CAUTIOUS OPTION
James Davies, investment research manager at the Chartwell Group, chooses an income-orientated fund for investors who don’t want to take too much risk. M&G Optimal Income is ranked third out of 51 funds in the IMA UK Other Bond sector over one year to 31 March 2008. Over the period, it has returned -4.06 per cent, compared to a sector average of -10.0 per cent.

‘The M&G Optimal Income fund, managed by Richard Woolnough, seeks to generate total returns from a portfolio of predominantly sterling-denominated debt instruments, such as government and corporate bonds. Unlike some other bond funds, however, the Optimal Income fund may hold equities, up to 20 per cent in total, and it can also use derivates – typically futures – for total return objectives to be achieved.’

He adds, ‘Hence the fund has the potential to outperform regardless of whether bonds are in or out of favour with the market.  Optimal Income, which was launched late in 2006, is the fund Woolnough has wanted to run for some time, but was prevented by the more limited mandates he ran previously. This fund allows him to be more unconstrained in his approach and, therefore, follow the kind of strategy that can maximise returns while still limiting the risks.’

M&G Optimal Income has an initial charge of 4.0 per cent and an annual management fee of 1.25 per cent.

BALANCED OPTION
Tim Cockerill, head of research at Rowan & Co, sees opportunities for investors in a UK special situations fund. Investec UK Special Situations is ranked 238th out of 258 funds in the IMA UK All Companies sector over three years to 31 March 2008. Over the period, it has returned 7.25 per cent, compared with a sector average of 21.35 per cent.

‘The fund is run by a very experienced manager in Alastair Mundy, who has had a shocking time recently. He is a value investor and a contrarian investor, who won’t invest in a company unless it has fallen by more than 30 per cent in two years. This means his universe has opened up quite significantly in recent months. He believes he has a portfolio of good-quality, cheap stocks, it is just that the market doesn’t like them. This is because, for example, a lot of them have very high levels of debt, which the market definitely doesn’t like.’

He adds, ‘But given his experience and his past record, I would be prepared to back Mundy in his belief that he has a portfolio of good-quality companies that appear to be cheap. You will probably be patient, but investors in this fund could be sitting on a
very good portfolio with the potential to take advantage of any market recovery.’

Investec UK Special Situations has an initial charge of 4.5 per cent and an annual management fee of 1.5 per cent.

AGGRESSIVE OPTION
David Hambidge, investment director, pooled funds, at Premier Asset Management, suggests that more adventurous investors should look again at the financial sector. Jupiter Financial Opportunities is ranked 19th out of 37 funds in the IMA Specialist sector over three years to 31 March 2008. Over the period, it has returned 29.65 per cent, compared with a sector average of 55.95 per cent.

‘Finanicals is one area that people aren’t focusing on at the moment, but I think that Jupiter Financial Opportunities is an interesting  fund. There has been a lot written about the financial sector recently, all of it bad, but as a result, a lot of that negative sentiment is already in the price. The portfolio is well positioned to benefit from the upturn, whenever it comes.

‘It is worth remembering that the volatility of this fund is relatively low, compared to its benchmark. It is currently very defensively positioned as it had a lot in cash and bonds during 2007, as a result of which the fund performed relatively well. The fund’s manager, Philip Gibbs, is a very experienced investor who has been running the fund since its launch in 1997 and he will be investing for five years’ time, not five minutes.

The portfolio is also well diversified in terms of geographical location. It is not just a UK-focused fund and has a bit of property exposure as well. So the two assets that are on his radar are both rather bombed out, which, as contrarian investors, is what we like.’

Jupiter Financial Opportunities has an initial charge of 5.25 per cent and an annual management fee of 1.50 per cent.