Which industry is best this ISA season?

There are numerous ways to invest your annual ISA allowance – and one option is choosing funds focused on specific industries. This could be particularly attractive if you strongly believe that certain business sectors are poised to do well over the coming years.

Here, we highlight five such industries – technology, insurance, financials, healthcare, and infrastructure – and the portfolios investing in them.

Technology

There’s no escaping technology. It’s constantly changing the way we live, and the companies involved in this sector have the potential to be lucrative investments.

We like the AXA Framlington Global Technology fund, which takes an unconstrained approach to its aim of providing long-term capital growth. The manager at the helm is Jeremy Gleeson. He’s been specialising in this sector since the late 1990s and focuses on finding new opportunities with strong commercial potential.

While the fund’s largest holdings include familiar tech names, such as Apple, there is also space for newer businesses that are busy revolutionising their industries. A prime example is Uber. Jeremy recently added a position in this increasingly popular US-based business that offers service/ride hailing and food delivery.

Of course, technology is a vast industry, and some portfolios chose to focus on subsectors. Take the Sanlam Global Artificial Intelligence fund as an example. There’s little doubt that artificial intelligence – or AI – will become increasing influential over the coming years and will pervade many aspects of our lives.

This boutique-led portfolio is set to benefit. Its manager, Chris Ford, buys into companies whose engagement with AI is expected to make a material difference to their economic values. The fund actually uses its own AI system to find companies whose business models are aligned to benefit from this theme.

Insurance

No-one likes paying insurance premiums until something happens and they receive a handsome pay-out to get their lives back on track. However, it’s an industry that’s essential. Policies for everything from mobile phones to properties have to be taken out, irrespective of the economic backdrop.

This defensive quality is one of the reasons why we like the Polar Capital Global Insurance fund, which is run by Nick Martin and Dominic Evans. The managers aim to provide an attractive total return by investing in companies operating within the international insurance sector. So far, the fund has achieved a consistent track record.

The fund is designed to provide exposure to non-life insurance companies, which is a rather specialist and undervalued area of the market. Currently, the fund’s largest holdings include Arch Capital, RenaissanceRe Holdings, Marsh McLennan, Chubb, and Markel*.

Financials

Few can deny the financial services sector plays a crucial role in our personal and business lives. Having exposure to companies in this area, therefore, can make a lot of sense.

The Jupiter Financial Opportunities fund, managed by the vastly experienced Guy De Blonay, has holdings within subsectors such as banks, stock exchanges, and IT services. Guy prefers businesses with sustainable growth characteristics and uses a thematic approach that considers wider trends that are driving the economy.

Another way to invest in this space is via financial bonds rather than equities. GAM Star Credit Opportunities fund invests in the ‘junior debt’ of investment grade companies. This allows the fund to generate a good income, whilst still keeping a high-quality portfolio. It has a low turnover strategy, as the managers’ process looks for bonds they can buy and hold.

Healthcare

You only have to consider the impact of Covid-19 to realise the ongoing importance of the healthcare sector.

The AXA Framlington Biotech fund invests in companies of any size that are principally operating in the biotechnology, genomic, and medical research industry.

While this is a rapidly developing area, AXA has an experienced, specialist team with the experience and network to keep up with the changes. The largest holding in the portfolio is currently Regeneron Pharmaceuticals, a US-based biotech company that develops and commercialises life-transforming medicines. Another prominent holding is Moderna Inc, the pharmaceutical business that produced a vaccine against coronavirus*.

If you want exposure to more than biotech, the Polar Capital Global Healthcare Trust is an option. It invests in four sub-sectors: pharmaceuticals, biotechnology, medical technology and healthcare services, and the portfolio is split circa 90/10 between growth and innovation firms. The growth element is made up of predominantly larger companies, whereas the innovation pot will invest into medium and smaller companies that have the potential for greater growth in the long run.

Infrastructure

This sector includes utilities, highways & railways, airport services, railroads, oil & gas storage, data centres and construction & engineering.

Numerous billion dollar projects are underway around the world and the First Sentier Global Listed Infrastructure fund invests into various companies involved. First State was a pioneer in providing access to this burgeoning asset class that has become particularly popular with income-focused investors.

Another fund in this area is M&G Global Listed Infrastructure. It looks for a balance of growth and income from three key areas of the sector: economic, social, and ‘evolving’ infrastructure. As a result, holdings can include anything from utilities to toll roads, as well as health, education, mobile towers, and payment companies.

Finally, if you want to take advantage of the ever-increasing demand for digital infrastructure and the sustainable transition to a digital economy, you could consider the Schroder Digital Infrastructure fund. It holds around 40 stocks invested around the world in a mixture of emerging and developed markets. It’s hard to argue against the logic of this fund. Our demand for data is insatiable and this will require ever more digital infrastructure.

*Source: fund factsheet, 28 February 2023

_{Photo by Siora Photography on Unsplash}