Find the right investment for you

Five investors with differing needs want to buy. We asked four advisers to suggest the best move for them

WITH STOCKMARKETS down from their historical highs, now may be the time to consider getting back into the market, at least for part of your investment portfolio.

However, which unit and investment trusts would you choose if you had to choose just one? That was the challenge we set four independent financial advisers (IFAs).

Two weeks ago, they offered their tips on unit trusts. This week they are looking at investment trust funds.

Unlike unit trusts, investment trusts are separate companies authorised to invest in stocks and shares, and they possess wider powers of investment. An investment trust can buy unquoted shares, for example, and can borrow on the strength of its investments to obtain a "gearing" effect.

That means that, when the market rises, the value of an investment trust's investments rises faster - however, when the market falls, so its investment value will fall faster.

The fact that it is a company means that the price you pay for a share depends on more than just the value of the assets it holds - something that is known as its "net asset value".

On the whole investment trusts trade at a discount or at a premium - depending on whether the share price is at a level that is below or above the value of their underlying securities - although complicated capital structures have been established to overcome this effect.

For example, a split capital trust separates out income from capital and usually has a life of less than 10 years, after which the fund is redeemed and the sale proceeds are distributed out to the shareholders.

Our panel of IFAs was Fiona Price, Mark Dampier, Mike Owen and Nick Conyers. The five hypothetical investors are described in a separate panel. To discover the trust recommendations, read on...

TOM: Fiona Price suggests the Murray Income Investment Trust for cautious Tom: "It currently stands at a 13 per cent discount and yields slightly over 5 per cent a year. It is predominantly invested in UK blue chip stocks and is run by Peter Hewitt, who has a very good record."

Mike Owen's choice is GT Income Growth, currently on a 13 per cent discount. It has a good record under new manager Graham Kitchen.

Nick Conyers picks Merchants Investment Trust: "It has a discount of 8.7 per cent and a yield of 5.5 per cent, meaning good long-term performance and dividend increases."

Mark Dampier also chooses Merchants, saying: "This is virtually an all-out UK equity fund, which has a long-established record concentrates mainly on blue chips, and is run by Dresdner RCM."

GAVIN and HELEN: Nick Conyers picks City of London Investment Trust for its solid income growth.

Mark Dampier selects Britannia UK Smaller Companies Investment Trust as a complement to his more aggressive unit trust choice. "This fund is run by the same team whose unit trust has a top quartile track record. The investment trust will mirror it, but you can buy at an incredible 25 per cent discount."

Mike Owen goes for Personal Assets Investment Trust, managed by Ian Rushbrook, as "it has the best returns in the international general sector over three and five years and is flexible enough to avoid major problem areas."

Fiona Price picks the pounds 1.5bn Alliance Trust, currently yielding 3.5 per cent, with a good record and a management charge of 0.1 per cent.

WILLIAM: Fleming Claverhouse is Mike Owen's selection: "This fund has been managed by William Pattison since 1995. It has consistently returned above-benchmark performance, its success usually reflected in a price at a premium."

Fiona Price tips Foreign & Colonial Investment Trust: "It has a very flexible investment policy and is successfully run by Jeremy Teague."

Mark Dampier selects RIT Capital Partners Investment Trust, where the current discount is around 20 per cent: "The managed portion of the fund is run by Nils Taube, a legend in fund management. It has a broad spread of UK and overseas equities, with about 15 per cent in unquoted securities. In our view, it makes an ideal core holding, leaving the worries over asset allocation to the trust."

BERYL: Fiona Price chooses the Henderson High Income Investment Trust for a steady performance track record, 10 per cent discount on its net asset value and 7 per cent yield.

Mark Dampier declines to choose, reasoning: "An elderly investor looking for income should be mainly in fixed interest funds and there are no investment trusts I like that specialise in this area." But he suggests Credit Suisse Corporate Bond Monthly Income 6.7 per cent gross unit trust as an alternative to his earlier recommendation.

Nick Conyers opts again for Merchants Investment Trust, while Mike Owen's selection is Johnson Fry Utilities Income Shares. Its 17 per cent discount, yielding 7.8 per cent gross, "should provide a steady, defensive investment".

SALLY: Mark Dampier believes that in such a volatile area a "closed fund" makes great sense for someone with Sally's headstrong investment character. Closed funds, such as those of investment trusts, involve a set number of shares which can rise and fall. The greater the demand, the likelier the increase in the fund's value.

Mr Dampier suggests Foreign & Colonial's Emerging Markets: "Emerging markets are now deeply unfashionable, unloved, unwanted. Three excellent reasons to start buying them."

Fiona Price's selection is the highly-geared Jupiter Split Capital Investment Trust. She says: "This trust has six years to run and has recently fallen from its year-high of 196p to 63p. Assuming a 2.5 per cent growth each year over six years it will redeem at 81p."

The

Investors:

Sally is a 25-year-old advertising executive who earns pounds 28,000 a year. She would be surprised not to hit pounds 40,000 within the next three years. She has just taken out a mortgage on a one-bedroom flat. Sally's investment approach matches her character: aggressive. She has no need for immediate income.

Tom, a 55-year-old hospital porter, has been with the NHS for 18 years and earns pounds 11,000, including overtime. He knows his final-salary pension will not be enough to fund his one luxury - overseas holidays. Tom is a cautious investor looking for a combination of capital growth and an income.

Gavin and Helen are a just-married 30-something couple. Gavin, an engineer, and Helen, a civil servant, expect that one of them may give up work within five years to raise a family but otherwise take quite an aggressive investment stance. They may need to pay their children's school fees or fund their higher education.

William is a 52-year-old solicitor with grown-up children and a high income. His priority is capital growth. He says he is "not too cautious". He would like to build up enough capital, in the next 10 years, to fund his retirement, along with his pension, in the style he has become accustomed to.

Beryl, a widow in her 60s, has a small pension from her husband. He also left her a small lump sum which she is hoping to invest to supplement her pension over the longer term. Beryl is cautious, and not keen on maximising her income at the expense of a high-risk approach.

The independent financial advisers

David Burren, Warwick Butchart Associates, Cheltenham (01242 584144)

Mark Dampier, Churchill Investments, Axbridge (01934 844 444)

Nick Conyers, Pearson Jones & Co, Leeds (0113 230 4804)

Mike Owen, Plan Invest Group, Macclesfield (01625 429 217)

Fiona Price, Fiona Price and Partners, London (0171 240 4775)