Equities still equated with risk

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The Independent Online

Private investors are still shying away from equities and opting for bonds, more than 18 months after the end of the last bear market, and in spite of recent strong rises in the FTSE 100, according to New Star Asset Management, the fund manager.

Private investors are still shying away from equities and opting for bonds, more than 18 months after the end of the last bear market, and in spite of recent strong rises in the FTSE 100, according to New Star Asset Management, the fund manager.

This is borne out by last week's merger of the private-client stockbroker Carr Sheppards Crosthwaite with rival Rensburg, a deal designed to cut overheads in the face of slumping demand from individual investors.

In a recent survey of more than 650 clients, all of whom were known to be investors with a good knowledge and understanding of the financial markets, more than 16 per cent said that if they had £10,000 to invest today, they would opt for a UK Government or Corporate Bond fund. A further 15 per cent said they would go for a residential property fund, based on the recent runaway growth in the housing market. However, residential property funds are not yet readily available to private investors in the UK.

Only 12.8 per cent of respondents said that they would choose an equity fund. The most popular answer, however, accounting for almost 40 per cent, was "don't know".

Rob Page, New Star's marketing director, said: "The figures are no surprise to us because this year, out of our eight top-selling funds, six have either been fixed-interest or commercial property. When are investors going to start getting into the equity market at the same time as the shrewder investors are getting in? People still believe the market to be really awful."

The FTSE 100 index of leading UK shares has risen by almost 5 per cent so far this year. But, since hitting a low of less than 4,300 in August, the market is up by more than 10 per cent.

While analysts and economists are not expecting a return to double-digit annual growth in equities soon, some of the best-performing fund managers are already proving that there are opportunities to deliver strong double-digit returns through adept stock-picking.

New Star's Hidden Value fund has returned more than 30 per cent over the past 12 months, while Artemis UK Growth has returned almost 27 per cent.

Ben Yearsley, an investment manager for Hargreaves Lansdown, the Bristol-based financial advisers, said: "We think there are broader stock-picking opportunities in the FTSE and the broader market, but we're not convinced that the market as a whole will move anywhere much over the next year. If you look at funds such as Invesco Perpetual's UK Aggressive, it has returned almost 20 per cent this year, while the market is only up about 5 per cent."

Mr Yearsley says that for those who prefer a lower-risk reintroduction to equity markets, the equity income sector continues to look good value. Equity income funds pick stocks with good dividend yields.

Over the past year, the Framlington equity income fund, managed by George Luckraft, has returned almost 30 per cent, while Invesco Perpetual's Neil Woodford has returned almost 25 per cent. The average fund in the sector has returned almost 15 per cent over the past five years, during which time the FTSE 100 has fallen by about 25 per cent.

For those who would rather avoid equities altogether, there is an increasing number of commercial property funds that are open to private investors.

Many of these have an element of stock market risk, through the investment of part of their portfolio in property company shares, such as British Land. As an asset class, however, commercial property has historically tended to have a lower-risk return ratio than any other class, apart from cash.

New Star and Norwich Union's commercial property funds have both returned more than 60 per cent over the past five years, and are predicting continued annual growth of between 7 and 10 per cent in the coming years.

The most important factor when you are deciding where to invest your money is what time-horizon you are investing for. If you are looking over the long-term (that is, anything over 10 years), then most experts would agree that equities still remain the best bet for the largest part of any investor's portfolio.

But if you are looking at a shorter time-horizon, you may want to look at products to invest in that offer greater capital security.

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