Trust in trusts for a secure future

Investors saw their money grow three and a half times over the past 10 years, according to 'Which?'. By Clifford German
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The Independent Online
You could have doubled your money had you put it in a building society over the last 10 years; you could have trebled it had you followed Sid into British Telecom. But you could have done even better had you invested in a unit trust or investment trust, which grew on average by around three and a half times over the period, according to the October issue of the consumer magazine Which?

The statistics reflect past performance rather than the future, of course, and show a wide range of performance. Over the last five years, for example, the best performing unit trust aiming at growth was St. James's Place's UK General Progressive, which turned pounds 1,000 into pounds 2,500 over the last five years, while MGM Special Situations ended up with just pounds 700.

Uncertainty about the performance of individual investments and concern that management charges are still too high continue to dog the unit trust and investment trust markets. They are, however, generally accepted to be the last best hope of persuading UK workers to abandon hope that the state will provide a decent future, and routinely invest as much as 10 per cent of annual income to provide for children's education, and their own old age and health care. Banks and building societies are safer and more accessible, but unlikely to perform well enough to do the job.

There are more than 1,500 unit trusts run by 160 management groups, and 340 investment trusts grouped in 110 managements listed in the financial press. Which? hopes to educate its readers to distinguish between high- and low-risk investments; between funds intended to maximise dividend income, growth funds, which aim for capital gains, and general funds, which aim at a mix. Distribution funds distribute the dividends, and others are primarily set up to reinvest dividends.

Recovery funds try to pick stocks about to bounce back from recession or restructuring, while Special Situations, High Technology and Small Company funds are self-explanatory.

No fund has a perfect record, and low-risk and high-income investments often produce a total return in income plus growth that outperforms the more speculative investments.

Which?'s research shows that over the last five years the most volatile, and therefore riskiest, unit-trust sectors have been those investing in Far Eastern markets such as Hong Kong, Korea, Taiwan, Malaysia, Thailand, the Philippines and Indonesia. They have been marginally riskier than emerging markets as a whole. Japan is not considered an emerging market, but has been almost as risky. In ascending order of safeness come smaller company funds, North America, the UK, international, Europe and fixed- interest funds, which are least volatile of all.

The Far East may be risky, but it is also where the highest returns over the last five years have come, with unit trusts averaging 16 per cent and investment trusts just over 15 per cent a year. Investment trusts investing in Japan averaged less than 2 per cent and the unit trusts made fractional losses.

Investment trusts specialising in North America made 14.8 per cent and UK general investment trusts made 11 per cent. However, unit trusts investing in the same regions made 10.4 per cent and 7.6 per cent respectively.

Investment trusts invested in general stocks around the world generated more than 13 per cent but capital growth trusts only just over 10 per cent.

The best-performing management groups include Britannia, Framlington, GAM, Gartmore, M&G, Perpetual, Scottish Equitable and Stewart Ivory. Poor performers include Save & Prosper, Friends Provident, Invesco, Govett, Mercury and Murray Johnstone.

The traditional Which? red stars for best buys for good performance and low risk among general UK unit trusts are awarded to Cazenove's UK Income & Growth, the Pearl's UK International, AXA Equity & Law's General, Norwich Union's UK Index Tracking Fund, Baring's Portfolio and HTR's Income and Growth trusts.

Among growth trusts the stars go to St James's Place UK & General Progressive, Fidelity UK Growth, AIB Grofund Equity, Eagle Star's Environmental Opportunities and Capel Cure's Special Situations. For income trusts the awards go to Newton Income, Credit Suisse Income, United Friendly Equity Income and Lazard's UK Income.

A stars for general investment trusts is awarded to Edinburgh-based Personal Assets. The best income trust is Value and Income, the best investment trusts for growth include Henderson Strata, Foreign & Colonial Smaller Companies, and Electric & General.

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