ISA best share and stockmarket buys for 2008

Fortunately for the rest of us, you don't need to strike oil to have a good dividend stream, in our experience the best method is through investing in equity income.

It is an important fact that dividends account for a significant proportion of investment returns over the long term. For example, &qout;10,000 invested in the UK stock market 20 years ago would now be worth &qout;41,201 without dividends, but that more than doubles to &qout;86,089 if dividends are reinvested.

The real beauty of dividends comes in their potential to grow over time. For this you need to pick the right companies. Only the most successful will be able to consistently grow their earnings ahead of inflation and maintain a rising dividend. More often than not the ability to correctly identify these companies is what distinguishes the truly superb equity income managers.

In our opinion there is no finer exponent of the art than Neil Woodford. He has run the Invesco Perpetual Income Fund for seventeen years, during which time he has experienced stock markets of every flavour. This has given him the experience and confidence to back his convictions; he does not waste time chasing every new 'hot stock' but focuses his portfolio on high quality businesses.

The Invesco Perpetual Income Fund has for years been exposed to relatively defensive companies such as utilities. These remain a core part of the portfolio today, alongside household names such as Vodafone and Tesco. What they have in common is a history of dividend growth and the stable cash flow and low level of debt which help to maintain this record.

Their position as major players in core parts of the UK economy means that they should hold up relatively well even during times of slower growth, although all equity based investments can go down as well as up in value.

Neil Woodford has a track record that is the envy of his peers. Over the last five years the Invesco Perpetual Income Fund has risen by 139%, significantly ahead of the sector average which rose by only 84%. Even more remarkable is the performance since he started managing the fund in October 1990.

Since then the Invesco Perpetual Income Fund has risen by an amazing 1,199%, far outstripping the 486% returned by the average fund (Source Lipper: 01/10/90 - 03/12/07) but please remember that past performance is not a reliable guide to future returns.

BlackRock UK Absolute Alpha Class P Acc

Most investors believe in the long term benefits of equity investment. It is the fear of short term falls in the value of capital that deters investment. Some of the new arrangements available today can alleviate some of those fears whilst still offering the long term benefits.

Many people believe the market is finely poised; so a fund which aims to smooth out the extremes will be well received. In the investment world a new directive called UCITS III has the ability to change the face of retail investment funds.

Within its make up is the provision for fund managers to profit from falls as well as rises in the stock market. Previously fund managers could only profit when shares increased although in the course of their research they uncover what they believe are overvalued companies which could fall in value.

The ability to short stocks has added an extra dimension particularly pertinent to the challenging times that we are seeing in markets today. Until recently investors had been comforted with three or four years of a strong bull market. Generally prices had been rising and volatility had been low.

The uncertainty of the gravity of the sub-prime crises in the US caused by foolhardy lending has stimulated volatility.

I believe the BlackRock UK Absolute Alpha Fund, which has the ability to use the new UCITS III armoury, is ideal for these conditions. The fund endeavours to deliver absolute positive returns in all market conditions by using the wider powers available. However they are not a panacea, if the manager makes the wrong call he can lose money whichever direction the market moves.

Since this fund launched in April 2005 we have been monitoring it closely. We were keen to see how it performed in all market conditions and are impressed with the performance to date.

I believe this fund has a number of uses in a portfolio. First, as a core holding for those seeking a less bumpy ride on their investments. It could be used tactically for investors who have suddenly turned more cautious on the market but may want a foot in both camps in case the market suddenly takes off.

For investors with SIPPs it could be used to reduce volatility and give a degree of protection for gains already made in their portfolio.

What should investors expect from the fund? The equity exposure gives the fund the potential to benefit from the growth of the stock market. Furthermore, whilst the ability to short means it is unlikely to perform as well as traditional funds in strongly rising markets, it offers a degree of protection if markets fall.

These arrangements have shown how reduced volatility can provide long term performance that delights without investors suffering the same falls during their progress.

Neptune Russia and Greater Russia Fund

A hundred years ago pearl diving was the most common way of harvesting pearls. Divers often descended to depths of 100 feet on a single breath to hunt for pearls on the ocean bed. With this considerable risk came the opportunity for big rewards. Investing is no different. If you dive deeper into the risky depths of countries like Russia, you could potentially find great returns.

There is much negative news about Russia, but for this reason it is one of the cheapest markets in the world today. It also has one of the fastest growing economies, predicted to end 2007 with its ninth straight year of growth. This is expected to be around 7.3%, which compares favourably to developed economies, such as the UK, which is growing around 3.2%.

Russia also has the world's largest natural gas reserves and the second largest reserves of oil which continue to drive growth. The consumer has also been making contributions towards growth. Wages have been rising at 20% per year for the last three years creating a thriving middle class population with higher incomes which is fuelling consumer demand. For example, the number of cars in Russia has risen by over 50% and the money spent on food has doubled in the last five years.

Interestingly, the recent global financial turmoil has had a limited effect on Russia. This goes some way to show that the Russian market has become more diversified, mature and self sufficient. The Russian government has also been smart enough to tax oil revenues and put the money into a stabilisation fund, which would be used to cushion the economy if oil prices were to fall. This stabilisation fund is fast approaching $160 billion, roughly double what it was in 2006.

Like any emerging country, politics present an additional risk. The parliamentary elections have taken place and presidential elections are due to take place next year, so the government will certainly not want to de-stabilise Russia's thriving economy. The political stability created by President Putin's regime should ensure little disruption follows in his footsteps.

Russia is becoming wealthier, more politically and economically stable and these are great conditions for investors. If you are interested in gaining exposure to the Russian story, you might want to have a look at Robin Geffen's Neptune Russia and Greater Russia Fund. It is a concentrated portfolio of currently just 32 companies.

He launched this fund in December 2004 and has since shown how his pearls of wisdom can yield strong returns. Over this period the fund is up 220%, although please note that past performance should not be seen as an indicator of future growth (Source: Lipper, 31/12/04 to 03/ 12/07).

As the Western economies show signs of slowing, Russia is showing enormous resilience. In our view this is one of the most attractively valued markets in the world today. If you are bold enough to take the risk and venture to greater depths, you could be handsomely rewarded over the longer term.

ISA tips provided by Hargreaves Lansdown, one of the UK's leading independent stockbrokers and financial advisors