- 50 funds and 35 investment trusts would have created ISA millionaires since 1999, based on investing your full ISA allowance each year
- Two index tracker funds make the list
- US, technology and UK smaller companies funds feature heavily
- Based on a more modest £3,000 annual ISA investment, a global tracker fund would have delivered £254,616
- The same investment into a Cash ISA would have produced £97,372
Laith Khalaf, head of investment analysis at AJ Bell, comments:
“The ISA is 25 years old in April and over a quarter of a century has been a huge success in helping people save for their future. Using your full ISA allowance each year would have delivered £835,566 if invested in a global tracker fund, or £585,432 if invested in a UK tracker fund. Investing a more modest sum of £3,000 a year, equivalent to £250 a month, would have produced £254,616 if invested in a global equity tracker, and £173,142 if invested in a UK equity tracker. By contrast if that had been put into a Cash ISA each year, it would now only be worth £97,372.
“Meanwhile a small but meaningful number of funds and trusts have produced portfolios worth more than a million pounds, had you backed them with your full ISA allowance each year since 1999. The total amount you would have put into the ISA over this period is £303,440, so investment returns are clearly doing a lot of the heavy lifting.
“The beauty of the ISA wrapper is that all these large numbers end up in your pocket, rather than a hefty proportion of them being swiped by the taxman. Needless to say, a capital gains tax bill on a million pound portfolio held outside an ISA could be rather painful, and even relatively humble investment gains are at risk now the annual CGT allowance is being cut to £3,000 from April. Investors also need to consider dividends along the way. These are tax-free in an ISA, but outside they attract tax if they exceed a certain limit, which is currently £1,000 but is being cut to £500 from next tax year.
“With hindsight it’s possible to observe the ISA wasn’t launched at an auspicious time in the stock market cycle. The wheels were just about to come off the dotcom boom and both the Enron scandal and September 11th attacks created further turmoil, leading to a bear market that lasted until 2003. There couldn’t have been many worse times to start an investment plan. Of the 50 open-ended funds which went on to make ISA millionaires, 48 were in the red in the spring of 2003, by on average 30%, and by as much as 60%.
“It would have been easy to press the eject button at this stage and head for the sanctuary of cash, but that would have been the wrong call, even though it took the global market seven years to recover its 2000 peak. Lump sum ISA investing is actually regular by nature, if you do it every year, and hence smooths out your entry price into the market. You will buy at both peaks and troughs, and everywhere in between, so trying to fathom whether the market is good value is an occult art which ISA investors don’t need to dabble in, if they stick to their savings plan.”
Funds and trusts that have made ISA millionaires
“For the funds that would have made you an ISA millionaire, success has partly come down to being in the right place for a long time. The list of funds is dominated by those investing in North America. Over half of the funds in the millionaire list sit in the North America sector, numbering 26 to be precise. A further two invest in North America Smaller Companies, and an additional seven can be found in the Global sector, which has a high exposure to US equities. Clearly the US stock market has been the place to be invested and has delivered exceptional returns to those who have consistently backed it, not least because of the growth of the technology sector, albeit at the second time of asking for long-term ISA investors who bear the scars of the dotcom crash.
“Indian equity funds also put in an impressive showing with three funds making the grade thanks to exceptional returns from this market. Janus Henderson picks up the gold medal for the most millionaire funds, with five offerings in the list, followed closely by Columbia Threadneedle with four. Having a wide selection of long running US and global funds in the stable helps here. Two passive funds also make the millionaire list, both tracking the US stock market, of course.
“The list of millionaire investment trusts is somewhat more diverse in terms of the sectors that have made the cut, but technology is still a key theme with specialist tech trusts and more generalist trusts with high tech exposure like Scottish Mortgage featuring. Private equity is also heavily represented, accounting for five of the 35 funds in the list. Another theme which applies to both successful funds and trusts but is particularly pronounced in the latter is the prevalence of smaller companies offerings.
“Of the 35 investment trusts in the millionaire list, 14 have a specifically smaller companies mandate. Perhaps more surprising is six of these focus specifically on smaller companies in the UK stock market. The long-term growth trajectory exhibited by the UK smaller companies segment has been remarkable, despite the present negative sentiment which afflicts domestic stocks. Smaller companies are also less widely scrutinised than the blue chips, and consequently skilful active managers can find it easier to unearth hidden gems.
“It must be said that investing in the same fund or trust year in year out isn’t a good idea from the perspective of diversification, unless perhaps it is a global tracker fund where the risk you shoulder is simply that of the global stock market at large. Nonetheless these figures highlight how significant wealth can be generated from investing in the stock market at regular intervals, over a long period, and in a tax-efficient manner.”
Top ten “ISA millionaire” funds and trusts
(Full list available on request).
| Funds | Max ISA value | Trusts | Max ISA value |
| Janus Henderson Global Tech Leaders | £1,726,330 | HgCapital | £2,893,039 |
| AB American Growth | £1,566,389 | 3i Group | £2,630,822 |
| Baillie Gifford American | £1,376,878 | Allianz Technology Trust | £2,246,510 |
| AXA Framlington American Growth | £1,376,028 | Polar Capital Technology | £2,059,907 |
| abrdn Indian Equity | £1,366,497 | Scottish Mortgage | £2,020,696 |
| Vontobel US Equity | £1,289,443 | Scottish Oriental Smaller Cos | £1,594,886 |
| JPM US Select | £1,269,005 | Pantheon International | £1,517,819 |
| Pictet-Digital | £1,261,460 | abrdn Asia Focus | £1,499,291 |
| Janus Henderson US Forty | £1,261,325 | JPMorgan American | £1,470,810 |
| Invesco India Equity | £1,255,185 | Pacific Horizon | £1,453,325 |
Sources: AJ Bell, Morningstar, HMRC, total return data to 14 February 2023 based on a full ISA contribution on 6 April each tax year.
