The funds and trusts that can make you an Isa millionaire

Just a fraction of funds make investors Isa millionaires – but a weighting towards investment trusts might help boost your chances, according to research by AJ Bell.

Of the 472 funds and trusts with a performance record stretching back to 1999 when Isas launched, just 50 would have made you a millionaire from investing your full allowance each year.

Investment trusts account for 35 of the 50, with the remainder open-ended funds, and all are actively managed.

Private equity trusts top the list, with HgCapital Trust and 3i delivering total Isa values of £1.8million and £1.5million respectively.

Despite a poor performance in recent months, Scottish Mortgage remains in the top 10 funds with a value of £1.5million if you invested your full allowance every year.

By comparison, saving a full Isa allowance every year since 1999 into an average global stock fund would have netted £684,891.

‘Trusts as a whole tend to be more equity focused than funds, including in more niche areas like private equity,’ says Laith Khalaf, AJ Bell’s head of investment analysis.

‘They can also use gearing, borrowing money to invest, which over a 24 year period can provide a substantial tailwind to returns. The closed-end nature of investment trusts also means they can trade at a discount or premium to the value of their underlying assets.

‘This amplifies volatility, but can also lead to higher returns if the change in discount or premium is favourable between purchase and sale.’

> Typical stocks and shares Isa fund fell over the past 12 months – while cash Isa savers saw returns edge up 

Best funds often invested in riskier areas 

The best performing funds and trusts over the period are invested in riskier, often niche, areas of the market, as well as smaller companies funds.

‘It’s notable that many of these funds and trusts have fallen in value in the last year – some of them quite considerably,’ Khalaf says. 

‘The fact they have still banked enough good performance to produce Isa millionaires shows your final investment ranking is a reflection of returns from start to finish, not just in the final furlong.’

The lack of passive trackers in the top funds is notable, but is likely because they were not as widespread in 1999 so there are very few that have a long enough track record to make it into contention.

The HSBC American Fund index is knocking on the door of the millionaire fund list though, delivering £991,986 since 1999.

Secrets to being an Isa millionaire

Other than opting for investment trusts, there are some other secrets to help you boost your savings pot.

Khalaf says the first is to fund your Isa with as much as you can, and try to max out the full £20,000 allowance each year if possible.

The second is to take some risk by investing in the stock market, because if you opt for safer assets producing lower returns it will take longer to hit the £1million mark.

The lower your portfolio volatility is, the lower growth you can expect over the long term.

An investment in the average global equity fund would have built up a pot of £684,891, while the average UK fund trails at £539,840, although this is still an almost doubling of the money invested in the Isa. 

The UK gilts sector hasn’t made huge headway above £283,440, which is the maximum total Isa contribution between 1999 and 2023.

Finally, time in the market beats timing the market, so the saying goes. Starting as early as possible will help you edge closer to becoming an Isa millionaire.

‘Isa millionaires have generally had to save hard, take risk, and get a bit lucky to build up such a big pot of money,’ says Khalaf.

‘While it’s always interesting to consider the investing habits of ISA millionaires, we shouldn’t get too fixated on the £1million mark.

‘Isa savings can of course be extremely valuable at more modest levels. For instance, if you’re able to build up a £200,000 Isa pot, that could provide you with a tax-free income of £8,000 a year in retirement without even drawing down on your capital (assuming a 4 per cent yield). 

‘When added to your private pension and the state pension, that could be a welcome boost to your retirement income that could ensure you don’t spend your golden years counting the pennies.

‘It could also help you ride out any unexpected financial shocks, like the current spike in energy prices. For savers with more immediate financial goals, a Lifetime Isa pot of £30,000 will go a long way to securing a first home.’