They say time waits for no man and, oblivious to the global economic turmoil, the ISA season is coming around again.

No matter how bad a time of it companies, economies and governments are having, a tax break is a tax break, and investors are wise to make the most of one when it presents itself.

But where can you go for growth in a climate such as the one we are in at the moment? With deposit rates at historic lows, a cash ISA, while undoubtedly safe in terms of preserving your capital, is not going to appreciate much.

Getting in at the bottom
Buy low and sell high is a maxim that investors should always try to heed. Investing when the markets are low is, of course, a very sensible move from a long-term perspective.

If you put this year’s ISA allowance of £7,200 into company stocks and shares now, you get more for your money as the financial crisis has resulted in many stocks being undervalued.

But with the uncertainty over where markets will go in the immediate future, which bank will be next to hit the wall and which company will issue the next profit warning, investors are understandably cautious over where to place their money.

Of course, fund investing is, in itself, a safer option than putting all your money into a single company. You spread your risk over a portfolio of stocks, instead of putting all your eggs in one basket.

And with thousands of funds to choose from, there are inevitably a good number that should satisfy even the most wary of ISA investors.

Growth in a recession
How to achieve growth in such difficult times is a good question to ask, says Steve Waddington, a multi-asset manager with Insight Investment. Waddington spends his time looking at funds and selecting those he thinks will fit together to best build Insight’s multi-manager portfolios.

He observes that ‘We are now firmly in recession. Available household income is falling, consumer confidence levels have dropped like a stone and spending levels are also dropping, so we are seeing de-leveraging coming through. We are also seeing a “flight to safety” and, in the longer term, you are looking at inflation. But against this negative background and sentiment, investors are still looking for growth.’

Waddington and his team are targeting specific areas that they think will grow in the long term. A key area is government spending. In an economy where unemployment rates are set to rise, governments will try to support job creation with, for example, infrastructure projects.

At Seven Investment Management, Justin Urquhart Stewart agrees: ‘In such a bizarre climate, you are going to have to look at following where government are going to be spending, perhaps in the US. Look to base your investments on things like infrastructure, civil engineering and renewing power generation.’

James Davies, investment research manager at Chartwell Group, suggests funds such as the Sarasin AgriSar fund to capitalise on government action. The fund focuses on finding solutions to food issues, something that governments worldwide will be looking at.

Closer to home
A global agricultural commodities fund may seem a little adventurous for times such as these, however.When investors are unsure of where the economy is heading, they often prefer to invest close to home, into companies that they can more easily understand and follow.

A good-quality UK equity fund, which also gives a nod to the global economy, is the Neptune UK Equity fund, according to Davies.

‘Manager Jeremy Smith takes a global view and is more likely to select companies with good overseas earnings,’ he says.

At stockbroker Redmayne Bentley, investment manager Carolyn Black points out that it is too soon to know whether the bad news for banks is over: ‘I’m still not brave enough to go into banks or other finance stocks – there are too many unknowns in the sector.’

The same goes for retail companies, says Black, although, of course, retail and financial companies have often formed core elements of the equity income funds that have proven popular over recent years.

This type of fund could still be a good bet, according to Davies: ‘They may have suffered a bit, but people have also used them for growth, not just income.’

A good equity income fund will contain other defensive companies. ‘Traditionally defensive areas, such as utilities, pharmaceuticals and tobacco are worth considering,’ says Black.

She warns, though, that caution needs to be exercised over water utilities due to imminent regulation from OFWAT.

Protection from bonds
Bond funds with the income reinvested are another cautious option for growth. A goodquality corporate bond fund should be invested in steady companies with a reasonable yield.While credit defaults are expected to increase this year, a fund such as the M&G Optimal Income fund will have been positioned in advance for a difficult market.

James Davies opines that ‘This fund is a good starting point. You don’t need to take the income and it can have a small allocation to equities. It also contains some derivatives, which can be a useful way of maintaining liquidity and providing protection.’

Now could be a good time to get into corporate bonds, says Kate Hollis, director for fund research at S&P Funds Services.‘Investmentgrade bonds issued by decent industrial companies are holding up well,’she says. Furthermore, the companies left standing after a shake-up and a period of credit defaults are the good companies that will probably form a key part of the portfolios of corporate bond funds at the moment. investments on things like infrastructure, civil engineering and renewing power generation.’

James Davies, investment research manager at Chartwell Group, suggests funds such as the Sarasin AgriSar fund to capitalise on government action. The fund focuses on finding solutions to food issues, something that governments worldwide will be looking at.

More risk, more return
If you are interested in potentially higher returns from equities and, therefore, the higher level of investment risk that goes with them, there is a vast choice out there. For example, Insight’s Waddington is keen on environmental technologies as a theme.

‘The support for developing new technologies is strong, from both industry and government,’ he observes.

Following this theme, Waddington holds the Impax Environmental Technologies fund, which invests in companies in areas such as wind and wave power. Black also thinks that investors could look to mid- or small-cap funds for growth.

The funds from Old Mutual and Schroders are good candidates in this area, she says. Special situations funds, positioned to benefit from companies in a recovering market, are another play for the more adventurous investor.

But no matter what sort of fund you chose to put your ISA allowance into, one other approach that may help is to drip-feed the money into the market as it recovers.