Should you bet your ISA allocation on battered UK stocks to rally?

Piggy in the middle: Could UK plc be the best home for this year’s Isa cash?

These are bewildering times for anyone deciding how and where to invest this year’s Isa allotment.

There are only 19 days left until the April 5 deadline. However, the collapse of Silicon Valley Bank (SVB), the lender to California tech companies, has shocked global stock markets.

Questions are being raised about the soundness of US, European and other banks. Who would not be frightened by such events?

But the unexpected should be the spur to reconsider your position on any issue.

The SVB scandal is yet another sign of how the end of the easy money era is affecting the American tech companies that make up a large part of many portfolios (you may have a lot more than you think).

In light of this, could UK plc be the best home for this year’s Isa cash? Such a choice would diversify its portfolio, with a sector to suit everyone, from construction giants to video games.

Global investment banks are eyeing the UK, however UK investors have been selling shares in UK companies. This is against the backdrop of the other big controversy of spring 2023: UK-listed groups leaving London in search of more fame, fortune and Wall Street hoopla.

Unpredictably, however, this flight is drawing more attention to UK plc’s hidden appeal, following better economic forecasts in this week’s budget.

Alec Cutler, Bermuda-based fund manager of Orbis Global Management, says: “There are plenty of UK-listed companies that would have twice the market capitalization on Wall Street, but the British don’t seem to care.”

Cutler cites names like Balfour Beatty – ‘the world’s best construction company’, Headlam, Europe’s leading flooring group, and Rolls-Royce, the aircraft engine manufacturer.

David Battersby of wealth manager Atomos suggests that Isa investors with an above-average risk appetite might even exploit SVB’s adverse impact on share prices at Barclays, Lloyds, NatWest and HSBC, which was made with the UK branch of SVB for £1.

Alexandra Jackson, Rathbone UK Opportunities fund manager, says: ‘The UK market is trading at a record 40 per cent discount to the US. Bullish on the outlook include companies exposed to US infrastructure spending like Ashtead, CRH and Hill & Smith, which we have in our fund.’

Jackson also highlights the opportunity to get involved in the UK creative sector, saying: “We have a stake in Team 17, the Wakefield-based video game company that has a back catalog of family-friendly indie games.”

Rathbone UK Opportunities is one of my bets on UK plc. On my Isa, I have Jupiter UK Alpha for its spread of big British names, like AstraZeneca and Drax, the UK’s biggest renewable energy provider.

From the start, I have made monthly contributions, rather than committing the entire £20,000 allowance in one fell swoop. This is a system that should suit those who are unsettled by current circumstances and who are happier to move gradually in the markets.

BestInvest’s Jason Hollands suggests the Murray Income investment trust for those interested in backing FTSE 100 names.

The share price of this trust is discounted by 5 percent to the value of its net assets. Hollands also suggests the Fidelity UK index fund. He adds: “For a more dynamic approach, I like the Artemis UK Select fund, which looks for undervalued companies. Managers may also take short positions in companies where they believe share prices will fall.’

CJ Cowan of Quilter Investors recommends JO Hambro UK Dynamic, which also looks for companies with “undervalued value”. Fund manager Alex Savvides perceives the UK market to be full of bargains.

The SVB affair is forecast to place a premium on companies with strong free cash flow (money left over after holding capital assets and covering costs) as opinion turns more against longtime darlings of technology, with its reliance on loans and the promises of tomorrow.

This week’s Budget eliminated the lifetime pension savings subsidy. But the right to also save £20,000 a year tax-free on an Isa remains a significant concession. ISA means individual savings account. Could this be the year he makes a personal offer to back Britain?

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