With more and more of us ploughing our hard-earned cash into ISAs each year, the subject of how that money is put to use over the long term has become critically important. With cash funds offering lacklustre rates and index trackers unlikely to sparkle in muted markets, there has never been a more pressing need to scrutinise potential returns and be prepared to take matters into our own hands.

According to the Investment Management Association, the rule change back in 2010 that increased the annual tax-free allowance from £7,200 to £10,680 sparked a surge in the number of ISA sales. It seems that more of us regard them as a real alternative to pensions, or at least a vital second savings route. Indeed, the IMA figures suggest that ISAs are more or less on a par with pensions as the tax wrapper of choice for retirement savings. Flexibility, choice and certainty are winning over savers who are prepared to concede the tax advantages of a pensions system that’s dogged by complexity and subject to occasional government meddling.

In the coming year the ISA allowance has been notched up to £11,280 and savers seeking inspiration and superior yields for their cash could be well advised to consider direct investments in growth shares. But where to start?

Small cap surge
A quick glimpse at index performances so far this year suggests that small cap companies are attracting increasing attention. While London’s Alternative Investment Market is off limits to ISA investors (with the exception of dual-listed stocks) its 14% growth in the first three months of 2012 reflects growing confidence at the smaller end of the market.

If you want to cash in on that growth, one option could be to consider smaller FTSE shares that qualify under ISA rules but still retain all the characteristics of growth stocks with promising prospects. This isn’t as simple as it sounds because even the smallest FTSE stocks attract a great deal more attention from analysts and institutional investors than AIM companies. But while finding these stock requires diligent research, with the right tools hidden gems can still be uncovered.

At Stockopedia we are modelling a range of growth strategies in the styles of some of the great investors, from such luminaries as Jim Slater, Bill O’Neill and Philip Fisher, in order to uncover potential…

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