Investment Trusts: Adventures for the brave: Mike Truman finds some high-risk, high-reward funds in the newer markets of the world

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The Independent Online
THE PHRASE 'not for widows and orphans' is shorthand in the investment industry for an adventurous and volatile fund - one that might make a substantial profit but could also lose you a lot of money.

Provided you realise the risks, and only commit money you can afford to lose, what opportunities are there in the investment trust market? As might be expected, the best high-risk, high-return funds are in the world's newer markets.

China has a fledgling stock market and there are further opportunities to get exposure to the economy through Hong Kong. The Fleming Chinese Investment Trust is one of the few trusts which are allowed to invest directly in China during the next two years. Alan Burnett, in charge of UK marketing of the trust, says the majority of the investments are still through Hong Kong.

'We think that 1997 will be a very positive factor on this market,' he says. 'We believe that China will use Hong Kong as a step in the opening of their economy to capitalism.' He stresses, however, that although the trust is not borrowing any money to invest, it is still highly volatile. 'Investors should regard this as a minimum five- to seven-year investment, and it may take longer to see the real benefit of being in a market like this.'

Edinburgh Fund Managers have been concentrating on a different area - Latin America. They began investing in the area during February 1990, and now have a team of three specialists. In April 1994 trading started in their Inca Investment Trust, which has the objective of capital growth by investment in Latin American quoted companies and other companies with an exposure to the region.

Frequent visits to the area by the investment team allow hands-on monitoring and appraisal of potential stocks, and the trust aims typically to be investing in smaller and medium sized companies. At present it has substantial holdings in Argentina and Brazil, as well as in the leading economy in the region, Mexico.

For Jane Hackman of Beta Fund Managers, Mexico scarcely qualifies as an emerging market. She points out that while it is still not an area where the private investor can deal easily, the institutional market is now mature.

Beta's Global Emerging Markets Investment Trust invests around the world, but is slanted towards early stage markets - those which will become the 'emerging markets' of the future. So they have holdings in Bangladesh and Colombia, for example, whereas the more mainstream Edinburgh Inca Trust has only 2 per cent of its funds invested in Colombia despite being a specialist Latin American fund.

Beta also feel that it is an advantage not to be one of the bigger players in the emerging markets. Because the markets are so illiquid, and their capitalisation so small, a big fund is literally unable to buy enough stock to invest heavily in the smaller markets. Jane Hackman sees Beta as a niche player, with a fund large enough to get a good geographical spread, but still small enough to specialise in pioneer markets.

None of these funds is suitable for the main part of a private investor's portfolio. Anyone investing in them must be prepared to take a long view, and not to panic if the price seems to nose-dive for a while. There is no guarantee that you will win but if you do, you are likely to make a very good profit.

(Photograph omitted)

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