STOCKS AND SHARES ISA: ARE YOU READY TO INVEST IN SOMETHING DIFFERENT?

INVESTMENT companies can be volatile, but when markets are rising these unsung heroes can outperform their more popular rivals… If you’re looking for something a little different for this year’s stocks and shares Isa, you might consider an investment company. Previously known as investment trusts, these are the unsung heroes of the collective investment world. They have been overshadowed by their more popular rivals unit trusts, which form the majority of stocks and shares Isa funds. But now investment companies are coming out of the shadows, and are starting to show their star quality. If you had invested a lump sum of £15,000 into the average investment company 10 years ago, you would now have £38,324, according to figures from the Association of Investment Companies. That is £6,434 more than if you had invested the same sum in the FTSE All Share, which would have generated £31,890.

Complex and volatile

One reason investment companies have been overlooked is that they have never paid commission to independent financial advisers, who had no incentive to recommend them to customers. Advisers have now been banned from charging commission, which means investment companies are competing on a level playing field. Investment companies are more complex than unit trusts and can also be more volatile, but when markets are rising they regularly outperform. They are actually public companies quoted on the Stock Exchange whose business is to invest in the shares of other companies. Their own shares are traded on the market and there can be a difference between the share price of the investment trust and the value of its underlying investments. This adds to the risks, but also the potential rewards. The best investment trusts have posted some astonishing performance figures since the start of the Millennium. Asian funds have done particularly well as emerging markets such as China enjoyed an unprecedented boom. Scottish Oriental Smaller Companies has returned a market-thrashing 1,191 per cent since January 2000. That would have turned £10,000 into £129,100. Aberdeen Asian Smaller Companies grew 1,079 per cent, turning £10,000 into £117,900. But remember, these funds are investing in high-risk areas, and there is no guarantee they can repeat this kind of performance. Both funds have slowed lately but have still returned more than 100 per cent over the past five years, doubling your money. Another investment company, JP Morgan Russian Securities, has returned 700 per cent over the Millennium but if you had invested three years ago you would have lost 40 per cent of your money. In the UK, Fidelity Special Values, from the UK All Companies sector, has returned 537 per cent since the start of the Millennium, and Perpetual Income&Growth was up 503 per cent.

Specialist investments

Investment companies score really well if you’re looking to invest in specialist sectors. TR Property, which invests in commercial property, grew 1,000 per cent over 15 years, and 137 per cent over five years. Biotechnology firm Worldwide Healthcare is up 800 per cent over 15 years, and 210 per cent over five years. Remember, these are the top performing investment companies, many have delivered far less stellar returns. There is no guarantee that even these funds can repeat their recent successes, but Isa investors certainly shouldn’t ignore what investment companies have to offer.

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