PEP Survey: Keep track of the growth markets
Trackers have shown spectacular returns in the past year but, warns Juliet Oxborrow, investors should now spread their holdings
Saturday 14 February 1998
One of the best ways to access this growth has been through tracker funds. These are low-cost unit and investment trusts which mirror the growth in a stock market index by buying its constituent shares.
Over the year to the end of 1997, trackers like the Direct Line's FTSE 100 tracker, the HSBC Footsie Fund and Marks & Spencer 100 Companies returned around 22 per cent. This compared with an average for all UK-invested unit trusts of around 12 per cent, and clearly outpaced the 3 per cent average growth for internationally invested funds.
But financial advisers warn that the UK may not yield so much treasure from here on in. "The UK is looking really overvalued now," says Alastair Conway, of London independent financial advisers Clark Conway. "Investors should almost certainly be diversifying into other markets, particularly continental Europe where potential growth is far greater."
This view is reflected in the funds topping the performance league tables. The tables in the spring 1998 issue of What PEP magazine are dominated by funds investing in continental Europe (see table). Shares there are being bolstered by a benign interest-rate environment and the fact companies are striving to increase profitability in time for monetary union.
Funds investing in smaller UK companies are also garnering more interest now the mighty corporations of the FTSE 100 are looking pricey. Gartmore UK Smaller Companies is the top-performing "PEPpable" smaller company unit trust over five years. To the beginning of this month, it has posted a return of just over 281 per cent, compared with an average five-year return for PEP unit trusts of 197 per cent.
Some smaller company investment trusts have done even better, partly because their return can be pushed up by increased investor demand for their shares, as well as the performance of their underlying investments.
Shares in Foreign & Colonial Enterprise, a venture capital & development investment trust, have chalked up a staggering 528 per cent growth over five years, while Invesco English & International investment trust, which invests across a wide spread of mostly UK smaller companies, has returned 434 per cent to PEP investors.
Even so, advisers like Alasdair Conway still believe at least half of any PEP investor's UK exposure should be in larger companies. "Companies like Marks & Spencer are very stable and they are the first ones to bounce back. If the market gets nervous, they are less affected," he reasons.
Amanda Davidson, of independent financial advisers Holden Meehan agrees. She says: "We particularly like the Schroder Enterprise unit trust because it has a good mix of British companies, even if it has become more oriented to smaller companies recently."
Both Alasdair Conway and Amanda Davidson recommend growth seekers to spread their PEP among different markets. Conway suggests, for example, that of the pounds 6,000 PEP allowance, pounds 3,000 should go into the UK, pounds 1,500 into continental Europe and the rest in what he terms "something more exotic such as emerging markets in general or, for those willing to take a long-term view, the currently troubled markets of Japan and the Far East".
Young, developing stock markets such as Latin America and the Far East can offer very dynamic returns but to ride out events such as the crisis currently hitting the Far East you need to take a long-term view, say at least five-years.
For those interested, Alasdair Conway recommends looking at investment houses such as Schroder, Perpetual and Fidelity.
"The advantage of using these management groups is that they also have good UK and European funds. So if things get a bit jittery you can move easily into safer markets without having to switch your PEP to a different fund manager," he says
Meanwhile, PEP investors who want investment thrills without the spills have a growing number of options.
Protected unit trusts, such as the Lloyds Bank Safety First Fund and NatWest Safeguard Fund, aim to limit losses in the event of a stock market meltdown by setting a floor on their fund's selling prices. Others guarantee to return all or most of your original investment at the end of fixed length of time, even if the market falls.
Juliet Oxborrow is editor of `What PEP' magazine
Best-performing PEP unit trusts
Fund Current value of pounds 1,000*
Old Mutual European pounds 3,204.94
Jupiter European pounds 3,184.01
Gartmore European Select Opportunities pounds 3,035.19
Invesco European Growth pounds 3,028.67
Jupiter Income pounds 2,925.53
Exeter Capital Growth pounds 2,910.31
S&P Financial Securities pounds 2,871.96
Gartmore UK Smaller Companies pounds 2,818.77
Friends Provident European Growth pounds 2,798.03
Invesco European Small Companies pounds 2,795.31
Best-performing PEP iTs
Fund Current value of pounds 1,000*
Scottish National Capital Shares pounds 7,550.00
Framlington Dual Capital Shares pounds 5,830.73
Jos Holdings Capital Shares pounds 5,304.88
Foreign & Colonial Enterprise pounds 5,289.38
Fleming Income & Growth Capital Shares pounds 4,581.97
City of Oxford Ordinary Shares pounds 4,376.45
Gartmore Scotland Capital Shares pounds 4,362.07
Invesco English & International pounds 4,354.46
Henderson TR European Growth pounds 4,322.37
Murray Split Capital Shares pounds 3,973.68
Source: What PEP magazine/Standard & Poor's Micropal
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