Select the right fund and sector to be on to a winner
PERSONAL EQUITY Plans have been available for 12 years and their past performance can vary from the sublime to the ridiculous. Among the best performers, Foreign & Colonial's Enterprise investment trust PEP has grown pounds 1,000 into pounds 3,552 over five years, a compound annual return of 28.6 per cent. Compare this to a return of just pounds 1,034.92 over the same period for the same initial investment from Murray Johnstone's Smaller Companies PEP fund (source Moneyfacts to 29.01.99).

But care is needed: Foreign & Colonial's fund invests in the high-risk and volatile venture and development capital sector. These are small company shares, and Murray's fund shows the risks inherent in the sector.

"Choice of sector and fund is critical," warns Richard Hunter, of the independent financial advisers Holden Meehan. "But you should also look at charges and be clear about the period over which you are investing."

The five top-performing unit trust PEPs over the last five years have all been European funds, including Gartmore's European Selected Opportunities, which has turned pounds 1,000 into pounds 2,945.67 over the same period.

Guillaume Rambourg, a fund manager, argues: "Europe still has a long way to go. Our fund yields only about 1.5 per cent, but is showing strong capital growth.

"What we are seeing in European equity markets is a fundamental shift to giving shareholder value. Also there is a move by private investors away from cash, bonds and property towards equities. I expect the sector to continue to give good returns."

Most European funds exclude shares in British firms, but Newton has just launched a PEP that covers a pan-European unit trust. This could be the start of a trend; the euro and convergent tax regimes are creating what amounts to a single stock market for shares traded in European firms.

Newton's Sara Royle says: "Some of the main opportunities in Europe are not now one-country specific and need a fund investing across the continent."