Byline: JEFF PRESTRIDGE
MOST investors in unit trusts and investment trusts have had a volatile ride in 1997.
Stock markets across the world have responded nervously as the Far Eastern economic miracle has crumbled.
While most investors who take the long view and spread their risks have come out smiling, some, such as those with big holdings in Far Eastern funds, are nursing sore heads.
So as we draw closer to 2000 and the Millennium Dome starts to take shape in Greenwich, east London, should investors look on the New Year as a time to rethink their global strategy towards equities?
Should they maintain their core investments in the UK, or should they take advantage of turmoil in the Far East to increase exposure on the principle that what goes down must go back up - eventually. Or should they avoid equity-related funds altogether?
To help investors answer these questions, we asked a panel of 10 leading independent financial advisers for their assessments on prospects for four key investment areas - the UK, the US, Europe and the Far East.
Unit trusts and investment trusts are recommended because they offer convenient and low-cost routes into equities. By investing in a range of companies, they also provide exposure to diversified portfolios of shares.
While our advisers believe investors can continue to do well through long-term exposure to equities, especially via UK and European funds, they should expect a rocky ride.
Moshe Hadari, panel member and senior partner with Chancery Bar Financial Services, says: 'Investment markets are becoming more volatile as a result of more effective global communications and the domination of computer trading.
The winners will be those who stick out this volatility for the long term.'
THIS is a view shared by David Aaron, senior partner of the David Aaron Partnership. 'Markets will remain volatile,' he says, 'but the global economic environment should be stable for some time.
'Moderate growth, low interest rates and low inflation are the conditions on which equity markets thrive. If these remain in place, investors should do well.' Our panel also recommend that investors should look outside the conventional geographic trusts for millennium investment winners.
Technology funds such as Finsbury Technology, Prolific Technology and Herald Investment should benefit from the millennium and the problems and opportunities it will bring.
Yet it is Amanda Davidson, partner with Holden Meehan, who has come up with the most interesting millennium investment tip. 'Invest in a green fund,' says Davidson. 'Many of the themes for 2000 and beyond will have an environmental slant, so funds such as Jupiter Ecology unit trust should prove winners. As the world battles with sustainability, green funds will come into their own.' Our panel of advisers comprises David Aaron Partnership, Milton Keynes, 01908 281544; Alan Steel Asset Management, Lin-lithgow, near Edinburgh, 01506 842365; Bates & Partners, Leeds, 0113 295 5955; Chancery Bar Financial Services, London, 0181 482 2222; County Partnership, Cheltenham, Gloucestershire, 01242 253136; Hargreaves Lansdown, Bristol, 0117 988 9880; Holden Meehan, London, 0171 692 1700; Master Adviser, London, 0171 240 1901; Plan Invest, Macclesfield, Cheshire, 01625 429217; Premier Unit Trust Brokers, Bristol, 0117 927 9806.
Portfolios begin at home
ALL 10 members of our investment panel are positive about the outlook for UK shares.
They believe UK-invested unit trusts and investment trusts should form the core of any portfolio.
Alan Durrant, head of UK equities at Hargreaves Lans-down, says: 'All of the technical signals are good.
Directors are avidly buying shares in their own companies, and they know more about the prospects for them than analysts ever will.
'Regardless of the level of stock markets, many investors will continue to pay monthly into their savings plans. This provides a powerful momentum which I believe will drive the UK stock market higher over the coming years.' Peter Edwards of Premier Unit Trust Brokers agrees.
'The next two years will see strong stock market growth.
The economic fundamentals are good, though European Monetary Union may derail them after 2000.
'Quality UK unit trusts have delivered annual returns of around 20% over the past 15 years, and that is our minimum marker for the future.' PANEL'S TIP: Schroder UK Enterprise unit trust is the choice, albeit on a split vote.
Managed by Jim Cox, it has a strong performance record and invests in small and large companies. Its success is based on a concentrated portfolio approach which means Cox holds only between 40 and 50 stocks.
This is a risky approach but it has worked so far. The minimum investment is a [pounds sterling]1,000 lump sum or [pounds sterling]50 monthly. Charges are 5.25% initial and 1.5% annual.
Prepare to catch the surge Mike Owen predicts change EUROPE wins the thumbs up from our experts as a millennium investment opportunity.
All 10 panel members believe European shares should surge on the back of corporate restructuring and a greater interest in shares.
David Aaron is most bullish. 'European equities are probably the best bet for investors through to the millennium,' he says.
'European economies are recovering well and benefiting from rationalisation and more efficient methods of operating. Also, it is likely that most mainstream European currencies will strengthen against sterling.
For UK investors, this will be good news because the currency gains will boost stock market profits.' Mike Owen, managing director of Plan Invest Group, is also optimistic.
'Fundamental changes are occurring throughout Europe,' he says.
'Investors, fed on steady-as-she-goes bonds, are waking up to the benefits of equity investment. Companies are responding by accepting the need to produce attractive returns for shareholders rather than massaging the ego of man-agements through empire building.' PANEL'S TIP: Four European unit trusts get the vote - Credit Suisse European, Fidelity European, Invesco Europe Growth and Old Mutual European. The most conservatively managed of these is Credit Suisse European. Run by Patricia Maxwell-Arnot, this trust sticks to mainstream equities. Minimum investment is a [pounds sterling]1,000 lump sum or [pounds sterling]50 monthly.
Charges are 5.25% initial and 1.5% annual.
THINK SMALL FOR GROWTH
THOUGH our advisers do not believe the American investment bubble is about to burst, they feel care is needed when considering US unit trusts and investment trusts to hold beyond the millennium.
In the past few years, the main driving force behind the American stock market's boom has been the share price performance of the country's biggest companies. But advisers now recommend that investors turn to smaller companies for the best returns.
David Aaron says: 'US share prices continue to rise, much against the expectations of most UK investment managers. But company earnings are growing and while these may slow in the future, the outlook for the US stock market is still reasonably good.
'The US is experiencing sound non-inflationary growth and we expect smaller companies and technology stocks to outperform their larger counterparts.' PANEL'S TIP: In light of Aaron's comments, Schroder US Smaller Companies unit trust is the overwhelming choice. Michael Wade, a partner of the County Partnership, says: 'This fund focuses on the principal stock markets of North America, including Canada, as well as shares traded on the over-the-counter market.
'Schroder's ability to pick wisely from these areas has produced consistent and successful results.' The minimum investment is a [pounds sterling]1,000 lump sum or [pounds sterling]50 monthly.
Charges are 5.25% initial and 1.5% annual.
BE WARY OF THE WOUNDED TIGERS
TURMOIL in Far Eastern stock markets means all bar a handful of our advisers are negative about prospects for the tiger economies.
Moshe Hadari says: 'Recent events in the region have highlighted the potential for volatility and turbulence.
'It would be a brave investor who would now venture into Japan or Far Eastern stock markets, though as Nathan Mayer Rothschild was once quoted as saying: "The best time to buy is when there is blood in the streets and everyone concerned is gloomy and despondent".' Peter Edwards, boss of Premier Unit Trust Brokers, remains wary of the Far East.
'Markets in the Pacific including Japan have had a torrid time for good reasons and it will not be easy for sentiment to shift radically,'
'Confidence may be fragile for a while as the corrective medicine is put to work. As a result, I am in no hurry to commit funds to the region.'
Equally negative is Michael Wade. 'Stock market prices now seem fairer and devaluation of many currencies will help exports,' he says. 'But these alone are not strong enough reasons to buy Far Eastern exposure.' PANEL'S TIP: Given the overall negative views about the Far East, Financial Mail feels it is inappropriate to recommend a Far Eastern fund.
The best advice is given by Alan Durrant. He believes the soundest approach is an emerging markets investment trust with limited exposure to the Far East, but with holdings in other emerging markets such as Latin America and central Europe.
He recommends Templeton Emerging Markets and Foreign & Colonial investment trusts, funds backed by strong investment teams and which have sound long-term records.
Both trusts may be bought through low-cost savings schemes which are run by the companies themselves.…