Bright stars in the gloom Best and worst UK growth unit trusts

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The Independent Online
Investors in unit trusts who have tried to gain out of the British economic recovery in the past year have been left battered by the roller-coaster performance of many funds.

A little more than 12 months ago, the average annual gain among the 134 unit trusts in the UK growth sector was more than 25 per cent.

Among the best-performing funds, such as the Guinness Flight Recovery unit trust, gains were even more spectacular. Its fund rose by more than 55 per cent in the same period.

However, the last year has seen a sharp reversal in the fortunes of most funds, with the average fund dropping in value by 12.1 per cent.

Their performance has mirrored that of the FT-SE 100 share index, which dropped by a similar amount over the same period.

Even those unit trusts in the top quarter, a ranking with which most investment managers would be delighted, still racked up losses of up to 10 per cent.

However, amid the gloom, a few funds have performed relatively well. Most importantly, many trusts in the sector have produced better returns over longer periods of time.

Indeed, some funds, such as the Standard UK Equity Growth fund, have delivered better returns over five years than some of the 10 best-placed unit trusts in the past year. This confirms the argument that it pays to adopt a long-term strategy when investing in equity-based funds.

Over two years, investors in Guinness's Flight Recovery fund are still sitting on a gain of 50 per cent. The top fund in the year to January was Fidelity's Recovery unit trust, which aims to produce long-term capital growth.

Chrissy Keen, portfolio strategist at Fidelity, said: "During the past year the fund has been, and still is, weighted heavily towards medium-sized to small companies.

"We invest on a stock-picking basis and not on the basis of market weighting."

The Fidelity Recovery fund has topped the rankings during each of the past three years, showing gains over that period of more than 90 per cent.

Also in the top 10 is Lazard's UK Capital unit trust. Over five years, the fund was 24th, showing overall gains of 39.6 per cent. Its investment strategy differs from some of the others in that its has been prepared to invest in larger companies within the FT-SE 100 share index.

Wade Pollard, senior fund manager at Lazard Investors, said: "We did have a slightly less bullish view of the overall prospects for the stock market.

"In the past year we tended to have a defensive portfolio rather than a cyclical one, and have looked to food and pharmaceuticals companies for a large part of our investment.

"For the coming year, we are at the more cautious end of the scale, and predict that the FT-SE 100 index will rise to the 3,300 level. It will largely be a matter of `steady as she goes' rather than of spectacular gains. But in a low-inflation climate that should still be an attractive rate of growth."

Among other good performers was Martin Currie's UK Growth fund, which has only been out of the top 20 funds in this sector once during the past five years.

Bill Lambert, a director of the UK team at Martin Currie, said: "Our emphasis has tended to be on smaller to medium-sized companies. In fact, we are significantly overweight in that sector. We have found that they substantially out-performed 737 235.050

overall.

"We tend to take a long-term approach with companies that we feel comfortable with, which have tended to be in the manufacturing sector."

Mr Lambert said he, too, expected that there would be an increase in the FT-SE 100 index over the coming year, although the rise would be marginal.

However, he added: "There have been some very significant falls in prices in the past year and we are seeing some serious value emerging. This will give us a opportunity to broaden out the spread of our portfolio."

UK growth trusts 737 235.0 50

Top 10 12 months (%) 3 years (%) 5 years (%)

737 235.0 50

1 Fidelity Recovery 2.1 91.5 21.1

2 HCIF Arkwright Recovery 1.9 32.9 -0.4

3 St James UK & General Progressive -2.9 26.2 123.6

4 Pointon York BRI Direct Dealings -2.9 - -- 5 Martin Currie UK Growth -4.6 52.1 67.5

6 Pembroke Growth -4.8 71 89.7

7 Guinness Flight Recovery -5.3 53.6 12.8

8 Lazard UK Capital -5.9 30 39.6

9 M&G Capital Account -6.2 68.4 50.7

10 Evermore Recovery -6.4 77 -16.7

737 235.0 50

Bottom 10

737 235.0 50

129 PC Technical Analysis -17.1 22 32

130 Scottish Mutual Select Opportunities -17.1 24.8 34.1

131 Sovereign Ethical -18.2 8.9 11.4

132 Scottish Widows Special Situations -18.3 1.0 -2.5

133 Prolific Recovery -18.5 36.8 - 134 Baring UK Growth -18.7 45.5 24.6

135 Mercury Recovery -18.7 25.3 11.2

136 Smith & Williamson Growth -19.8 30.9 21.0

137 Standard Life UK Equity Growth -19.9 26.2 40.4

138 Gartmore British Growth -20.8 29.2 51.2

737 235.0 50

Percentage rise or fall in the value of fund over 12 months, three and five years to 1 January 1995. Offer to bid. Rankings based on one-year performance.

Source: Hardwick Stafford Wright GRAPHICS OMITTED

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