As the end of the tax year approaches, experts say it could be worth reviewing the investments in your individual savings account (ISA), to make the most of your annual allowance.
This tax year ends on 5 April, meaning the maximum annual allowance of £20,000 that you can put into an ISA will reset the day after.
That means investors still have a little time left to use any of remaining allowance by topping up this tax-free savings pot.
Hal Cook, senior investment analyst at Hargreaves Lansdown (HL.L), said: "This is a great time to review your ISA investments. You might still have some of your ISA allowance left. If so, then perhaps you could consider using it to make your ISA more diversified."
He explained that funds can be good way to diversify your investments but that it's important to make sure they are truly different.
"The problem is that determining exactly how diversified your portfolio is not always as easy as you might think," he said. "For example, an investor could buy a global fund, a US fund and a technology fund where there could be more overlap in these funds than it seems."
The MSCI World index (^990100-USD-STRD) currently has a 74% exposure to the US, while this goes up to 90% for the MSCI World Information Technology index. In addition, the MSCI World and MSCI USA (^984000-USD-STRD) indices have 25% and 31% exposure to the technology sector respectively.
All three of these indices also have the same top three investments — Apple (AAPL), Nvidia (NVDA) and Microsoft (MSFT).
Funds can be good way to diversify your investments but that it's important to make sure they are truly different. ·wera Rodsawang via Getty Images
"So, although you are buying three seemingly quite distinct funds, in reality there is a big overlap in the underlying holdings," Cook said.
"The important thing for all investors is to understand exactly what they own, whether they have a concentrated portfolio or not, and if they do, that they are happy with the risks that poses," he said.
Myron Jobson, senior personal finance analyst at Interactive Investor, noted that this season had been marked by volatility, fuelled partly by US president Donald Trump's trade war.
"But investors should not be swayed by short-term turbulence," he said. "Investing is a long-term endeavour, and history shows that those who remain patient and stay the course tend to be rewarded. Time in the market is what truly counts."
With that in mind, analysts suggest the following funds could help with diversification, depending on what investors are looking to add to their ISA portfolio.
For investors looking to add exposure outside the US market, the Liontrust European Dynamic (0P00006TQM.L) fund is one suggestion from Jason Hollands, managing director at investment platform Bestinvest.
"Europe was hard hit by the pandemic and its manufacturing sector has struggled since, but the massive increases in defence and infrastructure spending should act as a form of stimulus," he said.
"This fund screens for companies on attractive valuations with very strong free cash generation," Hollands explained. "From this watched list the managers then choose companies that either exhibit strong momentum, high cash returns, offer recovery value and or where there is a contrarian opportunity."
The fund currently has overweight positions in the financial sector, consumer discretionary stocks and industrials. Top holdings include Italian bank UniCredit (UCG.MI), jewellery brand Pandora (PNDORA.CO) and French construction materials group Saint-Gobain (SGO.PA).
While the fund has generated a return of just 4.8% over the past year, it has returned 165% over five years.
Another option for gaining exposure to Europe, put forward by Wealth Club investment manager Isaac Stell is WS Lightman European.
The fund is managed by industry veteran Rob Burnett, who set up Lightman Investment Management in 2019, which specialises European equities.
Despite being a relatively young fund, Lightman European has generated a return of nearly 150% over five years. Top positions include oil majors Shell (SHEL.L) and Equinor (EQNR.OL), as well as telecoms companies Orange (ORA.PA) and Telefónica (TEF.MC).
"The Lightman European fund looks for businesses that have been through challenging periods but where the light at the end of the tunnel is in sight and earnings growth is returning," said Stell. "Lightman focuses on those investment characteristics that have historically led to the most consistent returns over the longest timeframes, namely lowly valued companies with strong balance sheets and high free cashflows."
He said that with European stocks "looking cheap compared to US peers and signs that investors are pulling capital back out of the US and looking at Europe, Lightman’s European fund could well benefit and continue its strong run of performance".
AVRY-DEVANT-PONT, CANTON OF FRIBOURG, SWITZERLAND - 2024/04/10: British multinational oil and gas company; Shell plc petrol station. (Photo by Karol Serewis/SOPA Images/LightRocket via Getty Images) ·SOPA Images via Getty Images
Stell also put forward the Dodge & Cox US Stock (0P000127QD.L) fund, which has delivered a return of 8.3% over one year and 147% over five years.
The fund has relatively little exposure to tech companies, with the sector accounting for less than 7% over its investments, compared with the 33% that it accounts for in the S&P 500 (^GSPC) index.
"With the shine seemingly coming off tech stocks, it may be a good time to diversify into the more overlooked parts of the US market," said Stell. The Dodge & Cox US Stock fund could be a great starting point."
The fund's three top holdings are financial services firm Charles Schwab (SCHW) and financial technology company Fiserv (FI), as well as insurer MetLife (MET).
Goldman Sachs India Equity Portfolio (0P0000PW0V.L)
For exposure to emerging markets, Tom Bigley, fund analyst at Interactive Investor, highlighted the Goldman Sachs India Equity Portfolio fund.
"Over the past decade the Indian economy and stock market has seen substantial growth and is now one of the most highly valued markets in the world, despite a pullback in recent months," he said.
While the Goldman Sachs fund has returned less than 1% over one-year, it is up nearly 119% over five years.
"The fund invests in sound businesses of all sizes, preferring companies with strong competitive advantages and low or decreasing competition," said Bigley. "Company meetings are a crucial part of the process and the fund management team’s ability to meet companies on the ground in India differentiates it from many competitors."
Top holdings include Indian multinational bank ICICI Bank Ltd (ICICIBANK.NS) and IT firm Infosys Infosys (INFY.NS).
Bigley pointed out that not only has the fund outperformed the MSCI India IMI index in four of the past five years, it has also beaten this index and peers over five and 10 years.
For investors looking for more exposure to smaller and medium-sized US companies, Hollands said that the Bestinvest team liked the Premier Miton US Opportunities fund.
"The managers look for companies with sustainable earnings growth," he said. "If the US administration does push ahead with deregulation and corporate tax cuts, this should benefit these more domestically focused businesses."
The fund is down nearly 3% over the past year but has returned nearly 104% over five years. Its biggest sector exposure is 28% in industrials, while technology accounts for just 5% of the portfolio.
Top holdings include financial services firm Raymond James (RJF) and entertainment company Live Nation Entertainment (LYV).
Top holdings of the Premier Miton US Opportunities fund including Live Nation Entertainment. (Getty Images for Live Nation Entertainment) ·Kevin Mazur via Getty Images
Janus Henderson Global Sustainable Equity (0P0001HG2J.L)
As for a sustainable fund pick, Bigley pointed to the Janus Henderson Global Sustainable Equity (0P0001HG2J.L) fund.
"Sustainability is central to the process," he said. "For a company to be considered eligible at least 50% of their revenues is required to be aligned with the team’s 10 positive impact themes, which are mapped to the UN Sustainable Development Goals. This results in a subset of companies with long-term compounding characteristics and support from structural growth drivers."
While the top two holdings are Microsoft (MSFT) and Nvidia (NVDA), other key positions include healthcare services company McKesson (MCK) and energy management firm Schneider Electric (SU.PA).
"With its disciplined investment process and sustainability focus, this fund could be a compelling choice for an investor seeking to expand the core global equity exposure in their portfolio." said Bigley.
The fund has produced a return of4% over one year but has returned 103% over five years.
One option that Hargreaves Lansdown's (HL.L) Cook said could be of interest to investors is the BNY Multi-Asset Balanced (0P0000X8S2.L) fund, which focuses on companies with solid long-term prospects from around the world, using bonds and cash to offer some diversification.
The fund, which has returned 6.7% over one-year and 22% over three years, aims to achieve a balance between capital growth and income over the long term.
While top holdings include Microsoft (MSFT) and Alphabet (GOOGL, GOOG), there are also key positions FTSE 100 (^FTSE) firms, including business information giant Relx (REL.L) and Shell (SHEL.L).
"Most of the fund (typically 70-80%) is invested in shares, and [fund manager Simon] Nichols favours established companies with competitive advantages that often pay a dividend," said Cook. "Nichols likes companies that pay a dividend because of the discipline that this puts on company management teams."
Cook said that the Schroder Managed Balanced (0P0000JWBZ.L) fund is a highly diversified option, as it uses a "funds of funds" approach to investing. This refers to when managers mainly invest in other funds, rather than individual shares or bonds, which means the total number of securities in the portfolio is large and in this case, stood at around 3,500 as of the end of January.
"Even though the fund is highly diversified, it has a focus on shares, which makes it higher risk than some peers," Cook said.
"Because the fund is so diversified, decisions around what regions and asset classes to invest in tend to have a bigger impact on performance than the individual choices around what companies to invest in," he added. "The managers have a lot of experience in running this fund and thinking about asset allocation though, so we think they are a great option for long-term investors."
The fund has returned nearly 5% over one-year, but over five years generated a return of nearly 54%.
Another fund on Cook's list is Baillie Gifford Monthly Income (0P0001HCBD.L), which aims to provide an income return that increases by more than the consumer prices index (CPI) — a key measure of inflation — over time.
The fund has generated a return of 4% over one year, which is ahead of January's UK CPI reading of 3%. Over a long-term horizon, the fund has produced a much stronger return of 43% over five years.
The top position in the fund, as of the end of February, was a UK Treasury bill, which is a government bond with a short time until it matures.
Apple (AAPL) and Microsoft (MSFT) feature in the top 10 holdings but there are a number of more traditional businesses also in that list, including healthcare property business Assura (AGR.L) and industrial fastener distributor Fastenal (FAST).
"The managers invest in three broad categories of investments: shares, real assets and bonds," said Cook. "The real assets section of the fund is made up of companies listed on the stock market, which means most of the fund is usually invested in shares."
"The focus on income means that returns are often different to peers who have a greater focus on growing capital," he added. "This makes it a great option to diversify a portfolio of investments over the long-term."
FILE PHOTO: Apple iPhone 16 smartphones are displayed at a store in London, Britain, October 6, 2024. REUTERS/Hollie Adams/File Photo ·REUTERS / Reuters
For those looking to get exposure to bonds in their ISA portfolio, Alex Watts, senior investment analyst at Interactive Investor, puts forward the Invesco Sterling Bond (0P0001DKA2.L) fund as an option.
"As geopolitical tension, a far-from-resolved inflationary picture and concerns regarding government spending across developed economies continue or even worsen in 2025, government and corporate bond yields remain heightened," he said.
Government bonds sold off globally earlier in March, which was sparked by an announcement from the incoming German government of plans to revamp debt rules to boost defence and infrastructure investment in Europe's largest economy. This prompted the yields — effectively the interest rate return on these investments — to rise.
The Invesco Sterling Bond fund invests in corporate bonds, which is debt issued by a company.
"The managers look both at the fundamentals underlying an issuing company, as well as taking top-down view to guide positioning," said Watts. "The fund invests heavily in bonds issued within the financials-sector, with around 40% of the portfolio held in bonds issued by banks and insurers, then followed by utilities and telecoms."
"The fund’s yield of around 4.8% is attractive and [fund manager Michael] Matthew’s approach has been well proven, with total returns over the long-run being impressive versus both peer group and the fund’s benchmark."
Overall, when building an investment portfolio Interactive Investor's Jobson emphasised that diversification is key when building an investment portfolio. "This means owning a range of different investments — across asset classes, styles, and regions — to help reduce risk," he said.
