Special Report on Investment Trusts: What the specialists fancy: Alison Eadie asks stockbrokers and other experts to give their recommendations for people seeking to save pounds 50 a month

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The Independent Online
SAVINGS schemes have raised awareness of investment trusts and boosted the number of small shareholders in what used to be an institutional preserve. Their popularity is increasing.

The total amount invested in saving schemes from 1984 to the end of last year was pounds 669.6m, according to the Association of Investment Trust Companies. A record pounds 239.6m, or 36 per cent of the total, poured in last year.

A total of 155 investment trusts offer savings schemes representing 61 per cent of the total membership of the AITC. The effect on the bigger, general trusts has been dramatic.

Foreign & Colonial Investment Trust, the oldest and largest, has seen its shareholder base increase from 14,000 in 1986 to 71,000 today. The discount to net assets - 27 per cent at its widest - has tipped into a small premium this year.

Investors wanting to put pounds 50 a month into an investment trust savings scheme should bear in mind the discount or premium to assets, the costs against similar investments such as unit trusts, whether the trust qualifies as a Personal Equity Plan, how long a savings scheme will run and the level of risk required.

Graham Hooper, of Chase de Vere, believes that because money in savings schemes comes in monthly rather than in a lump sum, pound-cost averaging can allow investors to go up the risk spectrum. As money is only building up slowly investors should stay in for at least five years, he adds.

He suggests F & C Investment Trust for investors with a low risk profile. Its size should prevent sudden swings in the discount or premium and it has an excellent track record. Europe is also a good bet as interest rates come down and economies recover. Mr Hooper suggests Fidelity European Values for larger companies and Fleming Euro Fledgling for smaller ones.

Higher up the risk profile, in the split capital trust sector, Mr Hooper recommends Schroder Split Fund and Gartmore Scotland. Their higher gearing makes them susceptible to any pick-up in the UK markets.

Mr Hooper believes emerging markets investment trusts do not offer good value because of high premiums and venture and development capital trusts are too small to recommend.

Mark Fiander, of stockbrokers Capel-Cure Myers, thinks small investors with only pounds 50 a month to save should stick to the basics. The basics include large, broadly based trusts like F & C, Edinburgh Investment, Alliance and Temple Bar.

He thinks emerging markets, split capital trusts and warrants represent the icing on the cake, but should only be bought if there is a well diversified lower risk portfolio on which to spread them.

Nick Percival, of BESt Investment, suggests investors should look at unit rather than investment trust saving schemes, if the investment trust is at a premium to net assets. He believes premiums are unsustainable except in the short term. He adds, however, that monthly savings mitigate the effect of premiums and some trusts running at premiums have been good performers in their own right.

BESt's UK recommendations are Lowland, Merchants Trust and Murray Income and, for smaller companies, Murray Enterprise and Foreign & Colonial Smaller Companies. On the international front it recommends F & C Investment Trust and in Europe F & C Eurotrust and Fidelity European Values. For those wanting greater risk exposure, BESt still believes in Templeton Emerging Markets, despite its fat premium to assets.

Mark Dampier, investment director at Whitechurch Securities, recommends novice investors should go for the big, general trusts. The emergence of a small premium at F & C could persuade investors to look for cheaper trusts. Mr Dampier suggests Anglo & Overseas where the discount to net assets is around 11 per cent.

Longer-term investors could go for more volatile areas such as emerging markets, says Mr Dampier, but he adds that they should stay in for a minimum of five years and nearer 10 to 15 years to get the best out of them.

Mr Dampier thinks savers should consider the investment first and only secondly whether it can be put in a Pep. To get the best out of the tax advantages of a Pep, investors should choose an income growth trust but not many exist and some are at premiums, he warns.

Whereas 'pepping' a unit trust can usually be done at no extra cost, pepping an investment trust adds cost and may not make sense for basic rate taxpayers in low yielding trusts.

(Photograph omitted)

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