For the first time in several years, the Isa season looks like generating some excitement. Not only have investors seen a surge in markets, which has boosted confidence and brought buyers back to the market, but there are a broader range of products to choose from with the bricks and mortar property funds and Nurs portfolios now allowable investments under the Isa rules. While no-one is predicting a return to the giddy days of 2000, fund management groups are quietly confident about the prospects for 2006.
This renewed enthusiasm would normally be an excuse for every experienced investor to flee the market, as everyone knows that retail investors always arrive at the party just before it ends. But for the time being, most people are still relatively confident about the prospects for equity. Richard Batty of Standard Life is typical, saying that global monetary tightening, flat yield curves and poor liquidity are misleading signals and an extended business cycle is under way with favourable prospects for a range of riskier assets, including equities.
The prospects for fixed interest and commercial property are more difficult to predict.The former looks fully or overvalued on almost all measures, while the latter has had a very strong run over the past few years and is unlikely to replicate the same success in 2006. Co-incidentally, this is just at the point at which it has become Isable.
The Real Adviser Inquiry this month looks at the prospects for this year's Isa season and what intermediaries are recommending. UK equity is the most popular sector, with 90% of advisers recommending it to their clients, but this is down on last year. Corporate bonds are proving remarkably resilient with 54% of advisers still recommending them, perhaps demonstrating that a hunger for yield will override valuation considerations.
But commercial property is the big winner with 78% of advisers recommending it. It would be easy to make a case for retail investors losing out yet again, but the situation is more complex that this. There are very few asset classes offering this level of income and if it comes to a straight choice between fixed interest and commercial property, the latter looks to be the better bet. The technology bubble is still too fresh in many investors' minds for this renewed enthusiasm to signal a return to the bad old days of boom and bust.
Cherry Reynard, editor
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