Three unconstrained funds for your ISA

Standard Life Investments was an early champion of the unconstrained approach. The group now has unconstrained UK Equity, UK Equity Income, US and Global fund franchises.

All the funds have been strong performers, but the two UK funds particularly so - each is top decile in its sector over three and five years.

Thomas Moore, manager of the UK Equity Income Unconstrained fund, says the funds are the purest expression of the group's investment selection process. These are the funds where it put its best ideas.

Moore believes the flexibility of the approach has helped him prioritise companies with a growing dividend yield rather than just a high starting yield. This has ensured he has avoided "value traps".

The fund is likely to be structurally overweight mid and small caps, because Moore believes this is usually the sweet spot for companies growing earnings and cash flow. That said, he admits there will be times when a higher allocation to FTSE 100 (UKX) companies is appropriate.

Returns through a portfolio of "ideas"

David Millar, Dave Jubb and Richard Batty joined Invesco Perpetual in September 2012 to build the new Global Targeted Returns fund. They had all previously helped develop the huge and successful Standard Life GARS fund.

The new Invesco fund targets three-month Libor +5% a year on a rolling three-year basis. The managers aim to achieve that return through a portfolio of "ideas" that may include investments in equities, derivatives, bonds, currencies and other assets.

The team draws on the skills of managers, strategists and economists in the wider Invesco group to form its ideas. The asset mix may look completely different at different times. Millar is clear that the team is completely unconstrained by asset class labels, historic performance of different asset classes or conventional correlation and diversification ideas.

The result is a fund likely to behave differently from conventional equity or bond funds, which should deliver a smoother return over time. The fund was only launched in September 2013, but has been substantially ahead of the wider sector since inception.

Consistent

The Rathbone Global Opportunities fund, managed by James Thomson and Alexandra Jackson, has been one of the most consistently top-performing funds in the global sector. Although it's not badged as unconstrained, Thomson runs it flexibly, free from benchmark constraints and with a concentrated, conviction-based approach.

He prioritises companies that may have been overlooked by the rest of the market, which tends to leave him hunting among smaller- and mid-cap companies. He will also invest in some recovery situations - companies that have fallen significantly out of favour. One strong contributor to performance has been the fund's light exposure to emerging markets.

Thomson has tended to hold no direct exposure, preferring to gain access to the economic growth of developing countries through developed market stocks.

Thomson also prioritises diversification. At any given time, he will know the fund's exposure by country, sector and size, not to measure it against benchmark weightings, but to ensure proper diversification across these areas.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.