect
for your ISA: investment trusts. Investment trusts are
closed-ended investment companies; they have a fixed
amount of money to invest for their particular mandate
i.e. growth, income, or amix of both; from a wide range
of geographical or sector specialisations. Investors
wishing to buy into them buy shares in the investment
trust company, as you would BP or Barclays. This differs
from open-ended funds; if they experience sudden and
significant redemptions the fundmanagers may find
themselves selling positions on the basis of liquidity
rather than preference, whichmay less profitable. The
effect is to constrain, both in terms of liquidity and
the time horizon for the investments. Investment trust
managers do not need to concern themselves with
maintaining a level of liquidity to fund redemptions;
the number of shares in issue stays put, allowing them a
longer-term investment viewwheremore opportunities
may exist as well as the option to buymore esoteric
or illiquid assets. Because ISAs are about investing for
the long-termwe think this makes investment trusts a
sensible choice in your ISA.
There are further advantages.
Usually, the decision surrounding where to invest your
money is based on two broad outcomes: do you want
to grow your capital or do you wish to preserve it and
gain an income. Investments in ISAs in general do not
attract any income tax on dividends paid-out by the
investment vehicle. Investment trusts offer a further
advantage: themanager is able to save up to 15% of
the pot of income received from the underlying assets,
whereas managers in open-ended funds do not have this
privilege. Because investment trust managers can retain
earnings, usually during buoyant economic periods, when
less favourablemarket conditions arise they are able to
dip into their reserve account and keep-up payments.
It makes for a smoother income flow and, as such, can
make investment trust payments less volatile. The City
of London Investment Trust, for example, has achieved 47
years of consistently rising dividends, although investors
should note past performance is not a guide to future
performance.
THE VALUEOF AN INVESTMENTAND THE
INCOME FROM IT CAN FALL ASWELL AS
RISE ANDYOUMAYNOTGET BACK THE
AMOUNTORIGINALLY INVESTED.
DISCRETEYEAR PERFORMANCE
%CHANGE (UPDATEDQUARTERLY)
PRICE
NAV
31/12/2012 to31/12/2013
24.1
26.1
30/12/2011 to31/12/2012
16.6
16.2
31/12/2010 to31/12/2011
2.1
3.2
31/12/2009 to31/12/2010
24.7
16.5
31/12/2008 to31/12/2009
24.1
23.4
ANNUAL PERFORMANCE
(CUM INCOME) (%)
For capital growth seekers, investments in ISAs also
avoid Capital Gains Tax (CGT). Investment trusts again
offer a further advantage to aid capital growth: they
have the option to borrowmoney with the aim of
enhancing returns over and above its costs.
This feature – known as gearing - enables themanager
to purchase a greater number of stocks during bullish
market periods, such as the one we are now, utilising a
potentially greater number of opportunities and adding
to any capital gains made.
It’s a double edged sword though: it may also serve to
enhance loss’s if amanager does not see an economic
down-turn coming.
For those with the cash, £11.5k is certainly a significant
sum to consider investing. Monthly payment options,
however, mean you need not necessarily invest it all
at once, removing the dilemmamany face: “When is
the best time to deal?” Some providers allow as little
as £20 per month. And the efficiency of the wrapper
means its exclusion from tax returns, so it requires
little thought at the end of the tax year.
If you have an investment strategy, adding investment
trusts to your Stocks & Shares ISA should be a part of
it. The value of an investment and the income from it
can fall as well as rise and youmay not get back the
amount originally invested.
Tax assumptions and reliefs depend upon an investor’s
particular circumstances andmay change if those
circumstances or the law change. For capital growth
seekers, investments in ISAs also avoid Capital Gains
Before investing in an investment trust referred to in
this document, you should satisfy yourself as to its
suitability and the risks involved, youmay wish to
consult a financial adviser.
Nothing in this document is intended to or should
be construed as advice. This document is not a
recommendation to sell or purchase any investment.
It does not form part of any contract for the sale or
purchase of any investment.
BYHENDERSONGLOBAL INVESTORS
