Cautious option
Martyn Ingram of IPM returns to a recent suggestion for risk-averse investors. Templeton UK Equity is ranked 234th out of 257 funds in the IMA UK  All Companies sector over three years to 29 February 2008. Over the period it returned 10.96 per cent, compared with a sector average of 23.05 per cent.

‘I would still argue that, given market uncertainty, investors should look at some of the funds that have been underperforming but generally have strong long-term track records. A good example is Templeton UK Equity, managed by Martin Cobb. This is traditionally a strong performer, although it has done quite poorly in recent months.’

He adds, ‘The strategy that has built up its long-term record remains intact. This is a frequently overlooked fund. At £35 million in size, it is probably underowned by private investors, but it has the kind of defensive portfolio that is just what you want in times such as these – currently very heavily weighted to consumer discretionary spending, financials and utility stocks. The fund has a broadly based, flexible investment mandate so Cobb can take advantage of any upturn in UK market conditions. It is not just individual stocks that can get undervalued. The same can happen with funds, and this is one meriting more attention from private investors.’

Templeton UK Equity has an initial charge of 5.0 per cent and an annual management fee of 1.5 per cent.

Balanced option
Mick Gilligan, director of fund research at Killik & Co, also suggests a fund with a strong long-term record. First State Asia Pacific Leaders is ranked 13th out of 53 funds in the

Asia Pacific (ex Japan) sector over three years to 29 February 2008. It has returned 96.02 per cent, compared with a 79.53 per cent sector average.

‘The fund has a bias towards larger companies. Total exposure to companies with market capitalisation under US$1 billion is expected to comprise less than ten per cent of assets. The managers contain risk with a diversified portfolio of well-managed, financially sound businesses. They view risk in this manner rather than in terms of deviation from the index. The portfolio is managed on a bottom-up basis, emphasising stock selection rather than sector or geographic allocation. The portfolio is constructed from sensibly priced companies that meet certain criteria.’

He adds, ‘Manager Angus Tulloch believes the market underestimates global inflationary pressures and he seeks to take advantage by buying into US interest rate-sensitive stocks such as property stocks in strong, US dollar-pegged economies, such as Hong Kong and Singapore. The fund is underweight in financials, the banks weighting having been reduced dramatically in the past two years as part of the manager’s defensive stance.’

First State Asia Pacific Leaders has an initial charge of 4.0 per cent and an annual management fee of 1.5 per cent.

Aggressive option
Alan Beaney of Principal Investment Management argues that more risk-averse investors should look at income funds under current conditions. AXA Framlington Equity Income is ranked 63rd out of 77 funds in the UK Equity Income sector over three years to 29 February 2008. Over the period, it has returned 10.62 per cent, compared with a sector average of 17.53 per cent.

‘I would say that the equity income sector is so out of favour at the moment that it takes fairly aggressive investors to contemplate going there.

So I would look for one of the income funds that are most out of favour, and George Luckraft’s AXA Framlington Equity Income fund certainly fits that bill. Its performance has suffered as it holds no miners but does hold a lot of financials and other things that the market hates.’

He adds, ‘The market is so polarised at the moment and the disparity between the low- and the high-yield end of the market is as great as it was in 2000. However, with these income-orientated portfolios the dividend cover is typically very high, so there is a lot of reassurance there. George Luckcraft has proved his credentials over many years and is investing in an area that just happens to be out of favour at the moment. You can’t see that situation persisting forever and some of these income portfolios look rather undervalued.’

AXA Framlington Equity Income has an initial charge of 5.25 per cent and an annual management fee of 1.5 per cent.