In this guide, I look at ISA investing ideas across five asset classes and highlight some of the best investments in each one so you can build a diverse ISA portfolio.
ISA Investing Ideas
Each year ISA investors get the opportunity to add to their tax-free portfolios but it’s not just a case of squirrelling away up to £20,000 in a tax-free wrapper, because there is also the small matter of how to make that money work efficiently for you, within the ISA.
Deciding how to allocate your ISA allowance, and into what asset classes, indices, sectors and individual stocks, is not an easy task. It’s one that’s not been made any easier by inflation, and thanks to higher interest rates, the return of cash (in cash ISAs), is a viable alternative to risk assets.
Stock and share ISAs have become increasingly popular with self-determined investors. That’s not so surprising when you consider that over the last five years, an investment into SPY, the S&P 500 tracker has returned in excess of +57.00%, whilst chip maker Nvidia has delivered a +700% return to shareholders in that time.
Risk and reward are intimately linked of course, and trying to balance the two is another part of the investing jigsaw. The good news for ISA investors, who are often saving for the longer term, is that time in the market is definitely on your side.
Research by Bank of America found that the longer you are invested in the stock market the less likely you are to suffer negative returns.
Looking at data back to 1929 the bank found that if you stay in the market for ten years then, on average, you have just a 6.0% chance of negative returns. Compared to a 26.0% chance if you keep your money invested in stocks for just one year.
What stocks should ISA investors be buying?
One way to answer that is to look at what ISA investors at the UK’s largest stockbroker, Hargreaves Lansdown, are doing.
The direct-to-consumer investing firm, which has 1.80 million clients, has just published its latest quarterly review of client activity.
This showed that clients were cautious, with many keeping their money in cash and near cash instruments. However, when they were putting money into the market, they were buying technology, growth and alternative energy stocks.
They were also buying into UK dividends, infrastructure and mining. Energy transition is a popular theme that spreads across several sectors and is one that could play out over the next few decades.
The FTSE 100 has dramatically underperformed many of its global counterparts in 2023.
However, that underperformance could present an opportunity for ISA investors, because it means there are plenty of decent dividend yields available within the index.
They range from the staid and secure National Grid, which has an annual yield of 5.75% out to fund manager M&G which has a yield of just over 10.0%.
Of course, a high dividend yield could be a sign that the market thinks that this level of return is unsustainable.
One way to try and eliminate that concern is to look for stocks with an established track record of dividend payments, and ideally dividend growth.
Paper and packaging group Smurfit Kappa has racked up 11 years of dividend growth and over the last decade has grown its dividend by almost +16.50%.
Whilst the London Stock Exchange can point to 13 years of continuous dividend growth and a 10-year dividend growth rate of 14.96%, according to data compiled by dividenddata.co.uk.
The beauty of dividend income investing is that you are being paid to own the asset and of course, there is always the opportunity to reinvest your dividends which should allow you to compound your portfolio growth.
Another way to screen for attractive stocks could be to look for buy-rated names that are trading well below their target prices.
Here is a list of selected UK stocks that fit that bill (Buy rated but trading well below target prices)
| Company | Sector | Current Price | Market Cap | Consensus Analyst Rating | Consensus Price Target |
| BATS
British American Tobacco |
Consumer Defensive | GBX 2,473.50
+1.1% |
£55.41 billion | Moderate Buy
(Score: 2.67) |
GBX 3,775
(52.6% Upside) |
| LLOY
Lloyds Banking Group |
Financial Services | GBX 43.40
+0.4% |
£27.58 billion | Moderate Buy
(Score: 2.78) |
GBX 62.33
(43.6% Upside) |
| PRU
Prudential |
Financial Services | GBX 889.60
+0.6% |
£24.46 billion | Buy
(Score: 3.20) |
GBX 1,655.67
(86.1% Upside) |
| BARC
Barclays |
Financial Services | GBX 153.06
0.0% |
£23.27 billion | Moderate Buy
(Score: 2.75) |
GBX 237.25
(55.0% Upside) |
| WPM
Wheaton Precious Metals |
Basic Materials | GBX 3,478
-2.8% |
£15.75 billion | Buy
(Score: 3.00) |
GBX 4,700
(35.1% Upside) |
| SGRO
SEGRO |
Real Estate | GBX 730
+0.1% |
£8.98 billion | Moderate Buy
(Score: 2.71) |
GBX 959
(31.4% Upside) |
| WPP
WPP |
Communication Services | GBX 710.41
-0.4% |
£7.60 billion | Moderate Buy
(Score: 2.86) |
GBX 1,064.63
(49.9% Upside) |
| JD
JD Sports Fashion |
Consumer Cyclical | GBX 130.85
-4.8% |
£6.78 billion | Moderate Buy
(Score: 2.67) |
GBX 372.14
(184.4% Upside) |
| ENT
Entain |
Consumer Cyclical | GBX 940.40
+0.6% |
£6.01 billion | Buy
(Score: 3.00) |
GBX 1,718.50
(82.7% Upside) |
| ICP
Intermediate Capital Group |
Financial Services | GBX 1,346.50
-0.2% |
£3.91 billion | Moderate Buy
(Score: 2.67) |
GBX 2,022
(50.2% Upside) |
Source: Marketbeat.com
Bonds
Bonds are effectively government or corporate IOUs, they have been safe haven and an important source of income for investors for decades.
However, recent gyrations in bond markets have left investors with tough choices.
During covid, bond yields fell to zero or lower, however, since then bond prices have fallen and yields have risen, as interest rates rose to counter persistent inflation.
However, the sharp fall in bond prices does mean that investors can now find quality bonds below par, (or their redemption price), once again.
For, example the UK Treasury 3.25% bond due 31/01/33 is priced around £91.82 at the time of writing, and offers a yield of around 4.33%, with just under 10 years to maturity.
Alternatively, the UK Treasury 3.25% bond, maturing in 2044, trades at circa £97.20 with a yield of 4.77%, and just over 20 years to redemption.
Of course, its not just government bonds that offer attractive yields Corporate bonds can do too.
However, the issue for most ISA investors is that many corporate bonds are not denominated in retail tranches. Instead, they often come in £100,000 or $100,000 clips which puts them beyond the reach of many ISA holders.
Thankfully there are what are known as retail bonds, which are typically structured in units of £1000.00 and which were introduced specifically to appeal to retail investors.
These bonds have been issued by names such as BT Group, Legal and General, HSBC Glaxo Smithkline, Wessex Water, Lloyds Bank and others.
For example, bankers HSBC have a 5.375% bond due on August 22 2033 that’s currently yielding just under 5.70%. Whilst GE Capital UK has a 5.875% coupon bond maturing in January 2033, that yields a fraction over 6.0%. at the time of writing.
A selection of long and medium-dated UK gilt issues
| Name | Coupon | Maturity
Date |
Time To
Maturity |
Price | Yield |
| 1 1/8% Treasury Gilt 2073 | 1.13% | 22-Oct-2073 | 50 years 18 days | £33.93 | 4.41% |
| 1 5/8% Treasury Gilt 2071 | 1.63% | 22-Oct-2071 | 48 years 17 days | £43.54 | 4.51% |
| 3 1/2% Treasury Gilt 2068 | 3.50% | 22-Jul-2068 | 44 years 290 days | £78.27 | 4.66% |
| 4 1/4% Treasury Gilt 2046 | 4.25% | 07-Dec-2046 | 23 years 57 days | £91.74 | 4.85% |
| 0 7/8% Treasury Gilt 2046 | 0.88% | 31-Jan-2046 | 22 years 112 days | £46.59 | 4.81% |
| 3 1/2% Treasury Gilt 2045 | 3.50% | 22-Jan-2045 | 21 years 103 days | £82.29 | 4.84% |
| 3 1/4% Treasury Gilt 2044 | 3.25% | 22-Jan-2044 | 20 years 102 days | £79.73 | 4.83% |
| 4 1/2% Treasury Gilt 2034 | 4.50% | 07-Sep-2034 | 10 years 328 days | £100.35 | 4.46% |
| 0 7/8% Green Gilt 2033 | 0.88% | 31-Jul-2033 | 9 years 290 days | £72.16 | 4.41% |
| 3 1/4% Treasury Gilt 2033 | 3.25% | 31-Jan-2033 | 9 years 109 days | £91.40 | 4.39% |
| 4 1/4% Treasury Stock 2032 | 4.25% | 07-Jun-2032 | 8 years 236 days | £99.73 | 4.29% |
Source: Dividenddata.co.uk
A selection of longer-dated UK Retail Bonds
| Name | Coupon | Maturity
Date |
Time To
Maturity |
Price | Yield |
| Lloyds Bank | 6.50% | 17-Sep-2040 | 16 years 340 days | £108.65 | 5.69% |
| SEGRO | 5.75% | 20-Jun-2035 | 11 years 249 days | £100.00 | 5.75% |
| GlaxoSmithKline Capital | 5.25% | 19-Dec-2033 | 10 years 66 days | £100.23 | 5.22% |
| Wessex Water Services Finance | 5.75% | 14-Oct-2033 | 10 years 0 days | £95.50 | 6.37% |
| HSBC Bank | 5.38% | 22-Aug-2033 | 9 years 312 days | £97.60 | 5.70% |
| GE Capital UK Funding | 5.88% | 18-Jan-2033 | 9 years 96 days | £98.90 | 6.03% |
| Vodafone Group | 5.90% | 26-Nov-2032 | 9 years 43 days | £101.58 | 5.67% |
| Legal & General Finance | 5.88% | 11-Dec-2031 | 8 years 57 days | £102.95 | 5.42% |
| RCB Bonds
Charities Aid Foundation |
3.50% | 08-Dec-2031 | 8 years 54 days | £75.08 | 7.67% |
| Tesco | 6% | 14-Dec-2029 | 6 years 60 days | £103.75 | 5.27% |
Source: Dividenddata.co.uk
ETFs
ETFs or Exchange Traded Funds have become one the most most popular asset classes among investors. Not every ETF is ISA eligible, however.
For example, US-listed ETFs, which don’t produce Key Information Documents, or KIIDs, are off limits to UK retail investors, luckily, the are still plenty of eligible ETFs to choose from.
Interactive Investor produces a monthly list of the most purchased ETFs among its ISA and SIPP investors. Which, in September, included sterling-based S&P 500 tracker funds, FTSE 100 tracker funds, and an all-word equity fund among others.
If we look back what ETFs Interactive Investors customers were buying in April 2023 there were three world, or all world equity funds in the mix, including a high dividend fund, a physical gold ETF and three S&P 500 trackers.
Interactive Investor’s most purchased ETFs September 2023
| Position | ETF | One-year return (%) | Three-year return (%) |
| 1 | Vanguard S&P 500 UCITS ETF GBP (LSE:VUSA) | 8.3 | 41 |
| 2 | Vanguard S&P 500 ETF USD Acc GBP (LSE:VUAG) | 8.3 | 41 |
| 3 | iShares Core MSCI World ETF USD Acc GBP (LSE:SWDA) | 9.3 | 33.6 |
| 4 | iShares Core FTSE 100 ETF GBP Dist (LSE:ISF) | 14.7 | 43.8 |
| 5 | Vanguard FTSE All-World UCITS ETF GBP (LSE:VWRL) | 8.5 | 29.2 |
| 6 | WisdomTree NASDAQ 100 3x Dl Short ETP GBP (LSE:LQQS) | -66.8 | -81.6 |
| 7 | Lyxor Smart Overnight Return ETF C GBP (LSE:CSH2) | -5.2 | 12.7 |
| 8 | Invesco EQQQ NASDAQ-100 ETF GBP (LSE:EQQQ) | 19.7 | 38.3 |
| 9 | iShares Core S&P 500 ETF USD Acc GBP (LSE:CSP1) | 8 | 40.6 |
| 10 | Vanguard FTSE 100 UCITS ETF (LSE:VUKE) | 14.6 | 43.7 |
Source: Interactive Investors
I note though that among September’s top 10 ETFs is a leveraged inverse fund, on the Nasdaq 100 index. Such instruments are not suitable for anything other than short-term trading, and are not for long-term investing.
Funds
Managed funds have taken a bit of a back seat in recent years thanks to the growth in and rising popularity of ETFs. However, there is still quite a healthy fund sector out there.
Fund specialists Trustnet lists 628 managed funds in its UK databases, and just over 4500 funds when taking into account other geographies.
When assessing managed funds we need to think about the fund’s performance, the track record of the managers, the fund style and objectives, the liquidity of and costs within the fund etc.
One way to try and distil that information down into something more manageable is to utilise specialist fund research.
For example, the table below shows a selection of UK funds that are rated at four or five crowns by Trustnet. They include equity, mixed asset and fixed-income funds.
A selection of UK funds with four or five crown ratings from Trustnet.
| Name | Asset class | FE fundinfo
Risk Score |
Yield | 1 y (%) | 3 y (%) | 5 y (%) |
| Aberforth UK Small Companies | EQ | 111 | – | 9.7 | 45.2 | 10.9 |
| Artemis SmartGARP UK Equity I Acc | EQ | 120 | 3.43 | 11.2 | 61.4 | 45.3 |
| Artemis UK Smaller Companies I Acc | EQ | 98 | 2.1 | 4.1 | 35.3 | 9.1 |
| AXA Framlington Managed Income Z Gross Acc | MA | 32 | 5.16 | 8.9 | 6.9 | 10.7 |
| BNY Mellon Inflation Linked Corporate Bond Institutional W Acc | FI | 50 | 4.22 | 14.8 | 8.4 | 16.6 |
| Consistent Opportunities Unit Trust Acc | EQ | 94 | 1.72 | -0.5 | 23.5 | 24.8 |
| Credo Dynamic A Retail Acc GBP | MA | 58 | – | 4.4 | 20.2 | 30.4 |
| Fidelity UK Smaller Companies W Acc | EQ | 109 | 2.29 | 13.7 | 53.1 | 40.9 |
| FTF Franklin UK Gilt W Acc | FI | 75 | 2.64 | 2.8 | -27.4 | -15.3 |
| Invesco UK Opportunities (UK) Z Acc | EQ | 108 | 2.32 | 20.8 | 71.5 | 47.9 |
| Liontrust UK Equity X Acc GBP | EQ | 105 | 2.35 | 20 | 25.9 | 13.8 |
| Liontrust UK Micro Cap I Acc | EQ | 71 | 0.67 | -1.3 | 17 | 36.9 |
| M&G UK Inflation Linked Corporate Bond I Acc | FI | 28 | 0.74 | 7.3 | 5.6 | 10.9 |
| Merian UK Equity Income I Acc GBP | EQ | 116 | 4.38 | 14.6 | 56.7 | 34.1 |
| Montreux Healthcare A1 ILS | EQ | 47 | – | -0.3 | 26.8 | – |
Source: Trustnet
Investment Trusts
Unlike managed funds and ETFs investment trusts are closed-end funds. that is the number of shares or units in the trust is fixed rather than floating. And the share price of the investment trusts reflects the performance of the managers and the valuation of the assets that the investment trust owns and the supply and demand or fund flows in to and out the trust.
Trustnet lists 278 UK investment trusts in its database, and they are a varied cross-section of asset classes and management styles. Spanning equities, property, mixed assets, hedging, commodities/energy and money markets.
A popular way to look at investment trusts is to consider the discount of the NAV or net asset value of a trust, relative to its underlying share price of the trust. The thinking here is that a wide discount to net assets should narrow over time and that by buying assets at a discount you may get your hands on a bargain.
Of course, there may well be very valid reasons why an investment trust trades at a substantial discount to NAV.
Investment Trusts with a wide discount to NAV
| Name | Asset class | NAV | Prem/Disc | 3-Yr % Performance | 2021 % performance |
| CEIBA Investments Limited Ord | PR | 85.96 | -58.12 | -44.2 | -24.3 |
| Marwyn Value Investors Ltd Ord LD | EQ | 167.53 | -52.25 | -11.8 | 19.8 |
| Chrysalis Investment Limited Ord | EQ | 136.86 | -49.88 | -60.6 | 30.4 |
| Macau Property Opportunities Limited Ord USD0.01 | PR | 114.05 | -48.71 | -32.6 | -31.7 |
| Augmentum Fintech PLC Ord GBP 0.01 | EQ | 168.53 | -47.49 | -29.7 | 17.8 |
| Baker Steel Resources Trust | CE | 66.3 | -46.91 | -47.2 | 1.4 |
| Chelverton Growth Trust plc | EQ | 54.73 | -46.10 | 1.7 | 85.7 |
| Balanced Commercial Property Trust Limited ORD 1P | PR | 117.12 | -44.76 | 13 | 37.2 |
| Abrdn Property Income Trust Limited ORD 1P | PR | 83.8 | -40.87 | 11.5 | 42.1 |
| Gore Street Energy Storage Plc Ord GBP0.01 | MA | 116 | -39.66 | -18.7 | 20.8 |
| Caledonia Investments PLC Ord | MA | 5203 | -38.69 | 31.8 | 44.1 |
| Hansa Investment Company Limited Ord 1P(DI) | EQ | 320.08 | -37.36 | 27.3 | 5.5 |
| Menhaden Resource Efficiency PLC ORD 1P | CE | 152.38 | -37.00 | 9.7 | 13.1 |
| Alpha Real Trust Limited | PR | 216.2 | -36.63 | -14.1 | 5.4 |
Source: Trustnet
When we pick ISA investments we are usually investing for the long term and choosing assets to perform well over five, ten, and fifteen-year time horizons is a very different skill to timing stocks and other assets for short-term trading, Investing over the longer term can provide us with the opportunity to diversify. However at the same time to focus on particular investment styles such as growth or income, and to have a good look at how much risk we want in our portfolios. Often that judgement is determined by our age and here are in our investment journey.
