Best and worst: Investment Trusts

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THE top-performing investment trusts over five years tended to be those invested in the more volatile emerging markets of the Far East or Latin America.

Templeton's Emerging Markets fund buys shares on an individual stock-picking basis in companies as far afield as Brazil and Malaysia. The fund is managed by Marcus Mobius, a leading practitioner of emerging markets fund management.

According to Greg Scott, Templeton's business development manager, the fund has been a victim of its own success and has traded at a premium for the last few years - premiums are generated when demand for the shares outstrips the supply and mean new investors pay more for shares than their net asset value.

At the end of last year and the beginning of this one, demand for shares in the fund led to a premium on the fund of nearly 20 per cent.

At that point, Sir John Templeton, the chairman, sold off a few million pounds of shares in the fund and reinvested the money in funds that were exposed to emerging markets, but which were trading close to or at net asset value.

He told the other shareholders that he thought that there was no earthly reason why new shareholders should be paying more than the net asset value in order to be in the fund.

Mr Scott said the long- term outlook for the emerging markets of Latin America and the Far East was good, but added: 'The problem with funds that are trading at a premium is that if something was to happen in the what is a politically volatile region, they have even more to lose.'

The EFM Dragon Trust only buys shares in the emerging markets of the Far East. For the past five years, it has traded at just above or just below the net asset value.

Richard Smith, Lazards investors director, said he did not want to comment in detail on the performance of the Smaller Equities Investment Trust, as the company had only recently taken over management of the fund.

He said: 'The fund was floated in 1987. It is particularly exposed to smaller companies, which over the last five years have performed abysmally.' He anticipated that the fund's performance would improve.

Five years ago, the South Korean fund run by Schroder was trading at a premium as investors piled in, anticipating an economic miracle.

Since 1 April 1989, however, the share price has tumbled continuously, because of the economic and political problems that the Far East country faces.