If you employ someone to walk the dog, feed the plants and baby-sit the children, and have a gym instructor to work out a fitness programme for you, chances are you won’t have time to deal with your finances by researching and picking the best-performing shares for your portfolio. If this sounds like you, or if you are generally pressed for time, the best way to deal with the pressures of making your money work would be to invest in a managed individual savings account (ISA).

If you invest in a managed ISA you take the stress out of dealing with your savings as an asset manager does all the work for you, creating a diversified portfolio of stocks and shares.

Active management
‘Managed’ describes a fund that is actively managed by professional
fund managers. A fund gives you the ability to gain access to a variety of underlying investments, which you wouldn’t normally have access to unless you have heaps of money.

Of course, like all the other services that you ‘outsource’, you have to pay for the privilege of having someone pick the stocks and shares on your behalf.

Initial charges can go up to 5.5 per cent, and annual management fees can range from 0.75 per cent to two per cent, whereas if you have the time to manage your own money you would pay far less than that. But financial advisers argue that you shouldn’t discard a fund purely because it has high management charges. ‘Have a look at its returns after charges first,’ says Anna Bowes, investment manager at IFA AWD Chase de Vere.

There are many managed ISAs on offer. Even if you go for a single fund, there are still lots of options. ‘The diversity is massive,’ says Bowes. ‘There are lots of IMA sectors and in something like a UK All Companies grouping there are lots of different types of managed funds. The specialist sector has property, commodities, gold and all sorts of different products in it. So there is a huge choice and the difficult thing to do is deciding which ones are appropriate for you and which are good performers.’

A question of balance
A balanced fund can give you the best of both worlds as it invests in equities and bonds. It will typically perform better than a share-only fund in a bear market, but these days balanced funds are all structured differently and will hold different share-to-bond percentages, which will affect risk levels and performance. So it is important to check what the fund consists of before investing your money in it.

‘The best-performing balanced managed fund over three years, returning 58 per cent versus the sector average of 28 per cent is the Neptune Balanced fund, run by the hugely successful Robin Geffen,’ says Rebecca O’Keeffe, head of fund management at Interactive Investor. ‘The same manager also runs the best-performing active managed fund, the Neptune Global Alpha Fund, returning 109 per cent over three years, compared to a sector average of 33 per cent.’

If you are looking for more variety from a single fund, you should choose to invest in an international fund. ‘It depends on the type of product that you want. If you were to invest for the long term you could go for a global fund like M&G Global Basics. If you want a pure equity fund then there are funds like Neptune Global Equity that have done well,’ advises Bowes.

If you are unable to choose a particular fund yourself, you should seek the help of a financial adviser, who can scour the market for you. ‘If you read the financial papers you will find funds that are regularly quoted by people like me, but the difficulty is knowing whether that investment is appropriate for you,’ adds Bowes.

Multiplying the managers
If you are looking for even more diversity then you should look at products that are the extension of managed funds such as fund of funds, multi-manager funds, and multi-asset funds.

A fund of funds specialises in buying shares in other funds rather than individual securities. Funds of funds can help you choose the funds on your behalf. The key is just choosing the right fund of funds manager. Again, if you are unsure you should consult a financial adviser. Multi-manager funds are designed to make an investor’s life easier as they package teams of specialist investment managers into a single fund.

Funds of funds are one of the best routes if you don’t have the time to manage your own portfolio because it consists of a managed portfolio of different funds. ‘For one core holding, you then have, underneath that, between 20 and 30 funds, so you are diversified straight away,’ says Mark Dampier, head of research at Hargreaves Lansdown. ‘Whereas if you buy one fund you don’t get the same diversification as you would in a fund of funds. But it also depends on what else you have in your other ISA portfolios.’

There are many fund of funds management firms to choose from. Dampier points out some of the best performers: ‘You could go for New Star’s Tactical fund and we do fund of funds at Hargreaves Lansdown too. Our specialist situations fund picks some of the very best fund managers.’

Multi-asset funds, meanwhile, are relatively new and are a way of spreading your risk beyond just holding one type of asset class. Bowes says, ‘Multi-asset is not just funds of equities, but they can hold property or fixed interest, structured products, hedge funds, derivatives. They are a mixed bag and this is something investment firms have been developing and they have become very popular. Miton Optimal's Arcturus is an example of a multi-asset fund that is a one-stop shop that will invest in everything.’

But Bowes warns that a multi-asset fund is a totally different animal from most conventional funds and won’t necessarily produce the returns that some equity funds can make in the long run because they are designed for tough, volatile periods such as the one we are in the midst of now.

She says, ‘Multi-asset funds are the ultimate managed fund. But they will struggle to keep up in a bull market as they are investing in other things as well, but this approach does keep the volatility lower. When the stock market goes down, like it has done recently, these multi-asset funds have already shown their worth.’

Mixing and matching
If you are finding it hard to choose between a single managed fund and
a fund of funds the good news is you don’t have to invest your entire ISA allowance in either one or the other. If you find that you like the performance of both you could
mix and match. ‘

‘You could use a core fund of funds approach and, for 20 per cent of your ISA, pick some specialist funds if you want to. It all depends on how much time you want to take and how much risk you want to take. You could end up having a portfolio of four or five international funds and some fund of funds too,’ says Dampier.

But there are down sides to having someone else doing the job for you as some sectors fare better than others. According to O’Keeffe, choosing the seemingly simple option could severely limit your potential gains. ‘Assuming that individual shares are not on the agenda, one of the easiest options is to choose a managed fund – but you may be missing out on the real performance. The Balanced Managed sector returned 28 per cent over the past three years and 75 per cent over the past five. This is a very solid return and most people will be happy, but compare it to the Global Emerging Markets sector, where a three-year investment would have netted you 105 per cent and a five-year investment 255 per cent and it pales by comparison,’ O’Keeffe says.

Bowes agrees. ‘The vast majority of managed funds underperform. You need to find funds that do well, otherwise it is not worth paying the extra costs. The benefit of a good fund manager is that they will make you as much money as possible. You will have to pay charges for that but in the end it will be worth it,’ she says.

Don’t give up
Wrapping your ISA around a managed fund means that you don’t have to manage the portfolio yourself, but that still shouldn’t stop you from doing the work. Hargreaves Lansdown’s Dampier points out, ‘You still have to make a decision
on the sort of risk you want to take. Do you take a balanced approach? Do you take an international fund? Or do you buy a fund of funds from the likes of Neptune or Artemis?’

Once you have made a choice on which fund to invest in, you still have to remain vigilant. ‘You have to check performance and whether the fund manager has left. Those are the sorts of things you have to look out for,’ he adds.

O’Keeffe agrees that doing added homework will help in the long run. ‘If you are going to buy and hold for the long term then half an hour’s effort will be worthwhile. There
are plenty of available tools and research, such as fund filters, which provide a detailed analysis of the past performance, fund holdings, yield, sector and geographic weightings and the associated risks of each type of fund,’ she says. ‘Alternatively, you can opt for a ready-made selection and let someone else do the work for you.’

Going one step further
We live in a world where, increasingly, anything can be done for us. Within the ISA market, you can go your own way by choosing a self-select ISA (see page 12 for more details) or, if you are too busy, you can choose a fund manager or fund of funds manager to do the selection for you. If that is too laborious, or if the choice is too great, you can seek the help of a financial adviser. You can even go to the added extreme and use the services of a discretionary manager.

Discretionary services give your investment manager complete authority to buy and sell investments for you without obtaining your prior approval. It is essential, therefore, if you choose to go down this route, to provide your manager or stockbroker with a well-designed brief of what you want. The advantage of going down this route is that your manager can act instantly to any changes in the market instead of trying to contact you. But you won’t be left in the dark – you should receive a contract note every time a transaction is made and detailed reports should be sent to you as well. For a directory of discretionary managers, contact the Association of Private Client Investment Managers and Stockbrokers (APCIMS). Many of these will offer some form of portfolio management within an ISA wrapper, although you may have to commit to making the maximum annual contributions to do so.

So there is no excuse for not implementing your yearly ISA allowance, which gives you the option to invest £7,200, with the proceeds tax free. Obviously, you should only take the amount of risk that you’re comfortable with but taking any risk may not be beneficial to you in the long run. As Sir James Goldsmith once said: ‘The ultimate risk is not taking any risk.’

O’Keeffe concludes, ‘Yes, there may be short-term volatility and even periods of prolonged pain, but if you’re investing for the long term and can sleep at night riding out the investment scare stories, then the chances are you will be financially better off. But above all, be sure you use your ISA allowance and if you do find the inclination,
a few minutes review every so often is strongly advisable.’