The only icon to endure has been Britain’s wildly popular tax-efficient saving vehicle. To mark a quarter century of wealth-building in the UK, the FundCalibre research team looks at the success of ISAs and highlights the ISA-eligible funds that have delivered the best returns since the savings vehicle was born.
Savings success
To date, around £750bn has been held in ISAs*. The latest statistics show that 11.8 million adult ISA accounts were subscribed to in the 21/22 tax year*. This was slightly down from 12.2 million the previous year, but the weakness was led by a fall in cash ISAs, which decreased by 920,000*. Stocks and shares ISAs continued to rise.
ISAs were introduced on 6 April 1999, replacing the personal equity plan (PEP) and tax-exempt special savings account. At the start, the contribution limits were £7,000 for a stocks and shares ISA, and £3,000 for a cash ISA. This was an uplift on the £6,000 limit for a PEP, but a long way short of today’s generous £20,000 annual limit** – and as announced in the recent UK Budget, savers will also get a chance to help revitalise the unloved UK stock market through a new ‘British ISA.’
Those who have saved in stocks and shares ISAs since the beginning will have done pretty well. An investment in the MSCI World index would have delivered a comfortable return of 468%***. That is in spite of plenty of bumps on the way – the technology boom and bust, the global financial crash, and a variety of geopolitical crises.”
The top-performing retail investment fund is the UK-focused IFSL Marlborough Special Situations****. Following our long held belief that small and mid-cap outperforms large-cap over the long-term, this £674m fund, launched in July 1995, has delivered an astonishing 2,643% in the past 25 years***. This outstanding performance is evidence of the team’s long-term stock picking ability in this area of the market with the fund holding up well across a wide range of market conditions.”
A lucky investor who had put their £7,000 first ISA in this fund in 1999 would now be sitting on a pot of £192,026***. This is a lot more than the safety-first saver who had put their ISA in cash at an average interest rate of, say, 3%. That would have netted them just £14,656.
Another high performer over the period has been Liontrust UK Smaller Companies, launched in 1998 by manager Anthony Cross, the fund has delivered 1,271% since April 1999, turning £7,000 until £95,976 for investors***.
This fund is managed by the highly regarded and deeply experienced Economic Advantage team who also run Liontrust’s Special Situations and UK Micro Cap funds, both of which have impressive track records.
Going global
Looking globally has generally put savers at an advantage, particularly in recent years where the S&P 500 has delivered an annual return of 7.27% per year^. You’d have suffered the technology crash, but then participated in the astonishing growth of Amazon, Microsoft, Apple and Meta, with an added boost from a barnstorming rise in the Dollar.
The research also stressed that income is important. Without dividends reinvested, the return from the MSCI World would have dropped to 250%^^. This is particularly potent if you generated those dividends in an ISA and therefore didn’t have to pay tax.
Funds for the next 25 years
Looking ahead, small and mid-cap shares will continue be the winners over the next quarter century.
Smaller companies are under researched despite their proven ability to consistently outperform their large-cap counterparts. Companies of smaller stature operate in niche and growing markets, are nimble and can generate faster growth because they often benefit from the tailwind of technological advancements.
While UK funds such as IFSL Marlborough UK Micro Cap Growth and Unicorn UK Smaller Companies are well positioned to benefit from technological, economic and thematic changes, investors should also diversify into broader geographical opportunities through funds like abdrn Global Smaller Companies and Janus Henderson European Smaller Companies.
*Source: HM Revenue & Customs, 22 June 2023
**Source: gov.uk, February 2024
***Source: FE Analytics, total returns in pounds sterling, 6 April 1999 to 19 March 2024
****Source: Morningstar Direct, returns in pounds sterling, 6 April 1999 to 29 February 2024
^Source: Official Data, S&P 500 in USD, data from 1999 to 2023
^^Source: FE Analytics, returns in pounds sterling, 6 April 1999 to 19 March 2024
