What sort of ambition is realistic when investing a Stocks and Shares ISA? Some people are simply happy to perform as well as a leading index, such as the FTSE 100.
There is a simple answer to that (and a popular one): an index tracker fund. There is a wide variety of trackers available. At first they may seem much of a muchness, but in fact they do vary.
Cost structures can be different. Some do not pay dividends while some do, which in an ISA tax wrapper could be worth bearing in mind.
But what about people whose ambition is higher and who actually want to try and beat the market?
Beating the market’s harder than it might look
A lot of investors genuinely believe they can be market beaters. But it is often hard to do. Yet while it can be tough to beat the market, especially consistently, some investors do manage it.
Costs deserve a close eye
Let me start with a simple point. Even just to match the market, you actually need to beat it. Why? Simple: costs.
Try and replicate an index in an ISA and suddenly dealing fees and commissions can add up, meaning the ISA may mirror that index perfectly but still have a lower overall return.
That helps explain the appeal of trackers for some investors. It also means someone who is investing their ISA individually ought to keep a keen eye on its cost structure.
Identifying winners
In theory, beating an index like the FTSE 100 is simple. Just own better-performing shares from the index and not the slackers.
The problem, of course, is determining ahead of time what shares will do well. Lots of fund managers spend their careers trying to do so and yet still often get it wrong.
Although there is no consistent reliable way though, it may still be worth trying. Different investors have their own systems or methods to try and do so. Some stick to previous outperformers, others go for recent underperformers, some look at specific financial metrics or any of a huge variety of factors.
No single system is guaranteed to work and keep working, or it would already be widely popular. But I see merit in trying to figure out what likely outperformers look like when buying shares for my ISA.
I like this share’s prospects
For example, one share I have high hopes for in the coming few years S4 Capital (LSE: SFOR), the digital ad agency group. But I have had high hopes for years already – and often been bitterly disappointed.
The share now sells for pennies. More promisingly, it has gained 50% so far this year. It is also an increasingly lucrative dividend payer.
Revenues have been shrinking and the company continues to carry debt. But net debt has been trending lower.
Weaker spending from tech groups has caused problems for some rivals as well as S4 but its client roster remains substantial. Cash flows have been improving and I think its digital focus means it is set to benefit rather than suffer from increased use of AI in the ad industry.
To me it currently looks badly undervalued even after this year’s rise and is worth considering.
Should you invest £5,000 in S4 Capital Plc right now?
When investing expert Mark Rogers and his team have a stock tip, it can pay to listen. After all, the flagship Twelfth Magpie Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets.
And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if S4 Capital Plc made the list?
Christopher Ruane owns shares in S4 Capital.
