Dodge the WorldCom fallout

By DAILY MAIL REPORTER
Updated: 19:00 EST, 4 July 2002

MANY Britons might well be asking themselves why a business accounting scandal concerning a US telecoms firm on the other side of the Atlantic matters to them.

As the latest in a line of recent corporate scandals, the WorldCom story caused markets to fall across the globe as investors feared the worst-case scenario - that all US firms have fiddled their accounts to show falsely high profit figures. If that were to be the case, we would all be holding investments which could end up being next to worthless.

In addition, many of our savings used to pay off mortgages or provide pensions are invested in America. Besides the obvious technology and US funds, corporate bond funds - WorldCom had issued bonds - and international funds will also have US holdings. Most big international funds have at least 20% to 25% of their money invested in the US.

Big US funds Fidelity American and Fidelity American Special Situations have no exposure to WorldCom, nor do the Fidelity international funds. Credit Suisse, which runs the £461m Transatlantic fund, says that none of its funds available to private investors are invested in the share.

But Aberdeen is slightly hit in its £1.2bn Fixed Interest fund, which has a relatively tiny holding of £2m in WorldCom corporate bonds.

Nearly all investment funds have, however, taken a tumble over the week because of the negative sentiment in America caused by both the WorldCom story and similar recent scandals.

As WorldCom is in the technology/telecoms sector, and is based in America, these sectors were hit harder than non-related areas. For example, the average technology fund saw an investment of £1,000 knocked down to £968 in just five days while the average US fund fell further, reducing every £1,000 saved to £952, figures from analysts Standard & Poor's show.

The more robust British market held up better, with only £8 being knocked off every £1,000 saved - though that was before the London market sell-off on Tuesday and Wednesday this week.

Any guaranteed stock market bond linked to the Nasdaq index, of which WorldCom was a member, may have returns or capital at risk, such as NDF/Abbey National Technology Plus. This bond has, though, about four-anda-half years to run.

John Scott, 37, has invested in the Witan investment trust, an international fund, since March 1998. He has the full Isa allowance in Witan for himself and has recently started a regular saving plan into the fund for eight-year old son William. Witan has one-fifth of its value invested in America. This was reduced from one-quarter before the WorldCom scandal.

John, who works in agricultural sales in Dunblane, is saving for the long term. He has no intention of selling, even though share prices have tumbled.

He says:'We have been hit hard, but the same has happened before, and there was a recovery. It might take some time, but it'll come right in the end.'

Most experts are not recommending selling out, but it may be time to review the direction of new money. About 15% of America's quoted shares are in the technology sector, while the UK has only about 2%. So in a downturn, Britain is a safer place to be as we have fewer high-risk firms, says Paul Ilott, of IFA Bates. Investors nervous of the US might want to look at JPMF UK Dynamic or Fidelity Special Situations. He says: 'You could also seek out a fund manager who has the freedom to invest where he or she believes the shares will do well, not because they are tied to following a certain stock market index.' Govett US Opportunities is one such fund, he says.

Warren Perry of independent financial adviser (IFA) Whitechurch Securities says it could be worth diversifying if you have a large investment in the US, but regular savers should stick to it. He says: 'A monthly saving buys less investment when shares are expensive and more investment when they're cheap, as is the case now, so it's worth plugging away for a medium-term recovery.' He also suggests the UK as an area in which to diversify any large lump sum investments in America. His top fund picks include the UK funds on offer from Artemis and GAM UK Diversified.