How do I lower the Risk of Stocks and Shares ISA?

pjbltd

Hi guys

Currently I have two Stock&Shares Mini ISAs with Hargreaves and Lansdown invested in equity funds.

I want to lower my risk and move away from equity in safer investments either cash or government bonds. I would like to know what I can invest in to keep my money safe and also have a reasonable and steady interest.

If I liquidated my fund positions and left the money just as cash then the interest would be very low (I have around £5000 http://www.h-l.co.uk/our_services/interest_rates.hl), I also do not want to move the money out of the account into savings account as I want to keep it in the ISA wrapper.

I’m thinking there must be a way to at least get around the same net interest as I would in a high interest savings account (I am a higher rate tax payer).

Any help would be much appreciated.

I have looked at the following but do not know if any would be good investments:


M & G Gilt & Fixed Interest Income Fund Class A Income
http://www.h-l.co.uk/fund_research/security_details/sedol/3110780.hl

Legal & General Cash Accumulation
http://www.h-l.co.uk/fund_research/security_details/sedol/0514158.hl

[FONT=&quot]Threadneedle Sterling Bond[/FONT]
http://www.iii.co.uk/factsheets/?type=detail&mex=ESBFR

Royal London Cash Income Units
http://www.h-l.co.uk/fund_research/security_details/sedol/0772990.hl

meester

Do you have a specific reason for reducing risk?

BlackRock UK Absolute Alpha is incredibly popular right now, and appears to have low volatility so far.

pjbltd

Exactly "so far". I want the peace of mind and my suspicion is things are going to get a lot worse, (please no replies about why do I think this, I don't want this to turn into a thread of economic forescasts! I just want advice for how to make a Shares and Stock ISA safer by moving into money markets & gilts. If possible I would like to closely replicate a Cash Mini ISA with a high interest rate and security on my money).

( ps If you still want to know why I am not confident in the market go out and pick up a copy of Debt and Delusion by Peter Warburton).

munk

I would second meester's fund mentioned above, ideal fund for your purposes. Also another very low volatility fund is this one:

CF Arch cru Inv Portfolio

Very unexciting fund to watch over time which is what you want I guess - just drifts upwards slowly but surely.

Note though that it does have an initial charge of 6% (discounted down to 2% at HL) and annual charges of 2.3% so it is on the high side in terms of charging - however it's track record speaks for itself, volatility is extremely low with a nicely 'upward' sloping performance chart over time.

Some nice chartage here:

Actually here's all my links I have on this one make it easy for you to look at:

CF Arch Cru Investment Portfolio A Acc [Y!] [TN] [BL] [MS] [HL]

Alternatively look at the Cautious Managed sector on Trustnet. Ruffer's Total Return is another fund that's low in volatility without sacrificing performance too much.

jon3001

The 'cash' funds aren't eligible for holding within an ISA.

I couldn't comment on any individual gilt/bond fund. Government/AAA company rated would be the most secure. For lower volatility I'd look for a bias towards shorter (<10 year) maturities as they're less sensitive to interest rate changes. You could also look at diversifying across index-linked gilts and international bonds.

I wouldn't eliminate stocks altogether - retain 10% minimum. Highly volatile assets can lower the overall volatility of the portfolio if they're uncorrelated. This is why commodities can be a powerful diversifier in a portfolio.

In short, it's not really about picking one low-volatility fund. It's about constructing a portfolio of funds which together have lower volatility than any individual holding.