CAUTIOUS OPTION
Nick Roberts, fund analyst at Williams de Broë, points cautious investors in the direction of one of the growing number of closed end funds of hedge funds. The shares of FRM Credit Alpha are ranked ninth out of 36 trusts in the Hedge Fund sector over one year to 30 June 2008. They have returned 12.65 per cent over that period, compared with a sector average of 1.32 per cent.

‘FRM is an experienced specialist fund of hedge funds firm, having operated in the sector for over a decade. Targeting Libor plus two to four per cent, this lower-risk fund has very little directional exposure to credit and aims to deliver returns primarily through alpha generation. The team and process are of a high standard and the portfolio is in good shape to profit from the current dislocations in credit markets.

‘NAV growth over the last year is 14.7 per cent, which compares favourably to the vast majority of credit indices  and the listed sterling fund of funds sector, whose average NAV return over the period has been 0.6 per cent. But this has also been achieved with low volatility, below seven per cent, and, unlike many in its sector, here is a fund of hedge funds that is currently trading on a 1.1 per cent discount. It currently has no directional credit exposure. Credit markets remain volatile but should provide good opportunities on a one to two year view. Fees and performance are competitive versus the peer group and it has an experienced manager who has delivered impressive performance since launch.’

BALANCED OPTION
Daniel Lockyer, investment trust analyst at Midas Capital, suggests a consistent long-term performer that is currently out of favour. The shares of TR Property Investment Trust Plc are the only ones in the Property Securities sector with a track record over three years to 30 June 2008. They have returned 12.52 per cent over that period.

‘TR Property is one of a handful of funds that concentrate on a portfolio of property shares, and the property sector has been very badly hit over recent months.

‘However, the traditional way for most investors to play property is through property equities, and at the moment you have a situation where the underlying equities are standing at a discount – for example, British Land has been between 30 and 40 per cent – while the shares of TR Property themselves are on a discount of 20 per cent, which is the widest it has been for some time.’

He adds, ‘So what you have here is a double discount play. Presumably, there will be a recovery in the property sector at some point, and if you believe  that property equities are still the way to get involved then TR Property offers you a portfolio of property shares managed by a strong team with an exemplary long-term track record.’

AGGRESSIVE OPTION
Tim Cockerill, head of research at Rowan & Co, points more adventurous investors in the direction of a trust that focuses on one of the fastest-growing emerging markets. The shares of JPMorgan Indian Investment Trust Plc are ranked second out of five trusts in the Country Specialist: Asia Pacific sector over three years to 30 June 2008. They have returned 57.08 per cent over that period, compared with a sector average of 42.81 per cent.

‘In the short term India isn’t looking too attractive, especially with inflation now over 11 per cent, but long term the outlook for India is very positive. The population is more than one billion and will surpass China’s in a few years. The growth rate has been in high single digits for some years and the economy is diverse. While growth may slow, the economy’s diversity should be a strength.’

He adds, ‘Up until recently, Indian stocks had appeared to be overvalued, but with a market fall of about 40 per cent value is starting to appear again. The JPMorgan Trust is on an eight per cent discount, not perhaps the widest it has been, but still more attractive than over much of the past three years. The largest holding is Reliance Industries (15 per cent), an energy stock and the largest weighting in the index. The next two largest holdings within the fund are financials, an area in which the fund is overweight. The other main overweight position is in industrials.

‘No doubt, short-term volatility isn’t over and the market could go lower, but the opportunity this fund offers is beginning to look attractive.’