LONDON: An ISA for all seasons. How investing regularly can smooth the ups and downs of the markets

Apr 30, 2012

London, 30 April 2012: The 5 April deadline for investing one’s annual Individual Savings Account (ISA) allowance has given rise to an ISA ‘season’, where banks, building societies and investment houses vie with each other to persuade investors to top up or open accounts before the tax year turns and the allowance is lost.

But is a last-minute rush really the best way to invest? Research from J.P. Morgan Asset Management suggests that a ‘little and often’ approach could produce better returns over the long term, particularly in volatile market conditions.

The asset manager looked at returns from two of the investment trusts available on its J.P. Morgan WealthManager+ platform over one, three and five years. It compared the return on a lump sum investment on 6 April – the first day of the new tax year – in 2007, 2009 and 2011 with £100 a month invested over all three periods. In each case the lump sum was equal to the total of the regular contributions over the relevant period.

JPMorgan Elect Managed Growth is a ‘fund of funds’, which invests in a mixture of investment trusts and open-ended funds managed by J.P. Morgan Asset Management and other managers. It is a diversified, global, ‘core’ type investment offering a spread of assets to cut risk. JPMorgan US Smaller Companies, as the name suggests, invests in smaller companies in the US. The more risky nature of smaller companies, combined with the narrower geographical focus, means this is a higher-octane proposition offering the prospect of superior returns but with greater risk of short-term losses.

The results make for interesting reading, with the regular saver winning out over the lump sum investor in both trusts over one and five years, but the lump sum investor doing better over three years. The beginning of the three-year period came just after stockmarkets bottomed following the financial crisis of 2008, when the UK’s FTSE 100 Index hit a six-year low of around 3500 in March 2009. While markets have certainly not gone up in a straight line since then, they are still substantially higher than at that very low point, so the investor with a lump sum would have seen their £3,600 investment grow to £5,857 in JPMorgan Elect Managed Growth and a whopping £7,415 in JPMorgan US Smaller Companies, versus £4,447 or £4,937 for an investor who put in £100 a month across the three years from 6 April 2009 to 6 April 2012. (All figures produced by J.P. Morgan Asset Management, share price total return, net of fees.)

But calling the bottom of a market isn’t easy, and reverses can happen quite quickly, as investors saw in 2008 and again in the summer of 2011. When markets go up and down a lot, regular investors can benefit from a phenomenon known as pound/cost averaging, where their regular contribution buys more shares when prices are lower, meaning they have a bigger stake from which to benefit when prices rise again.

This is why the regular investor has done better over the volatile past five years, when £100 a month would have grown to £8,025 in JPMorgan Elect Managed Growth and £8,663 in JPMorgan US Smaller Companies, versus £6,576 and £7,323 for a £6,000 lump sum invested on 6 April 2007. Over the past year, the downgrade of the US credit rating and the ongoing economic woes in the Eurozone have caused ripples in the markets, meaning the regular investor has again done better, with £100 a month growing to £1,279 in JPMorgan Elect Managed Growth and £1,380 in JPMorgan US Smaller Companies, compared with a £1,200 lump sum on 6 April 2011 falling to £1,166 in the first trust and rising to £1,278 in the second.

A further advantage of regular investment is that many people may find it more affordable. Investing direct with J.P. Morgan Asset Management’s WealthManager+ platform allows monthly subscriptions from £50 – or about the price of a daily cup of coffee – putting it within reach of those who may not have a lump sum at their disposal.

Keith Evins, Head of UK Marketing at J.P. Morgan Asset Management, said: “Investing in shares is a long-term business, as the value of investments can go down as well as up. Investing regularly means people can actually take advantage of these fluctuations, in addition to not tying up all of their money from day one. Also, those who get an early start on this year’s ISA allowance won’t be rushing to get in before the deadline next year and can take their time to choose the best investment for them.”

J.P. Morgan WealthManager+
The J.P. Morgan WealthManager+ online platform allows customers to access a number of financial planning tools, such as the financial health check and a tool to evaluate attitude to investment risk to help with investment decisions. It is ideal for investors who want to take control of their financial future offering a wide selection of investments including OEICs, SICAVs and investment trusts from J.P. Morgan as well as funds from other leading fund managers, equities and ETFs. Investments can be held in an ISA, SIPP or directly in an Investment Account.

Investment returns over one, three and five years:

  1 year to 6
April 2012
3 years to 6
April 2012
5 years to 6
April 2012
Fund Lump sum £1,200 £100 a month Lump sum £3,600 £100 a month Lump sum £6,000 £100 a month
JPMorgan US Smaller Companies £1,278 £1,380 £7,415 £4,937 £7,323 £8,663
JPMorgan Elect - Managed Growth £1,166 £1,279 £5,857 £4,447 £6,576 £8,025
All data is share price total return, net of fees, over periods stated. Source: J.P. Morgan Asset Management

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Pippa Gibb
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Notes to Editors

J.P. Morgan Asset Management is part of JPMorgan Chase & Co. and is a global asset management leader providing world-class investment solutions to clients. With US$1.4 trillion in assets under management (the Asset Management client funds of JP Morgan Chase & Co. as at 31 March 2012) and offices in 41 locations around the world, J.P. Morgan Asset Management offers global coverage with a strong local market presence, and leadership positions in most asset classes.

J.P. Morgan Asset Management is a trading name of J.P. Morgan Asset Management Marketing Limited which has issued this material in the United Kingdom and which is authorised and regulated by the Financial Services Authority. Registered in England No. 288553. Registered office: 125 London Wall, London EC2Y 5AJ.

Any past performance referred to in this material is not a guide to future performance and the value of investments, and any income from them, can fall as well as rise. Any tax concessions referred to are not guaranteed and their value will depend on the individual circumstances of investors. Stock market linked investments carry a number of inherent risks. These risks will increase where fluctuations in exchange rates impact on the value of any underlying investments or where the investment is exposed to smaller companies or emerging markets. Investments in fixed income securities that are not rated as investment grade represent a greater risk to an investor’s capital.


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