ISA recommendations 2005

The fund invests in large and mid cap “leading” companies with a minimum market cap of US$1bn, but is focused on between 40 and 60 companies.

Bowes adds: "While Angus Tulloch believes that investment opportunities exist across companies of all sizes, he also sees that investment in larger companies can potentially minimise some of the risks associated with smaller company investment."

Bowes points investors looking for income in the direction of Aegon Extra Income. She explains: "For an income seeker, the fixed interest Isa will provide a tax-efficient, fairly high level of income, plus the potential of limited capital growth.

"The primary objective of this fund is to achieve a high level of income by investing in a portfolio consisting mainly of UK fixed interest bonds and preference shares, with some investment also in Government and other public securities, convertibles and other permitted investments."

Bowes says that foreign fixed interest investments and Eurobonds or overseas government bonds can also be used when it is considered that these will generate the requisite yield.

She adds: "Aegon has a large and experienced global fixed interest resource, with teams based in the US, Holland and the UK. The Edinburgh team itself is 16 strong.

"The fund will typically hold between 40 and 80 stocks with a minimum exposure of 50% to sterling investment grade corporate bonds and a maximum exposure of 49% to government bonds. High yield and non-sterling bonds are both restricted to 10% of the funds assets."

Justin Modray, Bestinvest

For novice investors, Modray recommends Jupiter Merlin Growth. This is a 'fund of funds,' which means it has exposure to a large number of other investment funds.

Modray says: "I am not generally a fan of funds of funds because clients have to pay an annual fee to the fund of funds manager as well as on the underlying funds.

"However, they are a straightforward and cost-effective way to gain exposure to a wide range of funds and so make a sensible starting point. This Jupiter fund invests in around 15 funds globally with a bias towards the UK and is managed by John Chatfield-Roberts, one of the better managers in this sector.

For experienced investors, Modray is a fan of JP Morgan Fleming's Natural Resources fund. He says too many investors ignore sensible asset allocation and diversity in their portfolios and that investments in natural resources such as energy, gold and other precious metals and base metals are a good diversifier as they are not correlated to the stock markets.

He adds: "This fund is run by Dr Ian Henderson, a very experienced and successful manager in this sector. That said, it must be stressed that natural resources can be volatile. I would suggest keeping exposure to this sector at no more than 10% of your portfolio."

Those investors looking for income should look at New Star Managed Distribution, according to Modray.

"By investing in both equities and fixed interest, this fund provides a nice blend of income with potential for capital growth. It's important not to neglect the latter when investing for income, otherwise inflation will, over time, erode your capital.

"The equity part of the fund is managed by Toby Thompson, who has proven his worth running the New Star Higher Income fund (and a similar fund at Newton prior to that). James Gledhill handles the corporate bond side. He too has a good management track record. The fund provides a straightforward and attractive route for income investors."

Ryan Hughes, Chartwell Investment

For the new investor, Hughes likes the look of New Star Active Portfolio fund. Hughes is a fan of 'funds of funds' like this one as they give the investor an instantly diversified portfolio and thus take away the need to make difficult asset allocation decisions.

He adds: "The managers of this fund have been running money in this style for a long period and have a good track record, making it a good choice for the first time investor."

Framlington UK Select Opportunities is a good option for the more experienced investor. Hughes says.

"This fund has the freedom and flexibility to invest anywhere in the UK to maximise returns and is managed by the highly regarded Nigel Thomas. He has an excellent track record of outperforming the market and is seen as one of the leading stock pickers in the UK.

"While the fund has flexibility, Thomas has particular skill in investing in smaller companies and therefore the fund is likely to have a high allocation to this area. Given the aggressive nature of this fund, it will be more volatile but we expect it to continue to outperform the market."

Income seekers should consider Artemis Income. The fund aims to produce a rising income combined with capital growth from a portfolio primarily made up of investments in the UK. These include ordinary and preference shares, convertibles and fixed interest securities. Despite this objective, this fund invests in a mixture of large, medium and small UK companies.

Hughes says: "What makes this fund unusual is that it can also invest up to 10% of the portfolio into European Equities, as well as up to 10% into fixed interest securities. The fund has a long-term track record of outperformance and is under the management of a quality team at Artemis."

Mark Dampier at Hargreaves Lansdown

Dampier picks a UK-focused fund for the novice investor - Cazenove UK Growth and Income.

He explains: "I have chosen this fund, which is run by Tim Russell, as it is an ideal foundation or first step for the inexperienced investor. The fund invests around 75% in the FTSE 100 with the balance in mid caps. The fund is pragmatic and is run with a strong eye on the business cycle making sure that the holdings fit in with what is going on with the economy."

For the more experienced, Dampier chooses a UK multi-cap fund, Framlington Select UK Select Opportunities.

"The fund is run by a very experienced fund manager, Nigel Thomas, who invests roughly a third in large cap, a third in the medium-sized companies and a third in small caps. Nigel looks to find companies where the growth is often unrecognised by the stock market."

Dampier cites Thomas's early exposure to Vodafone, which was one of his largest holdings in the mid 1990s, before anyone had ever heard of it.

For the investor looking for income, Dampier recommends an equity income fund, rather than corporate bonds, which currently offer yields of only around 4% gross. He selects Artemis Income, run by Adrian Frost, whom Dampier praises for his 'immense' experience.

"Adrian Frost has over the years proved to be one of the best income stock pickers in the industry," explains Dampier. "As a part of Artemis he now rubs shoulders with a group of fund managers who are simply the best in the country. He invests on a total return basis looking for both capital and income growth. Income on the fund can be reinvested, adding to the overall return, but a switch to taking an income can be done at any time."

Patrick Connolly, John Scott & Partners

For the novice investor, Patrick Connolly recommends Rensburg UK Blue Chip as a core holding, chiefly as it will always have a minimum of 90% invested in the FTSE 100. Connolly says: "Rensburg has a strong track record of running UK equities and their large cap funds have been particularly consistent. Stock selection is key, and the fund has performed well against its sector, but with lower volatility."

More experienced investors could do worse than pick Martin Currie UK Growth, which Connolly describes as an 'aggressive' focus fund. Key benefits of the fund are that it is more diversified and invests in higher quality companies than many in its peer group.

Connolly adds: "Jeff Saunders runs the fund from Edinburgh and has an excellent long-term track record. The fund is particularly useful from a portfolio construction perspective as it performs in a unique manner and so provides excellent diversification qualities."

Connolly selects Legal & General's Fixed Interest fund for income seekers. He says: "Many investors are underweight in fixed interest investment, despite the fact that it is a good diversifier for their equity holdings. In particular, the correlation between good quality investment grade bonds and equities is low."

"This fund focuses on the quality end of the bond market and benefits from a proven and experienced investment team that have produced consistent performance figures. It remains the type of fund that should have a role to play in just about any investment portfolio.