The Analyst: Get help from the prophets of profit

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The Independent Online

Talking to a long-standing client the other day prompted me to recall the good old days. Twenty years ago, you had to monitor your investments manually. I remember a schedule where I crossed the sales off, added new investments at the bottom and updated the prices of the ones I still held. I then had to calculate all the values and profits/losses by hand. All this took considerable time and I couldn't even begin to appraise my portfolio until it was done.

Thankfully, today is nothing like the "good old days". You can get all this information via the internet in a matter of seconds and, thanks to fund supermarkets, you can make effective changes at little cost.

This has changed the way many people invest. The tedium of the "good old days" made tracker funds look very attractive. These investments basically track the market and, superficially, need no attention at all. However, they are also perennial underperformers due to the charges levied by the provider.

Today, I believe, there is a far stronger case to be made for active fund management, where a professional manager picks shares on your behalf. These have the potential to outperform the markets and, thanks to modern technology, they are now easy to monitor.

One fund that came to my attention when it launched five years ago was Schroder UK Alpha Plus. It is the antithesis of a tracker. The manager, Richard Buxton, focuses on a concentrated portfolio of 20 to 40 companies. He is free to invest only in what he considers the most attractive shares in the market; you will never see his portfolio padded out with mediocre shares just because they are major constituents of an index.

This is an aggressive approach, but as Mr Buxton's expertise is in the area of larger companies, I actually consider this to be a core UK holding.

The fund has one of the best performance records in the sector. Since it launched on 5 July 2002, it has risen by 123.6 per cent compared to just 67.2 per cent for the average fund in its peer group and 57.3 per cent for the FTSE 100 Index. Our analysis indicates that the driver of this excellent performance has been Richard Buxton's talent as a stock picker; in other words, the success has come from his ability to pick the best shares, rather than from the luck of just being invested in the right area of the market at the right time.

As well as encapsulating Mr Buxton's best stock ideas, the fund also takes an aggressive approach to asset allocation. It combines Mr Buxton's views of the UK and world economy with a vigorous approach to identifying the best companies. When times are tough in the market, he has the flexibility to reserve up to 10 per cent in cash and to invest a further 10 per cent in gilts. However, he will only use these powers in extreme cases. At present, for example, the fund is 96 per cent invested in shares, reflecting (despite recent events) his confidence in the outlook for the UK market.

He has used the recent volatility as an opportunity to add to some of his 36 stocks when he feels that their prices have been marked down unfairly. Among these are Rolls-Royce and some companies that are sensitive to interest rates, such as Marks & Spencer and Next. He believes that interest rates are probably at their peak right now, so these companies should benefit once there is realisation in the market that rates have peaked.

Among the fund's largest holdings you will find household names such as BP, and at present 80 per cent of the fund is invested in the larger companies of the FTSE 100. However, not all of them are big multinationals; Mr Buxton will also look at medium-sized companies as these often throw up attractive opportunities. Two examples from the current portfolio include Charter, the engineering company, and Invensys, an industrial firm. He has the advantage of working alongside one of the best medium-sized company research teams in the country, headed by Andy Brough and Rosemary Banyard. The UK team at Schroders contains some of the leading investment specialists in the country.

If your investments have never really delivered, then don't be afraid to make a change. The best fund managers will see you through the ups and downs of the market over the long term. I believe Richard Buxton is one of the best, so his Schroder UK Alpha Plus Fund could be a great place to start.

Mark Dampier is the head of research at Hargreaves Lansdown, the asset manager, financial adviser and stockbroker. For more information about the funds included in this column, visit www.h-l.co.uk/independent

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