What to buy, what to sell: Don't ignore UK funds

published 25 May 2006

Emerging markets may be an attractive option at the moment, but investors shouldn't ignore managed UK funds; and why sexy names don't necessarily mean stellar performance.

Don't ignore UK funds

The astounding performance of emerging markets in recent years may have attracted many investors to high-risk funds, but wise investors should not ignore actively managed UK funds, according to a range of financial advisers in Investors Chronicle. UK funds offer low-risk, high-yield investments, and there is also no currency risk in investing in the UK.

According to Juliet Schooling of IFA Chelsea, investors should use UK equity income funds, such as Jupiter Income, as a primary holding because of their low volatility compared to pure growth funds. They also reinvest dividends, which can impact on returns (see chart). Justin Modray of IFA Bestinvest advises investors to diversify their portfolios across a wide range of managers and funds in order to benefit from varied styles and market performances. He recommends holding 50% of your UK portfolio in the FTSE 100, 30% in the FTSE Mid 250 and 20% in the FTSE Small Cap sector. His top choice open-ended funds are Axa Framlington UK Select Opportunities, Cazenove UK Growth & Income, Invesco Perpetual UK Aggressive, Liontrust First Growth and Merrill Lynch UK Dynamic. A cheap tracker fund, such as Fidelity Moneybuilder UK Index (total expense ratio of 0.3%) can also play a useful role in your portfolio.

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The lure of sexy names

Alpha' is fund-management jargon for the return an individual fund manager can add to your investment. And more funds are now using the term in order to attract investors. This is because alpha' is the return fund managers attain that is extra to, or separate from, the normal movements of the stockmarket suggesting the delivery of outstanding returns that can "outperform the broader stockmarket", says Jenne Mannion in The Independent. But this "sexy" title "doesn't necessarily mean stellar performance".

Jody studied at the University of Limerick and was a senior writer for MoneyWeek. Jody is experienced in interviewing, for example digging into the lives of an ex-M15 agent and quirky business owners who have made millions. Jody’s other areas of expertise include advice on funds, stocks and house prices.