Our experts' fund picks for 2011

25 January 2011

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall.

The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Bank stress tests, fresh rounds of quantitative easing, fears of a double dip and problems across the eurozone have ensured a bumpy ride for stockmarket investors in 2010. The FTSE 100 started the year around 5500 and finished the year only a smidgeon up from that.

At the start of July 2010, we saw banks take a nosedive, as fear grew of a dreaded double-dip recession, and the FTSE 100 touched 4812.

Fast forward just four months and investors had perked up considerably at the news of a $600 billion (£380 billion) splurge of printed money in the US. On 4 November, the FTSE 100 soared to 5862, its highest since 2008.

Continued low interest rates and some better-than-expected company profits also helped keep the stockmarket fairly buoyant in 2010. But fund managers and stockbrokers believe volatility will continue in 2011 and that government spending cuts and tax rises will be painful.

Despite the uncertainty, our experts have picked their funds to watch out for in 2011.

SCHRODER INCOME - price 4,538p, yield 3.2%

Brian Dennehy, managing director of Dennehy Weller & Co, points out that this fund reduced its dividend payout in 2010.

That decision was made, he says, "not because it had to, as with many of its peers, but because managers Kevin Murphy and Nick Kirrage could see opportunities emerging for superior growth in capital and income".

Dennehy adds: "These opportunities are uncovered by a disciplined process that has a successful track record. With any UK fund in 2011, you are at the mercy of the markets, but I would happily hold this fund through the turbulence, taking a longer view."


Mick Gilligan, head of research at Killik & Co, makes this fund his star tip.

Among the themes he believes will be relevant in 2011 are the impact of the government's austerity measures, though he does not believe these will be enough to derail growth, and the cash on companies' balance sheets that they will start to deploy.

"The reason I like this fund is that it is invested in sectors that are likely to benefit from these trends, such as industrials, technology and support services," he explains.

"The manager, Nigel Thomas, is very experienced. He has been through a number of market cycles and is always keen to find growth. The markets we are experiencing at the moment play to his strengths."

John Husselbee, chief executive of North Investment Partners, also tips the fund. He says Nigel Thomas is one of the most experienced in the UK equity sector. "He has a well-established investment style and approach, and a proven long-term track record against the market and his peer group," says Husselbee.

"He invests in companies of all sizes with no particular bias to any market cap. Thomas is a stockpicker, and since the financial crisis, the importance of stock selection has grown, as it is necessary to be increasingly selective to distinguish between the future winners and losers."


Andrew Merricks, head of investments at Skerritt Consultants, says it appears inevitable that stock market volatility will continue.

"We will lurch between threat and opportunity for some time to come," he says. "This is the type of fund I think can deal with that scenario most efficiently. If defensive large cap shares are the order of the day, manager Ed Legget can overweight them.

"However, if talk of double dips recedes next year and interest rates remain low, he can focus more at the smaller company end of the market and gain from the inevitable rise in mergers and acquisitions activity that will surely occur as large companies look to spend their cash."

INVESCO PERPETUAL HIGH INCOME - price 301p, yield 3.7%

Manager Neil Woodford is being cautious and refusing to be drawn into what he sees as risky cyclical shares, according to Jennifer Storrow, managing director of Gee & Company.

"Woodford's fund remains defensively positioned, resulting in some short-term underperformance, but he makes no apology for this and takes a long-term view," she says.

"I am confident this strategy will bear fruit in the long term, and believe now is a good time to buy into it relatively cheaply. It offers a good dividend yield."

CIS SUSTAINABLE LEADERS - price 279.8p, yield 1.6%

Julian Parrott, partner at Ethical Futures, describes his choice as a pragmatic fund operating on moderate ethical screens. He says: "It has a well-diversified portfolio, investing in companies of all sizes, with an emphasis on positive stock selection, based on the contributions companies make to broad sustainability.

"Companies seeking to minimise the environmental damage caused by their activities are among those favoured. The fund has outperformed its peer group more often than not."

This article was originally published in Money Observer - Moneywise's sister publication - in January 2011.

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