With the end of the tax year on 5th April and the last opportunity to use this year’s ISA allowance fast approaching, this article outlines six ideas for a Stocks & Shares ISA from investment professionals at Wealth Club and Hargreaves Lansdown.
In their own words, Kate Marshall, lead investment analyst at Hargreaves Lansdown, and Wealth Club Fund Manager Charlie Huggins outline three ideas each, with Huggins focusing on individual stocks, and Marshall highlighting Investment Trusts.
We start with Charlie Huggins’ three stock selections. Huggins personally owns shares in RELX, Diploma and Roper Technologies and holds them in Wealth Club’s Quality Shares Portfolio.
RELX plc
“Its name may not set the pulses racing, but you’d be hard pushed to find a higher-quality UK-listed business than RELX,” Huggins says.
“RELX is one of the world’s leading data experts. Its data, tools and analytics help insurers price risks, governments combat fraud and banks comply with anti-money laundering regulations. These aren’t the kind of things you stop doing in an economic downturn. Added to RELX’s long-term contracts and high levels of recurring revenue, it lends great predictability and resilience.
“RELX also benefits from an excellent competitive position. Not only is the quality of its data superb, but its solutions are deeply embedded in customer workflows, leading to high switching costs. Combine this with RELX’s brand strength, customer relationships, reputation and global scale; I wouldn’t want to compete with it.
“Competitive advantages like these can often breed complacency, but RELX has not rested on its laurels. Over the last 15 years, the group has invested heavily in innovation, launching increasingly sophisticated data analytics and tools. These investments are paying off. In 2023, RELX grew underlying revenue by 8% – twice as fast as a decade earlier.
“With the evolution towards faster-growing analytics continuing, I’m confident RELX can sustain its growth momentum.”
Roper Technologies Inc
Fund Manager Huggins outlines why he holds Roper personally and in the fund he manages:
“Once an industrial giant – selling anything from pumps to stoves and garden equipment– Roper has undergone a significant transformation in recent years. Slower-growing, more economically-sensitive industrial businesses have been sold with proceeds redeployed into acquisitions. Today, Roper is a conglomerate that owns 27 high-quality software and technology businesses.
“On the surface, these companies are quite different. One provides billing software for legal firms, another sells single-use bronchoscopes into hospitals. But they all share similar characteristics that should make them extremely resilient.
“All Roper’s businesses occupy market-leading positions within a niche, helping keep a lid on competition. The software and technology are critical and deeply embedded in customer operations, making switching difficult and expensive. In addition, a large portion of Roper’s sales are recurring and derived from defensive end-markets.
“This business model is wed to an entrepreneurial culture that eschews politics and embraces candour. Roper’s companies are kept independent and given considerable autonomy – the leaders are trusted to make decisions and, crucially, held accountable for the outcome.
“The results speak for themselves. Roper is enjoying higher margins and stronger growth than at any time in its history. I believe there is more to come.”
Diploma
“Many industrial businesses have struggled in a weakening economic environment. Diploma is an exception, because it is no ordinary industrial distributor,” says Huggins.
“Diploma supplies critical products, funded from customers’ operating rather than capital budgets. Whether its low-voltage cables going into data centres, seals going into construction equipment, or instruments used for life-saving surgeries, the common thread is that Diploma’s customers can’t function without them.
“Diploma is much more than just a product supplier, however. Its businesses provide deep technical support, next-day delivery and customised solutions. This value-add service offering makes it a key long-term partner to its customers and translates to excellent pricing power, margins and cash flow.
“Diploma has shrewdly redeployed this cash into acquisitions, to fortify existing niches, and gain a foothold in exciting new markets, like industrial automation. The success of this acquisition strategy is evidenced by Diploma’s very high returns on capital employed of around 20%.
“I think this strategy is only just getting going. With plenty of white space left on the map, and proven acquisition credentials, Diploma looks well placed to grow for many years to come.”
Three Investment Trusts
Kate Marshall, lead investment analyst, Hargreaves Lansdown, has highlighted three Investment Trusts covering emerging markets, UK equities, and high-quality global companies.
City of London Investment Trust
The City of London Investment Trust offers exposure to a selection of the UK’s top high-quality dividend payers including Shell, HSBC, and BAE Systems.
“UK equity income investment trusts are a convenient way to invest in a mix of dividend-paying UK companies, and to access one of the highest-yielding stock markets in the world,” Kate Marshall says.
“Job Curtis, manager of this trust for over three decades, likes larger, more stable companies which often have multinational operations. This provides the trust with exposure to both domestic and global growth. Investment trusts have more flexibility than open-ended funds to smooth out the ups and downs of the stock market and help maintain a rising and sustainable income. City of London Investment Trust has increased its dividend for 57 years, the longest record of any investment trust.”
JPMorgan Emerging Markets Investment Trust
Emerging markets have had a tough time recently and this trust will provide a broad basket of leading companies in countries including China, Brazil and India.
“Emerging markets have strong growth potential, which makes investment trusts focused on the area suitable for ISAs with a long investment horizon,” Marshall explains.
“Over the years, rapid industrialisation, growing populations, and a desire to succeed have helped transform countries in the region. JPMorgan Emerging Markets Investment Trust could be well-placed to take advantage of the changes taking place across these markets. The trust is managed by experienced investors Austin Forey and John Citron. It provides diverse exposure to countries ranging from China and India, to Taiwan and Brazil.”
Scottish American Investment Company
This Baillie Gifford trust’s top ten holdings include Microsoft, Novo Nordisk, and Procter & Gamble.
“Global investment trusts provide a good foundation to an investment portfolio focused on long-term growth, income, or both. Investing in companies across the globe provides a good level of diversification in a single trust. This trust is one of the oldest investment trusts around, having launched in 1873,” Marshall says.
“James Dow and Toby Ross, the current managers, search globally for companies with the potential for sustainable growth and a reliable dividend. They mainly invest in shares in developed markets, which should provide a dependable income stream and the potential for above inflation profit growth.
“They should also demonstrate resilience through the economic cycle. Some investments in UK commercial property and global bonds provides useful diversification, while some infrastructure and property shares help diversify the income paid to investors and could deliver growth ahead of inflation. The trust has increased its dividend every year for 50 years.”
