Buck the market

By DAILY MAIL REPORTER
Updated:

 

SCREAMING headlines tell us shares have collapsed and the stock market is in meltdown, but some investments are actually making money.

News stories are concentrating on falls in the value of stock market indices, such as the FTSE 100 index of Britain's leading firms.

But this index comprises only 100 of the biggest firms. There are more than 2,000 listed on London's stock market. So events in the index may not represent the real situation.

Other 'safer' investments such as bonds, property and gold have done well, as is usual in a stock market crisis. Figures from analysts Standard & Poor's show the average UK corporate bond fund has turned every £1,000 saved into £1,014 since the start of the year. This is a small return, but at least it is positive compared with the average UK shares fund, which has lost money, making £885 out of £1,000 in the same period.

But lucky investors in the Merrill Lynch Gold & Mining Trust have made £676 profit on a £1,000 investment.

Looking around the world, there are some regions which have made money during this rocky time for the Western economies. Japan, in particular, has been blazing a trail - with the average fund growing by 5% this year so far, while funds investing in smaller Japanese firms have done better.

Even back in Britain, there are some shares funds which have made a tiny return for investors. They are the Invesco Perpetual Income and High Income funds, turning £1,000 into £1,002 and £1,003 respectively since the start of the year.

As a comparison, if you invested £1,000 purely in the FTSE 100 index at the same time, it would now be worth about £820. The Invesco Perpetual funds have managed to make money because their remit is primarily to produce an income from shares. This dividend is a large part of the overall return.

However, it is essential for investors to have a properly balanced portfolio.

James Dalby of independent financial adviser Bates says: 'The difference in performance between funds shows the benefit of diversification between assets such as bonds and shares, not just geographical regions.'

He tested a model portfolio which invested 45% into UK shares fund JPMF Premier Equity Growth, 25% in high quality Aberdeen Sterling Bond, 20% in Norwich Property and 10% in cash. Since March 2000, when technology shares peaked, the JPMF fund has lost a third of its value, the Aberdeen fund is up by one-sixth, Norwich Property has gained by a quarter and the cash portion went up by 11%.

The overall result was a loss of 6%, or a value of £940 for every £1,000 saved. By contrast, if investors had gone into the high-risk pure technology funds instead, they could have lost up to 90%.

Looking forward, Mr Dalby considers that fund managers with proven track records in picking shares (not just following trends) are the best. He recommends Credit Suisse Income, JPMF UK Dynamic and Artemis European Growth.

At IFA Whitechurch Securities, Warren Perry says: 'You need a fund manager who can go to all areas of the market, and exploit the situations where a sound share has been marked down just on sentiment and will recover.'

His suggestions include Fidelity Special Situations, GAM UK Diversified and New Star UK Aggressive.

• JOHN HIGNETT, 54, first invested £750 in the Invesco Perpetual High Income fund back in 1996.

The fund has doubled the value of the investment since, says John, a retired herdsman (pictured with his granddaughter Dionne, two), even after accounting for recent stock market falls.

He stopped additional regular contributions in 1998, but is considering investing in the fund once again.

John says: 'It has been ticking along nicely, although there's nothing wonderful at the moment of course. The fund managers are good, though - so I'm sure it will continue to do well.'

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