Deciding how to allocate shares to a Stocks and Shares ISA is a pressing question for many UK investors. When the new tax year rolls around next month, many will be looking for advice on how to balance their portfolio.
With artificial intelligence (AI) dominating the conversation, I decided to find out its thoughts on the matter. Can a generative AI chatbot like ChatGPT really make informed decisions regarding risk and reward?
Let’s see what it had to say!
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A diverse selection
Rather than focus purely on stocks, it provided a broad range of asset classes with varied allocation. First, it suggested a 30-40% allocation to a global equity tracker like Vanguard FTSE Global All Cap or an S&P 500 exchange-traded fund (ETF). These can provide broad market exposure with long-term growth potential.
Second, it allocate 20%-30% to high-yield FTSE 100 or FTSE 250 dividend stocks for passive income. Some examples it provided included Phoenix Group and Primary Health Properties.
Third, it chose a 15%-20% allocation to a mix of growth and income-focused investment trusts. Two examples provided were Scottish Mortgage for growth and City of London for income.
For some defensiveness, it suggested a few blue-chip consumer staples such as GSK or Unilever (LSE: ULVR). Finally, a 10%-15% allocation into bonds or alternative assets like a corporate bond ETF or infrastructure fund.
Overall, I admire its choices. It reveals a careful approach to risk reduction without completely sacrificing growth exposure. The stock that caught my eye was Unilever because it’s been in the headlines recently.
Let’s take a closer look.
A surprise decision
In late February, Unilever announced that CEO Hein Schumacher would step down this March after less than two years in the role. He was replaced by the company’s CFO, Fernando Fernandez, a company veteran of nearly 40 years.
The move, which led to a 3.4% price dip, was surprising – particularly considering the stock climbed 20% in 2024, its best year since Covid.
A sign of underlying issues?
The board believes Fernandez is better suited to accelerate a turnaround strategy, but leadership changes are seldom a good sign. Unilever’s been struggling with competition lately as consumers turn to more cost-effective brands. Additionally, economic conditions and supply chain problems have impacted recent earnings.
Both these issues remain key risks the company faces and were likely factors in the decision. Time will tell if the move pays off.
Well-positioned
On the plus side, the consumer goods giant remains a market leader with operations in 190 countries globally. It owns numerous well-established brands, such as Dove, Hellmann’s, and Ben & Jerry’s, providing a stable revenue stream.
If the new strategy recovers customers lost to high inflation, it could be on track to repeat its spectacular pre-Covid performance.
Financially, it looks well positioned. Revenues beat expectations the past five years, with earnings per share (EPS) slightly missing in 2023. EPS is expected to grow 20% in the next three years, with revenue at a moderate 10%.
Analyst forecasts vary wildly, with the most bearish predicting a 13.6% drop and the most bullish, a 21.8% gain.
Despite the management issues, I think it’s still a good defensive stock to consider for an ISA. I suspect it will continue growing steadily and deliver value through dividends.
