This article is part of the special series, Investing with ISAs.
Morningstar OBSR analyst Oliver Kettlewell, 31, is a relatively new ISA investor. He has been investing into his ISA account for just one year, opting to put the maximum into an online brokerage account—£10,680 for the 2011-2012 tax year—right ahead of the April 5th deadline. He now plans to top up his ISA for the 2012-2013 tax year, and again expects to put in a maximum contribution.
Even though I’m a fund analyst, I don’t start off by picking my favourite funds, which many investors would be tempted to do
While he has not yet finalised how he will allocate his new ISA contributions, he has revealed to Morningstar.co.uk the details of his current asset allocation and his fund choices.
Kettlewell says his primary consideration for his ISA is asset allocation; he worries about fund selection later.
“Even though I’m a fund analyst, I don’t start off by picking my favourite funds, which many investors would be tempted to do,” he said.
Kettlewell starts by using conventional asset allocation wisdom: setting aside 40% of his ISA portfolio for bonds and 60% for equities.
“In my pension, I’m 100% invested in equities since I have a longer timeframe to work with and I’m willing to take on more risk in that account. I don’t mind if that account has more short-term volatility. But with my ISA, I’m looking at a three to five year time horizon. I might withdraw money in the medium term. That’s why I am more conservative in my asset allocation and hold a large portion of my portfolio in bonds,” he said.
This is what Kettlewell’s current ISA account looks like:
Oliver Kettlewell's ISA Portfolio
| Fund | ISA Asset Allocation | Morningstar Analyst Rating |
Portfolio Manager |
| Fidelity Strategic Bond | 40% |  Silver |
Ian Spreadbury |
| Veritas Global Focus | 40% | Gold |
Andrew Headley & Charles Richardson |
| Aberdeen Emerging Markets | 10% | Gold |
Devan Kaloo & Hugh Young |
| M&G Global Basics | 5% | Gold |
Graham French |
| Rathbone Global Opportunities | 5% | Silver |
James Thomson |
Kettlewell says he chose the Fidelity Strategic Bond fund because it was well diversified in the fixed income space. It invests in all kinds of fixed income, including government bonds, corporate bonds and high-yield bonds, he said.
“It’s my one-stop shop for fixed income,” said Kettlewell.
As for the Veritas Global Focus fund, Kettlewell says: “This is the big boring part of my equity exposure. It’s not going to rise as much as the rest of my equity holdings, but it also isn’t as likely to experience a significant drawdown. This is because it’s extremely well diversified across large-cap, liquid, low-volatility stocks that span many sectors and regions around the world. This is a ‘steady eddy’ fund."
The other 20% of Kettlewell's portfolio is allocated towards areas that he hopes will experience decent growth over the next few years. He likes that the Aberdeen fund will give him exposure to emerging markets. Meanwhile, the M&G Global Basics fund gives him exposure to the basic materials sector.
"The M&G fund has experienced its ups and downs, but since it's a small part of my portfolio, it's easier to stomach the volatility," he said.
The Rathbones Global Opportunities fund counterbalances the M&G fund by focusing on consumer-orientated equities, which could be expected to do well when the basic materials sector is doing poorly, said Kettlewell. He also says that he likes that this fund invests in some mid- and small-cap names, since the rest of his portfolio is predominantly invested in large-cap stocks.
ISA Performance
Kettlewell admits that the performance in his ISA has been bumpy since he opened the account. At one point in the year, all of his funds except the Fidelity Strategic Bond fund were in negative territory. However, he stuck with his positions and his ISA has now made a comfortable 13% gain since opening his account.
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