Searching for a better ISA?

Are you still searching for the best isa rates but haven’t chosen a fund for your 2009- 2010 individual savings account (Isa)? Unsure about stocks and shares Isas? Worried you have less than two weeks, but you haven’t had a chance to scour the market to see what’s available? By comparing the current best is rates 2010 will be your best year yet!

• Step 1: decide on the level of risk you’re willing to take
  
  If the current financial, economic and political climates has left you feeling uncertain, cautious, or nauseous (or all together), then attend to your symptoms with a Cautious Managed fund. This can help to offer relief from the pain of volatility – or at least, that’s what it says on the tin. M&G’s Cautious Multi Asset Fund claim to be able to help you “participate in rising asset markets while preserving capital as much as possible” – and since it was launched 3 years ago it has delivered 14.5%, outstripping the IMA Cautious Managed sector by 16.6%. The secret ingredient, known as an “active fund manager”, can “respond to the actual correlation of assets” and, in a 3-year clinical trial, minor discomfort to a 16.5% fall, peak to trough, while other leading brands lost 23%.
  
  Disclaimer: Not every Cautious Managed funds is necessarily cautious, or well managed for that matter. May contain 60% highly correlated equities. In terms of the M&G fund, performance was gained from high-risk calls on emerging market equities, speculation on the state of the euro, dollar and other emerging market currencies, and movement away from overseas government bonds towards corporate bonds.
  
  The side effects of out-performance may include increased underlying levels of volatility, according to the latest JP Morgan Asset Management Cautious Managed study. Investors may experience a more unpleasant feeling of loss – 45% of investors taking IMA Cautious Managed funds between September 2008 and March 2009 lost more than 20%, with some of the more unlucky losing more than 40%.
  
  Always read the label – but remain cautious of those that read “Cautious Managed”.

• Step 2: decide how much money you are willing to lose.
  
  Those aged 50 and above holding concerns that losses could have a negative effect on health in retirement should consider Absolute Return funds. The key ingredients in this type of fund can position them in all directions to enable positive results to be had within stressful market conditions. Regulatory approval is currently pending on HSBC’s new European Alpha Equity fund, the offshore version which achieved growth of 13.1% in 2008.
  
  Disclaimer: The majority of absolute return funds are untested for periods exceeding two years. For details, see www.absolutehedge.com. Note: These funds are only available over the counter following annual charges and performance fees.
  
  Always read the label – and hope it makes sense!

• Step 3: Think about an alternative option – investing for income instead.
  
  If the possibility of equity price volatility and dividend cuts is making you anxious, why not consider trying out new improved bond funds. Test carried out last year showed that 9 out of 12 months saw more money being invested into bond funds than in any other sector.
  
  Disclaimer: funds in the Sterling Strategic Bond fund sector are not guaranteed to match the prescription. Although the Artemis Strategic Bond fund invests 100% into UK corporate bonds, Henderson’s Sterling Strategic Bond fund invests 8.2% into money market instruments, and Investec’s Sterling Bond fund invests 64.1% into non-UK bonds.
  
  Bonds in the Sterling Corporate sector may contain traces of dollar, euro and UK government bonds. Fidelity’s MoneyBuilder Income is 43% invested in non-sterling issues, while M&G Corporate Bond has 7% in gilts.
  
  Always read the label – but don’t always believe that ‘sterling’ necessarily means it was manufactured in the UK.

• Step 4: reduce stress related anxiety by giving up trying to find the perfect active fund manager.
  
  Anyone left dizzy, suffering from headaches and/or premature baldness are advised to skip steps 1-3 and search for cheaper alternatives.
  
  I you’re a higher-rate taxpayer and you have no previous experience of capital gains, get some advice from an index tracker fund manager, such as Vanguard, who will help you to see that putting £10,000 into an actively managed fund via with an Isa wrapper will save just £45 a year in income tax, assuming a 2% dividend, while costing £160 a year in charges, based on the average total expense ratio of UK All Companies funds.
  
  Incurring lower tracker fund charges may provide savings of around £1,300 over a 10 year period. Fully diversified multi-asset tracker funds, including the eight-asset MAP fund offered by Frontier Capital Management, can lower standard deviation to 5-7%, as part of a volatility controlled diet. Chief investment officer’s advice: it does what it says on the tin.