CAUTIOUS OPTION
Tim Cockerill, head of research at Rowan & Co, suggests cautious investors take advantage of corporate bond market opportunities. Invesco Perpetual Monthly Income Plus is ranked second out of 43 funds in the IMA UK Other Bond sector over three years to 31 January 2008, returning 9.35 per cent, in a sector averaging 2.65 per cent.

Cockerill says, ‘This is primarily a corporate bond fund but it does hold 18 per cent of the portfolio in equities. The main reason for suggesting this fund is that corporate bonds look very attractive at the moment. Fixed interest managers are excited about their market, which only happens once every five years or so, as they find they can pick high yields from high-quality issuers.’

He adds, ‘The team at Invesco Perpetual is hugely experienced, with Neil Woodford running the equity portfolio and Paul Read and Paul Causer in charge of bonds. Collectively, they adopt a conservative approach and the fact that the fund is currently yielding about 7.5 per cent alone makes it very attractive, plus the fact that you are buying into the corporate bond market at a great time. Over 30 per cent is in investment-grade bonds so half the portfolio is in relatively stable assets – a rare opportunity.’

Invesco Perpetual Monthly Income Plus has an initial charge of five per cent and an annual management fee of 1.25 per cent.

BALANCED OPTION
Mick Gilligan, director of fund research at Killik & Co, highlights a fund with an attractively valued portfolio. Standard Life UK Equity Unconstrained is ranked 227th out of 303 funds in the IMA UK All Companies sector over one year to 30 January 2008.
It has returned -15.17 per cent, compared to a sector average of -11.57 per cent.

He says, ‘It is managed by Wesley McCoy and focuses on change and identifying what is happening at a micro and macro economic level. This is supplemented by analysis of the key drivers of share price and which expectations for these drivers are currently “priced in”. The fund’s strong performance trend reversed in mid-2007, and the past three months have proved particularly difficult for the portfolio as industrial stocks, the fund’s largest sector exposure, experienced significant declines.’

He adds, ‘However, the manager is remaining true to his long-term, fundamentals-based, investment style. The underlying portfolio holdings are attractively valued, with a median p/e multiple of around 11 times. McCoy has avoided companies with high levels of financial leverage, which is another source of comfort. This is not a fund you would buy on a three-month view, but it should be protected by the stocks in the portfolio with overseas earnings. This is a fund that will rebound pretty strongly.’

Standard Life UK Equity Unconstrained has an initial charge of four per cent and
an annual management fee of 1.8 per cent.

AGGRESSIVE OPTION
Gillian Cardy, principal of IFA Professional Partnerships, feels that investors willing to take on high levels of risk should consider a new emerging markets fund. New Star Heart of Africa in the IMA Specialist sector was launched in October 2007 so does not yet have a one-year track record.

Cardy says, ‘This is a brand new fund in a very interesting area. It is also a very creative idea and certainly aggressive. The idea is that the fund will focus on achieving long-term capital growth from a portfolio of shares in companies that either have a lot of business links with sub-Saharan Africa or derive most of their income from those countries. South Africa is specifically excluded, so you really are getting undiluted exposure to the new, “frontier” markets of the region.’

She adds, ‘Clearly, performance is going to be volatile and there is no record to go on. But given what has happened in the commodity space over the past five years, and with many African economies in a position to benefit from a sustained rise in commodity prices, there is clearly a lot of potential in this type of portfolio. It is unlikely that even more aggressive investors will have much exposure to this part of the world, so while this is definitely not an investment for the faint-hearted, there could be some exciting times ahead.’

New Star Heart of Africa has an initial charge of 5.25 per cent and an annual management fee of 1.75 per cent.