One of the attractions of saving in a stocks and shares Isa is the flexibility. The tax advantages of a pension may be better, but all depends on the tax rate you pay now versus in retirement, and who knows what that will be? Given the fiscal drag from successive chancellors refusing to raise the higher rate tax threshold, by the time some of us retire, even people on minimum wage might be paying the higher rate. There's a lot to be said, then, for having savings in a more readily accessible form. But if we're thinking along these lines, then it will probably affect the sort of investment we want to be making too. If we want our savings to be relatively accessible in future, then we probably want to be considering investments we think have a strong outlook over five to ten years, but ideally which are less liable – we think – to massive drawdowns or prolonged slumps, in case we need the funds sooner than anticipated. This may push us towards more generalist funds rather than punchier, specialist funds. Or alternatively, it might make the case for investments where there is a margin of safety in the valuations. Long-term growth assets, which are currently out of favour, seem to be a good pool to fish in to get these characteristics. While technology may continue to be an excellent investment and repeat its outstanding returns of the past five years, the recent short-term sell-off flags the possibility of a significant slump and market rotation. Valuations are certainly higher in the mega-cap tech stocks than many other areas of the market. So investing a lump sum in tech right now might not be the best way to manage your Isa. Investing in smaller companies One area could fit the bill better is smaller companies. These have historically delivered higher returns than large caps, but have underperformed in recent years. It's interesting to note that there have been cycles of outperformance and underperformance in the past, over 10-year or longer periods, with small doing better than large and then vice-versa. The last period of small cap outperformance began around 2001, with the tech bubble bursting, and lasted until c. 2013. Since then, large caps have been in the ascendant, again led by technology-related companies. So small caps have certainly shown their potential to deliver market-beating returns over the long run. And small caps are relatively cheap after this period of underperformance, while large caps are relatively expensive. So, this might provide the desired margin of safety. A good generalist investment in this space could be Global Smaller Companies Trust (GSCT). Nish Kumar, of Columbia Threadneedle, manages a portfolio of small caps listed around the globe, including the UK and other developed and emerging markets. Nish has reduced the portfolio's number of stocks over the past year since taking over; it now sits just under 200 and might come down a little more. Nonetheless, it remains highly diverse, and this means no single position should have too much influence on returns, but should capture small cap returns as a whole. Geographically, Nish has tilted the portfolio towards cheaper UK and European markets and away from the expensive US, although the nature of global markets means that US still makes up almost half the fund. At the time of writing, the shares are trading on an 11 per cent discount to net asset value, implying they are cheap. If small caps do come back into favour, we could see that discount narrow, boosting return potential in the portfolio. Read more analysis on Global Smaller Companies Trust from Kepler. For those who prefer investing in the UK, Aberforth Smaller Companies (ASL) could be interesting. UK small caps certainly fit the bill of an out-of-favour growth market. ASL is run by a team of dedicated managers who only invest in UK smaller companies, with a value-focussed style, looking for cheap, unloved companies. This approach has led to outperformance vs the market and peers since 2022, when growth strategies fell out of fashion. The exceptionally cheap UK market has attracted lots of M&A, with overseas buyers – frequently American – looking to take advantage and buy out companies wholesale. This has helped Aberforth, as undervalued companies are the typical M&A target, but much of their effort has been dedicated to making sure takeover offers don't undervalue the businesses. Since the start of the year, there is some evidence that money is leaving the US and coming back into the UK and Europe – this could be good news for a value strategy such as ASL. Read more analysis on Global Smaller Companies Trust from Kepler. Investing in FTSE giants Small caps aren't the only UK equities that look cheap; large cap FTSE 100 stocks are also attractively valued. That said, it is important to note that some of the difference between UK and US markets is the types of companies listed. You would generally expect miners and oil companies to trade on lower valuations than technology and consumer goods companies. But even accounting for this, there has been a valuation mismatch. The valuation of BP and Shell, for example, are much lower than US company ExxonMobil, around 10x and 11.5x versus 14x for the US peer, on a historical price-to-earnings basis. It may be that refocusing on their core business and away from renewables will help correct this, but this valuation mismatch remains at present. There's a fair amount of negativity about the prospects for the UK economy and stock market right now, but over a five-to-ten-year view, there is a good chance that the discount at least begins to reverse. And with so much negativity in the price, there may be some downside protection. City of London Investment Trust (CTY) could be a good way to take advantage of opportunities in cheap UK large caps. One of the strengths of CTY – and one of the reasons it tends to trade at or about NAV while so many trusts are on a discount – is its bulletproof income record. It is an AIC Dividend Hero, meaning it has raised its dividend each year for two decades. It currently yields 4.6 per cent, significantly more than the 3.7 per cent of the FTSE All Share Index and about the same as 10-year UK government bonds. Unlike those bonds, it also has the potential to deliver substantial capital growth. Manager Job Curtis has outperformed the UK market over three-, five- and ten-year periods, with a diversified, risk-averse approach to stock picking. Job likes to ensure that CTY is always exposed to a broad spread of investments, selected via his valuation-based investment framework, focussed on quality companies but sometimes with a contrarian tilt. Job's confidence in the safety and trajectory of the dividend contributes to how much capital he gives to each idea, and this may have helped the trust deliver its strong and steady outperformance in both income and capital terms. Investing in Europe Continental European markets have also faded into the background in recent years as large US technology companies sucked in capital and dominated headlines. And like UK markets, European markets are also generally pretty cheap compared to the US. It's important to note that, even if Europe's economy is troubled, it doesn't mean the stock market can't perform well. Europe is full of globally facing businesses which don't need high GDP growth on their own continent to grow earnings. It also has a strong industrial base and a domestic defence industry, both of which stand to benefit from increased defence spending as the US steps back. This latter point may have contributed to a decent rally at the start of 2025, which could indicate investors looking to sell out of the expensive US and seeking alternatives. There could be a potentially significant long-term shift as the value in European equities begins to bear fruit. One way to play this could be via Fidelity European (FEV), which has a strong track record. It's a decently sized, liquid trust, sitting in the FTSE 250. Managers Sam Morse and Marcel Stötzel are also quite risk-averse, looking for high quality companies which aren't over-priced, leading to good downside performance. They are fairly long-term in their approach, and interestingly the data shows they have done well from stock-picking across the market, rather than solely in certain sectors. They also prize a sustainable dividend in a company, not so much for the yield – FEV's yield is modest – but for what it says about a company and its management team. The managers have historically run a healthy level of gearing too, maximising a feature simply not available to open-ended funds and which can power returns over a full cycle as markets rise. Could biotech be the surprise package? Finally, one long-term growth area looks intriguing right now but is a little riskier – and that is biotech. Biotech companies develop new drugs and treatments. The larger ones can have a whole portfolio of products, while the market is also replete of companies with one or two ideas in testing which could be the blockbuster drugs of tomorrow. It is a risky sector – companies can go under if their drugs don’t work out and share prices can be extremely volatile. The corollary of this is that it has delivered exceptional returns in the past when it is in favour. It is interesting now because it has been out of favour, and the industry has gone through a challenging period of rising interest rates while regulators in the US were less favourable to the M&A that drives much of the sector’s returns. Today, the sector looks cheap. Having raised cash during the pandemic when rates were at rock bottom, companies are more financially resilient than usual. The percentage of smaller biotech companies trading at a market capitalisation below the amount of cash they hold reached an all-time high in 2023 and has only slightly come down since. What this means is that any assets these companies own, apart from their cash, are valued at 0 if not negatively. Of course, you need cash to operate before an idea comes to market, so this isn’t exactly a free option. Nonetheless, it’s a good marker of undervaluation and resilience. Meanwhile, the science is looking really exciting. In 2024, 70 per cent of new drugs approved emanated from the biotech sector and just 30 per cent from the larger-cap pharmaceutical sector. With these large caps desperate to replace drugs that are going ex-patent in the next few years, there should be a wave of M&A as they buy out these biotechs. International Biotechnology Trust (IBT) could be an interesting Isa addition at this point in the cycle. It has been hard-hit by Trump’s tariffs in recent weeks and probably shouldn’t take the whole allocation of someone making their first Isa investment, but it could be a decent addition to a more diversified set of investments. IBT is managed by Ailsa Craig and Marek Poszepczynski, who have delivered strong returns since taking over around four years ago, outperforming in rising and falling markets. They take a risk-aware approach, not over-committing to single companies in therapeutic areas but spreading the risk across a few ideas. They have currently positioned the portfolio in smaller companies in anticipation of rising M&A this year. If US rates fall over the next year or two, it could really set this market off. IBT is another trust trading on a decent discount (c. 11 per cent at the time of writing) and with significant gearing, adding to the return potential. It's a good time to look at trusts for your Isa It's hard psychologically, but when it comes to investing, we really want to be investing in things that are cheap. All the investment areas discussed above are fairly cheap, certainly in comparison to large cap technology companies and the S&P 500. It’s a good time to be looking at investment trusts for an Isa investment, as most of them are trading on meaningful discounts too. CTY is the exception of those mentioned above, as it has become a firm favourite of retail investors looking for a high and growing income. In general, though, the discounts on these trusts should add a margin of safety and an extra return source.