Last-minute ISA buyers offered the best of all worlds

Can't decide where to invest? Jenne Mannion looks at funds that do all the legwork for you by cherry picking parts of other funds

On Tuesday, this year's individual savings account (ISA) season draws to a close. If, by then, you haven't taken up your £7,000 allowance for the 2004-05 financial year - letting you invest money in shares (or up to £3,000 in cash) tax-free - you lose the break for ever.

On Tuesday, this year's individual savings account (ISA) season draws to a close. If, by then, you haven't taken up your £7,000 allowance for the 2004-05 financial year - letting you invest money in shares (or up to £3,000 in cash) tax-free - you lose the break for ever.

Don't worry if you're behind on your application: many fund managers and independent financial advisers (IFAs) plan to extend office hours and keep phone lines open, and accept online transactions until midnight on 5 April, to give everybody as much time as possible.

Of course, come the 2005-06 tax year that begins on Wednesday, you have a brand new allowance to play with - but it's a shame to let slip any allowance that benefits your finances.

For those keen to put money in a shares ISA before the deadline but yet to make up their mind where to invest, choice is likely to be part of the problem.

Savers have a smorgasbord of some 2,000 funds to choose from, all investing in different assets such as bonds, shares and property, and in diverse parts of the world.

You're also taking a punt on the fund's individual manager and have to hope that he or she can cut the mustard or doesn't change jobs and leave you with a poor replacement.

Even with your own research, this is a tricky task for any novice investor who doesn't want to use an adviser.

There is, however, a simpler way: invest in a multi-manager fund that puts your cash in the very best of other funds - essentially "cherry picking" what's available elsewhere in the UK.

"Not only do they choose the best funds from the start, multi-managers spend their working week monitoring them to keep abreast of any changes and ensure you have the best combination in your portfolio," says Alan Steel of IFA Alan Steel Asset Management.

They will pick funds investing in those countries and industry sectors that they believe are going places.

Richard Philbin, manager of Foreign &Colonial's multi-manager portfolios, for example, is unenthusiastic about opportunities in the US but upbeat over Europe, the UK and the Far East, including Japan and Hong Kong.

To this end, he has put clients' money into those funds that suit his own preferences; few individual customers would be so savvy with their own DIY investments.

This sort of "managed portfolio service" has traditionally been the domain of the super wealthy. However, you don't need big sums of money to buy into multi-manager funds. In many cases, you can start with a monthly contribution of as little as £50, or a £500 lump-sum deposit.

Letting the specialists do all the hard work in choosing funds will appeal to many, but it's worth noting the differences between the multi-manager funds themselves - and the extra charges they can carry.

The most popular breed of multi-manager is a "fund-of-funds" that buys and sells parts of other funds. But even within this category, managers apply different rules to their selection process. Over the past 18 months, many have rushed to offer a so-called "unfettered" option - meaning they can hold funds from all their rivals. There are plenty to choose from on this list - including Jupiter, New Star, Credit Suisse, Fidelity, F&C and Insight - and most offer a multi-manager range that suits your individual attitude to risk.

Other funds-of-funds are "fettered" - imposing restrictions on what they buy. For example, M&G's Managed Growth multi-manager service must hold a portfolio of its own funds.

The alternative to a fund-of-funds is a "manager-of-managers". Instead of keeping a close eye on the best funds, the company divides up its own multi-manager service into different sectors - according to risk or geography - and then asks a rival to look after it for them.

For example, Abbey chooses not to employ its own managers and has instead outsourced the management of funds to other companies.

However, one big criticism hangs over multi-manager funds: "double charging" and its impact on investors' money.

Take funds-of-funds: not only do investors pay the multi-manager a fee for choosing and monitoring the funds, there is also the matter of the fund managers they buy into, who have their own charges (managers-of-managers don't gener- ally have the same level of costs).

Gary Potter, manager of the Credit Suisse fund-of-funds, admits there are extra fees but claims it is misleading to call this "double charging". The annual management charge on most traditional share-based funds is around 1.5 per cent, he says, while that for funds-of-funds can vary between 2 and 2.7 per cent.

And funds-of-funds managers can negotiate attractive terms with the funds they choose, he adds - paying less than a private investor would have to if buying these products direct.

In any case, says Mr Potter, the extra value gleaned from having the best investments more than compensates for that extra charge.

Comparing the performance of funds-of-funds against traditional equity funds, a number of the former have done well.

In the global growth investment sector, a conventional fund is down by 1.1 per cent on average over the past three years, but funds-of-funds have significantly outperformed this.

According to figures from the Standard & Poor's ratings agency, Constellation, Credit Suisse's multi-manager service, returned 19.1 per cent over the same period. Meanwhile, Hargreaves Lansdown Special Situations made 23.6 per cent and the Jupiter Merlin Worldwide Portfolio 21.5 per cent.

You won't find every IFA recommending multi-manager funds; many prefer to look after all aspects of their client's portfolios themselves. Others, however, believe it gives them more time to spend with clients on wider financial planning.