CAUTIOUS OPTION
Simon Elliott, head of research at WINS research, points investors in the direction of one of the established stars of the UK Growth sector. The shares of Schroder UK Growth Fund are ranked seventh out of 22 trusts in the UK Growth sector over three years to 30 April 2008. They have returned 54.86 per cent over that period, compared with a sector average of 40.20 per cent.

‘Despite short-term uncertainty, the manager of the trust’s portfolio, Richard Buxton, believes there is currently outstanding value on offer and this is reflected in gearing of 20 per cent. With the fund trading on a discount, currently around 7.5 per cent, we believe that Schroder UK Growth looks attractive. Richard Buxton has a strong long-term track record through an unconstrained approach, and we believe he will add value regardless of market conditions. Consequently, this fund is our core recommendation in the UK Growth sector.

‘Richard Buxton is an experienced investor with a strong long-term track record. Although he is one of the more bullish UK fund managers at present, we believe he will add value regardless of market conditions.

‘Additionally, with the fund trading on a discount, we believe that Schroder UK Growth looks attractive to holders of Schroder’s open-ended UK Alpha Plus fund, which has a virtually identical portfolio and a higher management fee.’

BALANCED OPTION
Mick Gilligan, director of fund research at Killik & Co, suggests looking at the growing fund-of-hedge-funds sector. The sterling denominated shares of Close AllBlue are ranked seventh out of 33 trusts in the Hedge Funds sector over one year to 30 April 2008. They have returned 17.34 per cent over that period, compared with a sector average of 6.41 per cent.

‘Close All Blue (CAB) is a liquid and tax-efficient way for investors to access the underlying fund, AllBlue Limited. Its investment objective is to produce consistent long-term appreciation of assets through active investment in a diversified portfolio of underlying funds managed by BlueCrest Capital Management. These cover a range of investment strategies including mixed arbitrage, systematic trend following, low beta systematic, trade finance, emerging market macro, credit arbitrage and credit relative value.

‘The managers are currently holding around ten per cent cash. It is unusual for a fund of hedge funds to have such high levels of liquidity. However, they believe that the level of uncertainty going forward from here is higher than normal. In the short term, we believe that the CAB portfolio is better positioned than most of the London-listed peer group, which tend to invest in external funds.

‘The fund is currently AIM listed, but the management has indicated that it will be going to the main market, which should provide an opportunity for further fundraising.’

AGGRESSIVE OPTION
Simon Elliott, head of research at WINS research, suggests that investors happy to take a higher level of risk look at a portfolio focused on the emerging markets of Eastern Europe. The shares of Eastern European Trust are ranked second out of two trusts in the European Emerging Markets sector over three years to 30 April 2008. They have returned 121.86 per cent over that period, compared with a sector average of 146.58 per cent.

‘Eastern European Trust, managed by Agne Zitkute of Pictet Asset Management, invests in a diversified portfolio of quoted companies operating in Eastern Europe, Turkey, Russia and other countries of the former Soviet Union. The manager believes that Russia, which accounts for 70 per cent of net assets, offers attractive valuations not only on a regional basis but also compared with other BRIC markets.

‘The fund’s overweight to Turkey is based on the view that the country’s weak economic fundamentals are fully discounted in valuations. This has hurt as the Turkish market has fallen 31 per cent in sterling terms this year. However, we feel that the stockpicking, value approach is well placed to provide attractive returns in more difficult markets and the manager believes that the fund will continue to deliver positive returns in 2008, albeit lower than the NAV growth of 29 per cent last year. The fund’s discount has traded around ten per cent over the past year, and the board is committed to keep it within a relatively narrow band through buybacks.’