ISA investors shun UK stocks and equity funds during ISA season – AJ Bell

New data released by AJ Bell reveals the investment platform’s ISA investors shunned individual UK stocks and UK-focused funds and trusts during the busy ISA period starting 1st January 2024 and running to 5th April 2024.

Breaking down investor activity in funds and individual stocks, AJ Bell found ISA investors had a preference for global equity funds and US stocks enjoyed the biggest inflows.

The popularity of overseas funds is unsurprisingly given the strength of overseas indices in early 2024, but Laith Khalaf, head of investment analysis at AJ Bell, warned Jeremy Hunt’s new British ISA could face difficulties if current trends persist.

“Judging by the most popular investments with ISA investors so far in 2024, it looks like Jeremy Hunt is going to have to rely on individual stock investors to do the heavy lifting when it comes to the UK ISA. Fund and trust investors are still very much going global with their ISA money in search of superior returns,” said Laith Khalaf, head of investment analysis at AJ Bell.

“None of the twenty most popular funds and trusts chosen by ISA investors so far in 2024 appear to be eligible for the UK ISA, based on the rules currently proposed by the Treasury.”

Khalaf noted a grey area around Investment Trusts and the British ISA, which one would hope is clarified given the discounts some Investment Trusts trade at currently.

“There is however some confusion over whether investment trusts will be included, even those that invest overseas, on the basis they are themselves listed UK companies,” Khalaf said.

“Likewise, presumably the government would look favourably on allowing Greencoat UK Wind into the UK ISA, seeing as the trust invests in a portfolio of UK wind farms. As things stand though, the Treasury proposals for eligible investments only cover UK shares and bonds, and the funds and trusts that hold them.”

Most popular funds and trusts with ISA investors

Source: AJ Bell, net flows from DIY investors in ISAs from 1 January 2024 to 5 April 2024 excluding AJ Bell funds.

Compounding the problem for the British ISA, individual stock investors also choose to look beyond London’s markets for a large proportion of their cash during the ISA season.

“Stocks that provide exposure to the US market and offer ways to play the artificial intelligence theme have been among the most popular choices for AJ Bell customers investing in an ISA between the start of January and the end of the tax year on 5 April. With some of the best gains in recent years having come from US shares, it’s no wonder investors have fished for opportunities across the pond,” said Dan Coatsworth, investment analyst at AJ Bell.

“Four out of the top 10 most popular stocks for AJ Bell ISA transactions by net flows are listed in the US. At the top is chips giant Nvidia which has delivered stellar share price gains since early 2023.”

While AJ Bell’s data is bad news for the British ISA, it does demonstrate UK investors’ prudent approach to investment by making savvy picks in some of the world’s best-performing shares.

“Successful investing is often about looking for opportunities away from the mainstream and one multi-billion-dollar stock has attracted quite a bit of interest from AJ Bell customers despite being relatively unknown in the UK,” said Dan Coatsworth, investment analyst at AJ Bell.

“Samsara has been a hit with people investing in their ISA this year, perhaps because it offers a different way to play the AI theme rather than going down the obvious route of Nvidia or one of the big tech providers. Samsara runs a platform that brings together important operational data for businesses and governments, and it uses video technology that incorporates artificial intelligence.

“In third place on the ISA list is Microsoft, seen as a trusted way to play the tech space. Millions of people use its programmes on their computers, laptops and phones, while it is also a major player in the gaming space.”