Who will hit the heights?

There are a few months to go until the end of the tax year and some people may still be wondering where to invest this year's individual savings account (ISA) allowance. While last year the booming technology sector persuaded thousands of investors to pour cash into tech-specific funds, few people seemed to have understood the risks involved - when the sector plummeted, many got their fingers burnt.

There are a few months to go until the end of the tax year and some people may still be wondering where to invest this year's individual savings account (ISA) allowance. While last year the booming technology sector persuaded thousands of investors to pour cash into tech-specific funds, few people seemed to have understood the risks involved - when the sector plummeted, many got their fingers burnt.

Is this experience likely to affect ISA investor choice in the time left until the beginning of April? After the technology jitters, some may have been totally put off investing in equity ISAs, but the stock market is the place to invest over the long term if you want to get the best returns.

"ISAs will still sell whatever the market conditions," says Ian Chimes, managing director of Credit Suisse Asset Management (UK). "A year without an ISA is a missed opportunity and a win for the taxman."

However, independent financial advisers (IFAs) and fund management houses alike aren't seeing the emergence of any particular investment trends at the moment. "We're not seeing the clear-cut trend we had last year when it was tech, tech, tech," says Craig Whetton, chief executive at IFA Chartwell Investment Management. "There is a lot of interest in broader-based funds, such as international and European funds."

The advantage of global funds is that they invest across a range of sectors, so as well as tech exposure your risk is lessened by exposure to "steadier" sectors. Mr Chimes notes that the upside of single-themed funds is dramatic growth, but the downside "is being tied to one theme when the music stops". He adds: "One of the bigger advantages of global funds is the spread of international markets across numerous sectors. When the problems and the downturns hit one sector, a global themed fund can move elsewhere. With a wider remit, in the future opportunities can be grasped in sectors that, at present, may look out of favour."

If you want a global themed fund, you'll find plenty of choice as the number of funds available has increased significantly over the past year. Investment house Sarasin has pioneered such funds with its Equisar fund. Its move was followed by Invesco's Global Dynamic Theme Fund.

"In the last year everyone's jumped on the bandwagon," says Michael Owen, director of IFA Plan Invest. "For those with a largely UK-based Pep [personal equity plan] portfolio, it's a good idea to globalise, but I'd look at the funds with a track record - such as Sarasin, Invesco or Fidelity."

Mr Owen believes a lot of investors are worried about the risk of various funds on offer, so are going for traditional, conservative options. "Because of the volatility, I think there's a mood of back to basics, and some of the old income funds such as Perpetual High Income, Credit Suisse Income, and Newton Higher Income, have come back into fashion."

Over the past few years, and particularly during the tech boom, such funds were thought too boring by a lot of people. However, they could be well worth considering; they won't give spectacular growth but they are a pretty secure investment with low risk.

One of the main problems faced by those who invested in technology funds last year was that they didn't fully understand the implications of a falling market, but tended to just follow the crowd.

"A lot of people who made choices on their own went in on the back of hype, not really understanding the risk," says Mr Whetton. "If you're not sure, for goodness sake get advice - don't just go for what's heavily advertised."

Jeremy Batstone, head of research at NatWest Stockbrokers, says a lot of people believe that now is a good time to buy shares anyway. The downturn in the market means that shares are cheaper, so if you are prepared to take a gamble, you could pick up some cheap technology shares.

However, other single- themed funds such as healthcare, remain popular. Framlington Healthcare has done well but, as Mr Owen points out, it is very high-risk due to the fact that 50 per cent of the fund is invested in biotechnology companies. A lower- risk alternative would be Schroder's Medical Discovery Fund since 60 per cent of this portfolio is invested in blue-chip pharmaceuticals, though there is still some exposure to the biotech sector.

Wherever you invest your ISA allowance, it is vital you understand the risk involved in different funds and look at it as a medium- to long-term investment. The longer you can invest your money, the greater risk you can afford to take.

* Contacts: Chartwell, 01225 321700; Plan Invest, 01625 429217.