Three 'best of breed' funds

Despite the challenging economic environment, professional investor Peter Hewitt believes companies are in a good position to deliver earnings and dividend growth, and puts his faith in equities over bonds and cash. Here, he picks three 'best of breed' funds for the medium and long term.

Each week, a professional investor tells MoneyWeek where he'd put his money now. This week:Peter Hewitt, manager of the F&C Managed Portfolio Trust.

Although markets recovered well last year, over the coming months there may be a slight pull-back. There is much to be apprehensive about, including possible interest rate and tax rises, high government debts, the looming budget and a likely change of government this year. However, I believe that corporate results will emerge stronger than expected, as recently demonstrated by Barclays. Other companies are also in a good position to produce earnings and dividend growth, despite the challenging environment. In terms of asset classes, over the medium to long term, I believe that equities are much more attractive than bonds, property and certainly cash. Once it becomes apparent that the UK is on the path to recovery (albeit that recovery will be slow), I expect equities to forge ahead as the year unfolds.

Medium and long-term investing is all about picking the right asset class and investment approach, In short selecting the 'best of breed'. I believe the Perpetual Income & Growth Investment Trust (LSE: PLI) is a good example. The trust has excellent growth characteristics and a good dividend yield of 4.1%. Manager Mark Barnett invests in high-quality defensive companies with secure and sustainable cash flows, such as tobacco, healthcare and telecoms. Performance was dampened over the first six months of 2009's recovery, during the 'dash for trash'. This saw investors scramble for attractively valued, lower quality, cyclical stocks such as miners and property, which the trust does not hold. However, returns subsequently recovered in November last year and the outlook for both capital gains and further increases in dividends appears promising.

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My second stock pick, the Aberdeen Asian Income Fund (LSE: AAIF), follows a similar approach. Its managers like quality companies with good corporate governance, sustainable cash flows and a rising dividend. The markets they invest in Hong Kong, Thailand, Korea are more volatile and risky than the UK markets. But what I really like about this particular fund is that Aberdeen's Asian equity team adopts an understandable, sensible and safe investment approach to a part of the world which offers exciting growth prospects, alongside some risk. The dividend yield at 3.5% is also very attractive.

Lastly, I like the Genesis Emerging Markets Fund (LSE: GSS). This is quite a large fund, launched over 20 years ago. Originally it was listed only in the US. But in November last year this changed to a listing on the London Stock Exchange along with a sterling-quoted share price. Genesis boasts a fantastic team with a strong long-term record and history of investing in emerging markets.

The fund is naturally exposed to some volatility, being invested in the developing economies. However, I still feel it offers good prospects on a long-term outlook of three to five years. I am not fully comfortable investing in a single country investment vehicle, such as an India or China fund. I prefer one that provides a varied exposure to the better known regions such as China, Russia and Brazil alongside the more esoteric regions in the Middle East and Asia. This fund does just that by offering a relatively safe level of exposure to those emerging-market regions which present the best growth opportunities.

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The trusts Peter Hewitt likes

Swipe to scroll horizontally
Perpetual Income (PLI)220p163p220p
Aberdeen Asian (AAIF)139p86p137p
Genesis Emerging (GSS)461p210p428p