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Mortgage Refinance Loan - Choosing The Right One
By IC
Are you interested in mortgage refinance? If so you will find that there are a lot of options for you to choose from. You may not be aware of it, but there are many different types of loans and when you start to think about refinancing you may very well be overwhelmed by all of the options. With so many options, how do you choose just one? And, how you do determine which one is the right one for you?

Choosing the Right Mortgage Refinance Loan

Choosing the right mortgage refinance loan can be tricky but it doesn't have to be all that difficult. You simply need to break it all down into understandable and manageable chunks. The first thing you need to do is look at your current loan and try to figure out why it is not working for you or what you would like to change. Do you just want to lower your monthly payment? Do you want to trade in your variable rate mortgage for a fixed-rate mortgage? Do you want to go for a cash out refinance loan? When you know what you have and how you want to change it, it will be much easier to look at all of the loan programs out there and respond accordingly.

When you have looked at your current home loan and you have decided what the purpose of mortgage refinance is for you, it is time to find a mortgage company that can help you find desirable refinancing options and get your applications completed. A mortgage compay can help you understand which loans may be a better deal for you, and why.

When you are offered mortgage refinance loans you need to consider several things. First, you need to consider the length of the loan, the interest rate, and then whether or not the interest rate will stay the same or whether it will adjust later on. You also need to look at what fees you will incur and whether or not you can roll them into the principal that is owed to the lender. As you can see, there are many things that you need to consider when you are trying to choose the right loan. Just take it slowly and don't accept something unless you are 100% comfortable with it.

Choosing the right mortgage refinance loan is simple when you break it down a bit by knowing what you have, where you want to be, and what sort of loan that you need to get to the place that you want to be. Refinancing can help you save money as well as make your mortgage more affordable

America's not beautiful, but it might look better soon
<div><img alt="" src="http://hits.guardian.co.uk/b/ss/guardiangu-feeds/1/H.15.1/94450?ns=guardian&pageName=Money%3A+America%27s+not+beautiful%2C+but+it+might+look+better+soon&ch=Money&c3=The+Observer&c4=Investments%2CMoney&c5=Personal+Finance%2CInvestments&c6=Heather+Connon&c7=2008_11_09&c8=1114816&c9=article&c10=GU&c11=Money&c12=Investments&c13=&c14=&h2=GU%2FMoney%2FInvestments" width="1" height="1" /></div><p>'Change you can believe in' was Barack Obama's election slogan, but there is a real risk that will turn into 'Change, but not so as you'd notice' as the President-elect gets to grips with the problems facing what is still the world's biggest economy - albeit one that's shrinking fast.</p><p>Obama has inherited a country facing the worst economic conditions since the Great Depression of the 1930s. It has already suffered one quarter of negative growth and that is expected to continue for at least the next three quarters. Unemployment is rising sharply; as Graham Frost, chief investment officer at Bestinvest points out, even Pepsi is cutting jobs, while the US car makers are laying people off in swathes. The $700bn bank bail-out means the budget deficit could swell to more than $1 trillion - a massive 7 per cent of gross domestic product - while net debt could reach $11 trillion.</p><p>Paradoxically, however, the struggling economy could actually count in his favour: while his predecessor George Bush takes the blame for creating the disaster, Obama could claim the credit for sorting it out.</p><p>In truth, however, he can do little that would not have been done by his rival John McCain. Both have already signed up to the economic stimulus package aimed at starting the climb back to recovery; and, while Obama is talking about tax rises for the better-off while McCain stuck to the mantra of tax cuts, in truth neither move was likely to be that dramatic.</p><p>Simon Laing, manager of Newton's American fund, says: 'Broader policy reform will take a back seat to economic rejuvenation plans over the next two years. President Obama's first task is to return confidence to the financial system and to the economy. Expect the announcement of significant fiscal stimulus through 2009.'</p><p>Obama is more likely to do that through the kind of Keynesian public-works projects that are also being talked of in Britain as a way of resurrecting the economy. That, says Peter Thomson, chief executive of Taylor Young Investment Management, means infrastructure companies should benefit. 'Obama has promised to invest $150bn over 10 years to build a clean-energy economy, so this is clearly a sector which will benefit from his victory,' he adds.</p><p>The stock market has already enjoyed a bit of a bounce and is almost a fifth above last month's low. However, that may owe as much to signs that the financial crisis is finally being contained, if not resolved, and to the news that some of the country's biggest banks are being more forgiving about house repossessions or foreclosures, as to enthusiasm for an Obama victory. </p><p>Laing thinks that the bounce may have gone slightly too high, given the poor prognosis for corporate profits. While analysts are still forecasting 20 per cent growth in profits next year, Laing expects a 20 per cent fall as the rest of the world joins the US in recession, adding international earnings pressure to domestic woes - a quarter of the earnings of S&P 500 companies come from overseas.</p><p>But Taylor Young's Thomson points out that US companies were already planning for a downturn as long ago as 2006: 'The country may actually benefit from experiencing the worst effects earlier than other countries. It certainly looks like the US will come out of recession earlier than the UK and Europe.'</p><p>And valuations are low: Blackrock's Bob Doll points out that 40 per cent of the US market is trading at less than 10 times earnings, and a third on market values that are below the book value of their assets. That combination of an earlier downturn and low valuations should mean that the equity market will recover earlier than elsewhere.</p><p>Those who are brave enough to consider equity investment at the moment - and better now than 12 months ago - may want to consider an investment in the US. Darius McDermott, managing director of Chelsea Financial Services, likes the Martin Currie North American and M&G American funds, while Artemis Global Growth has more than 50 per cent of its assets in the US. The latter has had a tough time lately but has a good record over five years and represents a way of hedging your bets. </p><p><strong>New bank shares are low-cost -but not cheap</strong></p><p>Last year, Royal Bank of Scotland and HBOS made more than &pound;15bn profits between them; this year, they are expected to lose more than &pound;1.5bn. Last year, banking dividends accounted for more than 30 per cent of the total market dividends; this year, only two institutions are expected to be able to make a cash payment - HSBC and Standard Chartered. </p><p>These facts alone mean there is hardly likely to be a stampede by investors to subscribe for the &pound;28bn fundraising from RBS, HBOS and Lloyds TSB as part of the government's support package. Add the accelerating economic slowdown, which means that write-offs against their loans to consumers and businesses are likely to rise, and the prognosis is gloomier still.</p><p>So should the thousands of private investors in these three banks subscribe? All are promising big changes. Perhaps the most radical will be at RBS, despite the fact that it will remain independent. New chief executive Stephen Hester is as scathing as he can be about the old guard while still remaining tactful, makes it clear his strategy will be much lower-risk and domestically focused, and hints that there will be significant disposals, in addition to the insurance companies that are already on the block.</p><p>HBOS will disappear into the Lloyds empire - literally, as both its name and senior management are being ditched although chief executive Andy Hornby will have a brief period as an adviser. Lloyds is promising &pound;1.5bn of savings - 50 per cent more than its initial estimate - and hints it could sell some parts of the combined business as a way of paying off the government preference shares that restrict it from paying dividends. Indeed, it is so conscious of investors' desire for dividends that it is planning to circumvent that restriction with a capitalisation issue in lieu of dividends for 2008, and is promising a return to cash dividends for 2009. RBS is less optimistic.</p><p>The shares are being offered at low prices, but that does not make them cheap. Returning the banks to health will be a long, slow process and there are better places to invest for now.</p><div style="float: left; margin-right: 10px; margin-bottom: 10px;"><ul><li><a href="http://www.guardian.co.uk/money/moneyinvestments">Investments</a></li></ul></div><div class="guRssAdvert"><a href="http://ads.guardian.co.uk/click.ng/richmedia=yes&site=Money&country=gbr&spacedesc=rss&system=rss&transactionID=1227107060122111915041937545"><img src="http://ads.guardian.co.uk/image.ng/richmedia=yes&site=Money&country=gbr&spacedesc=rss&system=rss&transactionID=1227107060122111915041937545" border="0" /></a></div><a href="http://www.guardian.co.uk">guardian.co.uk</a> &copy; Guardian News & Media Limited 2008 | Use of this content is subject to our <a href="http://users.guardian.co.uk/help/article/0,,933909,00.html">Terms & Conditions</a> | <a href="http://www.guardian.co.uk/webfeeds/1,,1309488,00.html">More Feeds</a>
A with-profits windfall that's still up in the air
<div><img alt="" src="http://hits.guardian.co.uk/b/ss/guardiangu-feeds/1/H.15.1/24692?ns=guardian&pageName=Money%3A+A+with-profits+windfall+that%27s+still+up+in+the+air&ch=Money&c3=The+Observer&c4=With-profits+funds%2CInvestments%2CMoney%2CObserver&c5=Personal+Finance%2CInvestments%2CNot+commercially+useful&c6=Heather+Connon&c7=2008_10_27&c8=1107120&c9=article&c10=GU&c11=Money&c12=With-profits+funds&c13=&c14=&h2=GU%2FMoney%2FWith-profits+funds" width="1" height="1" /></div><p>If you are a Norwich Union (NU) with-profits policyholder who has resisted the temptation to cash in on the prospect of a windfall as the insurer distributes its inherited estate, then you've had two bits of bad news.</p><p>First Philip Scott, finance director of NU's parent Aviva, warned last week that collapsing stock markets meant there was a risk that the terms of the distribution could change - and you can bet any amendment would not be in policyholders' favour. Then, as I predicted last week, NU imposed swingeing penalties on anyone cashing in their policies by imposing a market value adjustment, reducing the value of the fund by between 13 and 22 per cent, depending on its vintage. That is a significant deterrent for anyone who has lost patience with the reattribution process - or who simply needs the money or is about to retire.</p><p>The markets have certainly been turbulent since Norwich Union announced it had reached an agreement with the advocate acting on behalf of its policyholders, Clare Spottiswoode, to hand out &pound;1bn of assets not fully distributed to generations of its policyholders. The FTSE 100 has fallen by about a quarter, some parts of the corporate bond market have fallen much further and property values are down by around 5 per cent. </p><p>But Dominic Lindley, principal policy adviser for financial services at Which? - who has been critical of NU's handling of the negotiation - questions whether it would now be seeking to renegotiate if prices had been going the other way. And he points out that Aviva's directors have been claiming that their hedging strategies have protected the value of all its funds from the ravages of the market.</p><p>Perhaps a more pertinent reason for Scott's warning is that investors are starting to worry that financial turmoil, which has already devastated the banks, is spreading to the insurance industry. Aviva's share price fell sharply last week on fears that it could be forced to raise capital through a rights issue. While Scott categorically ruled this out, some investors may be wondering why it is giving away &pound;1bn of precious resources to policyholders who were hardly clamouring for it in the first place. </p><p>Insurers are generally in better shape than banks both because of tighter regulation on their capital reserves, imposed following the 2001 stock market crash, and because they are less vulnerable to a wave of panicky withdrawals. But the Financial Services Authority has been closely monitoring the impact of a sharp fall in corporate bonds - which now account for more of insurers' investments than equities do.</p><p>The agreement between Spottiswoode and NU was announced at the end of July but it still has to be approved by the courts and voted on by policyholders, so there is plenty of time for markets to settle - or, of course, to get even worse. NU cannot arbitrarily decide to reduce the payment; the whole deal would have to be renegotiated. And Aviva might be reluctant to endure the bad press that any change to the terms would get.</p><p>Lindley says this is simply the 'latest in a long line of broken promises' by Aviva. Which? has already complained that the distribution of a &pound;2.1bn surplus uncovered as part of the reattribution negotiations is being paid over three years, rather than all at once. That meant those whose policies matured or were cashed in during the three-year period lost out.</p><p>With-profits policies were marketed as safer ways of saving because they smoothed out the volatility of the stock market to offer more predictable growth. Market value adjustments, long lock-ins and on-off reattributions merely underline how wrong that perception is.</p><p>Rising stock markets can make the most mediocre fund manager look like a star, but bear markets, like the one we are currently suffering, are real tests of their skills. Judging by some research carried out by fund manager T Bailey, far too many are found wanting.</p><p>It has looked at the number of managers of UK funds who have come in the top quartile in both rising and falling markets since 1999, just before the technology crash gave birth to the 2000 bear market. The results are alarming: just five of the 160 funds in the UK All Companies sector were in the top quartile in the bear market that lasted until March 2003, the bull market that followed, and the current bear market that started last July. They are Blackrock UK Special Situations, CF Walker Crips UK Growth, Fidelity Special Situations, M&G Recovery and Marlborough UK Leading Companies. In the popular UK equity income sector, the results are just as bad: just three funds out of 59 - Invesco Perpetual Income, Invesco Perpetual High Income and St James Place UK High Income - managed that feat; all three are run by Neil Woodford.</p><p>Elliot Farley, senior analyst at T Bailey, says: 'The chances of an investor picking a fund that will perform in both bull and bear markets through the next decade are low. It means an investor needs to monitor his fund portfolio constantly.'</p><div style="float: left; margin-right: 10px; margin-bottom: 10px;"><ul><li><a href="http://www.guardian.co.uk/money/withprofitsfunds">With-profits funds</a></li><li><a href="http://www.guardian.co.uk/money/moneyinvestments">Investments</a></li></ul></div><div class="guRssAdvert"><a href="http://ads.guardian.co.uk/click.ng/richmedia=yes&site=Money&country=gbr&spacedesc=rss&system=rss&transactionID=1227107060355111915041937545"><img src="http://ads.guardian.co.uk/image.ng/richmedia=yes&site=Money&country=gbr&spacedesc=rss&system=rss&transactionID=1227107060355111915041937545" border="0" /></a></div><a href="http://www.guardian.co.uk">guardian.co.uk</a> &copy; Guardian News & Media Limited 2008 | Use of this content is subject to our <a href="http://users.guardian.co.uk/help/article/0,,933909,00.html">Terms & Conditions</a> | <a href="http://www.guardian.co.uk/webfeeds/1,,1309488,00.html">More Feeds</a>
Your investments: Banks are collapsing, but cash is still king
<div><img alt="" src="http://hits.guardian.co.uk/b/ss/guardiangu-feeds/1/H.15.1/66503?ns=guardian&pageName=Money%3A+Banks+are+collapsing%2C+but+cash+is+still+king&ch=Money&c3=The+Observer&c4=Investments%2CMoney%2CShares%2CInvestment+funds%2CBanks+and+building+societies&c5=Personal+Finance%2CInvestments&c6=Heather+Connon&c7=2008_10_13&c8=1095826&c9=article&c10=GU&c11=Money&c12=Investments&c13=&c14=&h2=GU%2FMoney%2FInvestments" width="1" height="1" /></div><p>September was a month that justified hyperbole. It started with the collapse of Lehman and ended with a scramble by European regulators to shore up their banks - including Dexia, Fortis, Glitnir and Hypo Real Estate. In between were record-breaking US bank failures (Washington Mutual followed quickly by Wachovia), the rescue of Britain's biggest mortgage lender, HBOS, and the collapse of the second-biggest buy-to-let lender, Bradford & Bingley. </p><p>The surprise, then, is that stock market performance over the month was only the worst for two decades, not two centuries. But the 13 per cent fall in the FTSE 100 in September followed a torrid eight months: the Footsie has now fallen 23 per cent since the start of the year and is 26 per cent down from its peak. </p><p>On Monday, just one of its stocks rose and that was supermarket group Morrisons, a defensive business with a bit of recovery potential. But many others that should be resilient to the credit crunch - Vodafone, GlaxoSmithKline, Centrica, Unilever - saw their shares pummelled; indeed, the telecoms giant is close to its low for the year. If the bottom of a bear market is capitulation ('sell everything') followed by revulsion ('never touch another share certificate'), surely we cannot be far from the bottom.</p><p>That was the opinion of legendary fund manager Anthony Bolton in a recent speech - although he cautioned that it may need a bigger correction in commodity prices to confirm that the speculative frenzy that has affected all assets is really over. However, he told listeners to Radio 4's Today programme last week that he was now investing his own money in shares. And Bolton's employer, Fidelity, is trying to reassure investors by saying that volatility in stock markets is natural and pointing out that some of the worst falls have been followed by spectacular rebounds. The FTSE All Share Index has fallen more than 10 per cent in a quarter 22 times since 1950 and, on 13 of these occasions, it subsequently rebounded by more than 20 per cent.</p><p>Of course that also means that on nine occasions - or 40 per cent of the time - these bounces have not happened. And the spectre of collapsing banks means that this downturn looks alarmingly like the 1920s rather than the 1950s. As we pointed out last month, it took the stock market almost 30 years to stage a convincing recovery from the Great Crash. </p><p>Richard Buxton, head of UK equities at Schroders, is still rather gloomy: 'We continue to see plenty of medium-term opportunities within UK equities as the potential weakness in 2009 earnings already seems to have been more than discounted across many names. That said, valuation is never enough on its own and, with lingering problems in the banking sector, a catalyst for improving sentiment [and for realising this value] continues to be lacking. Indeed, until the current banking sector paralysis is resolved, the market is likely to remain reluctant to call the trough of the earnings cycle.'</p><p>And while some commentators are bravely highlighting low market valuations - 'equity markets need fall only several more percentage points before investors would be as well to take the risk by buying the asset,' says Paul Niven at F&C - others are simply keeping their heads down until the crisis is resolved. </p><p>Our own government refuses to rule out the prospect of another banking failure, while there are plenty of weak financial institutions struggling to survive in the US and Europe. The consequences of failure, meanwhile, grow progressively more serious. Capital Economics calculates that the assets of the 12 largest European banks account for 125 per cent of the eurozone's gross domestic product while our own Royal Bank of Scotland, probably the next weakest bank in line, is much larger than any of the three rescued so far. Some sort of concerted action to shore up the European banking system is surely needed to replace the ad hoc approach adopted so far.</p><p>The longer the turmoil continues, the bigger the impact will be on the real economy. The housing market is already on its knees; the high street - fuelled for years by a flood of credit that has now dried up - is in a similarly parlous condition. But the escalating cost of borrowing, as banks husband their resources, is already hurting corporate borrowers. The consensus is that recession cannot be avoided; the only question now is how deep and how long. That means earnings will fall and the dividend cuts already seen from retailers, banks and housebuilders will become more widespread.</p><p>The number of safe havens is dwindling. While the oil price has occasional blips, the general trend has been steadily down from the summer's peak, as have the prices of other commodities. The exception has been gold, which has benefited from the extreme risk aversion. But it carries no income - a key requirement for most private investors - and the high price is already hitting demand from jewellery buyers, the main consumers of the precious metal.</p><p>The flight to quality is also benefiting government bonds - indeed at one point investors were even paying the US Treasury for the chance to buy its bonds as interest rates turned negative. But elsewhere in the bond market, collapsing banks are sending prices plunging and yields soaring. While defaults are currently low, they are expected to rise sharply. Aviva Investors is taking advantage of the low prices to launch a high-yield bond fund, but others are not yet brave enough to step into that market.</p><p>Hedge funds were promising absolute returns, no matter what was happening in the stock market. But the ban on shorting financial stocks here and in the US, together with the fact that the debt on which hedge funds relied to leverage their returns is no longer cheap, means many have lost their magic touch. Some predict that as many as a third of all funds will fail in the next few years.</p><p>In times like this, cash is king. Allied Irish Bank is offering a two-year bond paying 7 per cent - and the Irish government promises to guarantee the safety of the entire deposit. With interest rates expected to fall, that could look very attractive in a few months' time.</p><p>But if you are brave, it could be worth following Bolton's lead and beginning to invest in the stock market again, through a fund's regular savings scheme.</p><p><strong>·</strong> This article was amended on Monday October 13 2008. Hypo Real Estate, not Hypovereinsbank as we said in the article above, was one of the banks shored up by European regulators. This has been corrected. </p><div style="float: left; margin-right: 10px; margin-bottom: 10px;"><ul><li><a href="http://www.guardian.co.uk/money/moneyinvestments">Investments</a></li><li><a href="http://www.guardian.co.uk/money/shares">Shares</a></li><li><a href="http://www.guardian.co.uk/money/investmentfunds">Investment funds</a></li><li><a href="http://www.guardian.co.uk/money/banks">Banks and building societies</a></li></ul></div><div class="guRssAdvert"><a href="http://ads.guardian.co.uk/click.ng/richmedia=yes&site=Money&country=gbr&spacedesc=rss&system=rss&transactionID=1227107060417111915041937545"><img src="http://ads.guardian.co.uk/image.ng/richmedia=yes&site=Money&country=gbr&spacedesc=rss&system=rss&transactionID=1227107060417111915041937545" border="0" /></a></div><a href="http://www.guardian.co.uk">guardian.co.uk</a> &copy; Guardian News & Media Limited 2008 | Use of this content is subject to our <a href="http://users.guardian.co.uk/help/article/0,,933909,00.html">Terms & Conditions</a> | <a href="http://www.guardian.co.uk/webfeeds/1,,1309488,00.html">More Feeds</a>
Your investments: Heather Connon warns against investing in structured products
<div><img alt="" src="http://hits.guardian.co.uk/b/ss/guardiangu-feeds/1/H.15.1/94799?ns=guardian&pageName=Money%3A+Structured+products%3A+an+unholy+grail%3F&ch=Money&c3=The+Observer&c4=Investments%2CInvestment+funds%2CMoney%2CObserver&c5=Personal+Finance%2CInvestments%2CNot+commercially+useful&c6=Heather+Connon&c7=2008_09_28&c8=1092144&c9=article&c10=GU&c11=Money&c12=Investments&c13=&c14=&h2=GU%2FMoney%2FInvestments" width="1" height="1" /></div><p>'Structured product' may sound like a polite name for a women's corset but, in fact, it is a kind of investment - much promoted recently - that aims to offer the investors' holy grail: simultaneously protecting capital and returning a high income. Seasoned investors who remember things like precipice bonds and split capital investment trusts, which were also supposed to offer that combination, will know that they are actually as elusive as the ancient chalice itself. </p><p>Two words sum up the reasons for their suspicion: Lehman Brothers. For the last 18 months or so, it has been backing structured products issued by companies like NDF, Meteor, DRL and Arc. The bank's collapse could mean that anyone who bought these products will have lost all their money, although even the companies that issued them are not entirely sure of the position. And it is quite likely that the losses will not be covered by the Financial Services Compensation Scheme.</p><p>That is because of the way these products work. Structured products aim to offer investors exposure to the growth in a particular investment market, usually through derivatives or other complex instruments, while limiting the risk of losses should that market fall. The simplest ones are linked to the FTSE 100 or the All Shares Index and offer investors a proportion of the growth in that market, over a particular period, while promising to at least return the initial investment provided the index does not fall by more than a certain percentage, usually 50 per cent. More recently, these products have been extended into a range of more esoteric markets and indices, like commodities, foreign indices, or particular types of companies. </p><p>The plan manager will use a proportion of investors' subscriptions to buy a derivative based on the chosen index, and the remainder to buy a bond issued by one or more banks, which is designed to provide the capital protection that will give investors their money back at the end of the plan. When a bank goes bust, as Lehman has, that protection disappears. Bond-holders will end up somewhere down the list of creditors to be paid off by the administrators - if there is any money left.</p><p>The promoters of these structured products admit they do not know what the fall of Lehman means - but warn it is likely to be bad news. NDF, for example, has issued a statement saying that it is no longer getting income or capital payment from Lehman and has not yet established with the administrators what will happen. Investors in its Lehman-backed plans cannot cash them in and, if this changes, it says 'investors should prepare themselves for a substantial loss of value if early encashment becomes possible through resumed trading in the underlying Lehman securities'. Investors in other companies' plans will be in a similar position.</p><p>But the risk is not limited to banks going bankrupt: a downgrading in the rating of the banks backing any of these products can also affect their returns - and there are plenty of those going on at the moment. It is essential that investors fully understand that these products carry significant credit risk, as well as the risk associated with whichever market they track. Unfortunately, however, there is no obligation on promoters to say which banks are backing their products - and even if they did, few financial advisers, let alone retail investors, are really equipped to assess the credit risk.</p><p>Investors also need to be clear what happens if the exception clauses on their plans are triggered. Take Blue Sky Asset Management's range of products, which are linked to a basket of five banking stocks - HBOS, Royal Bank of Scotland, Barclays, Lloyds TSB and HSBC. If any of these falls by more than 65 per cent, the conditions are breached - something which may have seemed unlikely when the plans were taken out, but which happened to HBOS last week.</p><p>Blue Sky's managing director James Chu is not particularly helpful on the subject. He cannot say how the performance of the products will be affected - in fact, it seems likely that returns will be based on the worst-performing of the five banks, and which that is will only be clear when the plans end in around five and a half years. Nor does he know what happens if one of the banks in the plan is taken over, as is happening to HBOS following the bid from Lloyds TSB - something that should surely have been covered in the key features document. That is currently being discussed with the backers of the plan. Nor will he tell me which banks are backing the plan, although he says they are AA- or A+ rated. He does reassure me that the income on the plans - a generous 10 per cent - is unaffected. But if I were an investor, I would be wondering where that income was coming from.</p><p>These issues add considerable weight to the recent warning from the Investment Management Association about the risks of these plans. While financial advisers who sell them will be regulated by the Financial Services Authority (FSA), the products themselves are not covered by its rules. That means there are no requirements on disclosing the identities of the banks backing them, let alone the implications of things like breach of conditions or takeovers. Yet, as IMA chief executive Richard Saunders points out, they can make claims about performance and protection that managers of traditional investment funds are prohibited from making under FSA guidelines.</p><p>These scandals risk tainting the entire industry, just as split capital investment trusts, which were only a small part of the investment trust community, affected confidence in all those products.</p><p>Tom White at BestInvest says that they can be useful for those who want to access assets, such as commodities, that are hard to get exposure to. But investors need to be aware that structured products can be at least as risky as shares - and the FSA needs to look at bringing them into its regulatory framework.</p><div style="float: left; margin-right: 10px; margin-bottom: 10px;"><ul><li><a href="http://www.guardian.co.uk/money/moneyinvestments">Investments</a></li><li><a href="http://www.guardian.co.uk/money/investmentfunds">Investment funds</a></li></ul></div><div class="guRssAdvert"><a href="http://ads.guardian.co.uk/click.ng/richmedia=yes&site=Money&country=gbr&spacedesc=rss&system=rss&transactionID=1227107060423111915041937545"><img src="http://ads.guardian.co.uk/image.ng/richmedia=yes&site=Money&country=gbr&spacedesc=rss&system=rss&transactionID=1227107060423111915041937545" border="0" /></a></div><a href="http://www.guardian.co.uk">guardian.co.uk</a> &copy; Guardian News & Media Limited 2008 | Use of this content is subject to our <a href="http://users.guardian.co.uk/help/article/0,,933909,00.html">Terms & Conditions</a> | <a href="http://www.guardian.co.uk/webfeeds/1,,1309488,00.html">More Feeds</a>
Your investments: Heather Connon on Invesco's Mr Woodford
<div><img alt="" src="http://hits.guardian.co.uk/b/ss/guardiangu-feeds/1/H.15.1/45711?ns=guardian&pageName=Money%3A+Is+it+a+bird%3F+Is+it+a+plane%3F+No%2C+it%27s+Invesco%27s+Mr+Woodford&ch=Money&c3=The+Observer&c4=Money%2CInvestments%2CInvestment+funds%2CShares%2CInvesco+%28Business%29%2CBusiness%2CObserver&c5=Personal+Finance%2CInvestments%2CNot+commercially+useful%2CBusiness+Markets&c6=Heather+Connon&c7=2008_09_21&c8=1088290&c9=article&c10=GU&c11=Money&c12=Investments&c13=&c14=&h2=GU%2FMoney%2FInvestments" width="1" height="1" /></div><p>It's worth asking again: how much money can Invesco's Neil Woodford manage? The question has become even more pertinent following last week's announcement that he is to take over the management of the &pound;1bn Edinburgh Investment Trust from Fidelity, bringing his total funds under management to &pound;19bn, including &pound;14.5bn split between Invesco's Perpetual Income and High Income twins - all managed in the same, value-oriented way.</p><p>EIT's decision looks sensible enough. While it was prompted by the decision of John Stavis, who ran the income part of the portfolio, to take a sabbatical, Fidelity had not been doing that brilliant a job since it took on the trust from Edinburgh Fund Managers. Shares have produced a return of 45.9 per cent over five years, 8.4 per cent over three and minus 20.7 per cent over the last year - and part of that was due to a narrowing of the discount between the shares and the underlying value of the assets; the performance of the fund itself was rather worse. That compares with 87 per cent over five years for Woodford's High Income fund, 21.8 per cent over three and minus 14.1 per cent over the last year.</p><p>To make it worse, EIT felt that Fidelity had no acceptable plans for replacing Stavis during his six months away, let alone for improving the trust's performance. Following the announcement in June that Fidelity and the trust were reviewing their options, a number of rival fund managers - including Invesco - approached the EIT board with proposals. Chairman Scott Dobbie and his board colleagues were sufficiently impressed by Woodford that they appointed him with immediate effect.</p><p>They are also paying him rather more. While the current management charge is 0.26 per cent of the trust's assets, Invesco will be paid 0.6 per cent. But this fee will be based on the trust's stock market value, rather than the value of its portfolio, giving an incentive to try to reduce the discount.</p><p>There is already some overlap between Woodford's old and new funds - companies like GlaxoSmithKline, BP, BAT, Shell and National Grid are among the top 10 holdings for both trusts - but the philosophy is quite different. While EIT has 20 per cent of its fund in financial companies and 7 per cent in commodities, Woodford has 24 per cent in utilities, just 7 per cent in financials and nothing in commodities. EIT is also restricted to UK shares while Woodford's other funds can have some overseas exposure. But EIT's holdings are mainly large and liquid, so, although the market gyrations when Invesco took over on Monday were not helpful, it still completed the restructuring of the portfolio by the end of the week.</p><p>So, once again we need to address the issue: how much money can Woodford safely handle? Already, he has more than six times as much as the next largest managers, such as Fidelity's Sanjeev Shah. When we considered the question earlier this year, we concluded that Woodford's buy-and-hold strategy - his stocks stay in his portfolio for an average of five years, more than five times the industry average - meant that he was still not bumping against the limits of his capacity. Graeme Proudfoot, head of specialist funds at Invesco Perpetual, said that his turnover represents just 0.1 per cent of the market total, a figure that had remained static since 1995. Nor is there any evidence so far that he has difficulty selling out of his big holdings when his opinion changes. Proudfoot points to Marks & Spencer: Invesco owned almost 5 per cent of it back when Stuart Rose took over as chief executive, but now has no stake.</p><p>The change of manager should, therefore, be good news for EIT shareholders, while fans of Woodford's style could find it a cheap way of getting access to him as shares in the trust are trading at around 5 per cent below their net asset value.</p><p><strong>Those 500,000-odd Alliance & Leicester</strong> customers who have doggedly held on to the 250 shares they got when the bank demutualised back in April 1997 may think there is little point doing anything with their holdings now that it is about to be absorbed by Spanish bank Santander. While the shares were worth &pound;1,332 when they were first floated, and reached a peak of more than &pound;3,000 back in 2006, last week they were worth less than &pound;700. Instead of selling out at that depressed valuation, why not simply accept Santander's offer of one of its shares for every three A&L ones and hope that they start to grow again?</p><p>Gavin Oldham of The Share Centre can think of plenty of reasons why not - and not just because his firm can earn commission by selling the shares now. He points out that A&L's own website warns of the costs and bureaucracy associated with becoming a Santander shareholder.</p><p>For a start, the dividend will come with deduction of an 18 per cent withholding tax, compared with just 10 per cent here. Reclaiming the excess means filling in a Spanish tax form and may mean completing a British one, although the tax authorities are considering waiving this. While Santander's shareholder services will do this for shareholders, the cost is likely to be prohibitive for small investors.</p><p>When the Spanish shares are eventually sold, investors have to complete a Spanish tax form within a month or face a &euro;100 (&pound;80) fine. Again Santander offers this as a service, but at a cost. </p><p>That makes selling now a better option. If you are keen to keep an exposure to banks, Oldham suggests buying HSBC or Barclays, which are among the most secure of a weak bunch. More cautious investors may prefer to opt for a high-interest account. A number of banks and building societies are offering 6.5 per cent plus - and a guarantee that you won't lose your capital.</p><h2>For small-timers like me, it's too late to sell</h2><p>A stockbroker friend told me he had recently sold all his shares and bought Brazilian government bonds. While this does not look so clever following the tumble in emerging-market bonds in the wake of last week's collapses and bailouts, it did make me wonder if I, too, should be ditching my - much more meagre - holdings.</p><p>'Portfolio' is too grand a word for my mish-mash of one-time good ideas and savings-scheme shares, but what there is of it is supposed to fund my children through higher education. When that seemed a long way off, and the direction of the markets was mainly up, I adopted Neil Woodford's strategy of buy-and-hold. Now that my daughter is in high school and the markets are in meltdown, is it time to re-examine that? </p><p>There are some good arguments for staying put. My friend was selling 12 months ago, when markets were a third higher. If I sell at this level, I could be kicking myself by Christmas if the markets rally. The earliest of my investments date back more than 15 years and, while they may be worth much less than they were a year ago, they are still showing a profit. </p><p>But is patience still a virtue? Hank Paulson, the US Treasury Secretary, says the current meltdown is a once-in-a-century event. The last time this happened - less than a century ago - markets just went on falling: an investment of &pound;100 at the end of 1928, just before the 1929 crash, was worth &pound;84 at the end of 1932. </p><p>The desperation of the banks to raise deposits means there are some good rates around, including plenty at 6.5 per cent. And while I would draw the line at Brazilian bonds, it is possible to buy sensibly run corporate bond funds with a yield of 6.5 per cent or more. How likely is it that my shares will rise by that much next year?</p><p>In fact, I have decided it's too late to sell, and am continuing to save into my share purchase scheme, reckoning that I may as well buy as much as I can at the bottom of the market. After all, I can always send the kids out to work to keep me.</p><div style="float: left; margin-right: 10px; margin-bottom: 10px;"><ul><li><a href="http://www.guardian.co.uk/money/moneyinvestments">Investments</a></li><li><a href="http://www.guardian.co.uk/money/investmentfunds">Investment funds</a></li><li><a href="http://www.guardian.co.uk/money/shares">Shares</a></li><li><a href="http://www.guardian.co.uk/business/invesco">Invesco</a></li></ul></div><div class="guRssAdvert"><a href="http://ads.guardian.co.uk/click.ng/richmedia=yes&site=Money&country=gbr&spacedesc=rss&system=rss&transactionID=1227107060429111915041937545"><img src="http://ads.guardian.co.uk/image.ng/richmedia=yes&site=Money&country=gbr&spacedesc=rss&system=rss&transactionID=1227107060429111915041937545" border="0" /></a></div><a href="http://www.guardian.co.uk">guardian.co.uk</a> &copy; Guardian News & Media Limited 2008 | Use of this content is subject to our <a href="http://users.guardian.co.uk/help/article/0,,933909,00.html">Terms & Conditions</a> | <a href="http://www.guardian.co.uk/webfeeds/1,,1309488,00.html">More Feeds</a>
Heather Connon: Get used to it - there's simply no such thing as absolute growth
<div><img alt="" src="http://hits.guardian.co.uk/b/ss/guardiangu-feeds/1/H.15.1/47409?ns=guardian&pageName=Money%3A+Get+used+to+it+-+there%27s+simply+no+such+thing+as+absolute+growth&ch=Money&c3=The+Observer&c4=Investments%2CMoney%2CObserver%2CShares%2CInvestment+funds&c5=Personal+Finance%2CInvestments%2CNot+commercially+useful&c6=Heather+Connon&c7=2008_09_15&c8=1084375&c9=article&c10=GU&c11=Money&c12=Investments&c13=&c14=&h2=GU%2FMoney%2FInvestments" width="1" height="1" /></div><p>You could call it the curse of the league tables. Mark Lyttleton's Blackrock Absolute Alpha fund was the best-selling retail fund in last year's Isa season, given that it appeared to be able to defy the plunging market. From its launch in April 2005 until the end of March this year, it rose by almost 40 per cent, comfortably outstripping the 14 per cent rise in the FTSE 100 index over the same period. Even more impressive was Lyttleton's ability to shrug off market falls: between March 2007 and March 2008, the stock market fell by around 10 per cent, but the fund was up almost 12 per cent. That has helped it to rake in &pound;1.5bn in short order.</p><p>During the summer, however, Lyttleton has had what he describes as the 'worst three months' of his career, coming hard on the heels of his best-ever 12 months. According to Morningstar statistics, the fund has fallen by 2.61 per cent over that period. That may not sound bad compared with the 7 per cent or so fall in the stock market over the same period. Other funds have lost much more: Neil Woodford's Invesco Perpetual Income, one of the most reliable performers, is down more than 4 per cent over the same period. And investors who have held the fund for six months or more should still be happy. But while Blackrock Absolute Alpha would never have promised investors that it would always be in positive territory, its very name suggests to investors that that is what they should expect. And Lyttleton admits they will be disappointed.</p><p>The problem lies mainly with his conviction that global companies would do better than domestically focused ones. While that was the right bet for much of the last two years, the hints that interest rates and inflation may be nearing their peak - combined with the US bail-out of Freddie Mac and Fannie Mae - have sent domestic consumer-related stocks rising again, while commodity and oil stocks, which are among Lyttleton's favourites, have been tumbling. Market volatility has also been high: Lyttleton says that many shares have fallen by 15 or even 30 per cent in just a few days and that while he may have been shorting some of these - and benefiting from the falls - he was also long, and therefore took the hit. </p><p>So should investors be worried? Not at all, say advisers. First, no one should buy an investment fund, no matter whether it is absolute return or not, on a three-month time horizon. Market conditions have been among the worst ever this year, so the fact that the fund has fallen so little should be seen as a positive. Indeed, if it makes investors and advisers realise that even absolute return funds can lose money on occasion, Lyttleton's recent stumbles will be no bad thing.</p><p>Tim Cockerill, head of research at Rowan, says he is not at all worried about the losses. 'Absolute Alpha is always going to underperform if the market takes off. We have seen that happening. Indeed, if it had been performing in line, we should be asking questions. There is no magic formula.' </p><p>Mark Dampier of financial advisers Hargreaves Lansdown thinks investors should have a range of absolute return funds in their portfolios, as they do for other funds. The problem is, there is not that much choice. Dampier points to Cazenove's UK Absolute fund, run by Tim Russell, who takes the opposite view on oil and mining stocks to Lyttleton. But it only launched in July, so has no established track record.</p><p>Standard Life was last week promoting its Global Absolute Returns Strategies fund, which has been available to institutional investors since 2006 - and has grown from &pound;20m to &pound;720m in that period. Now being opened to the retail market, it differs from the other two in using asset allocation strategies - like the dollar against the euro, or the FTSE 100 compared with the FTSE 250 - rather than shorting individual stocks or markets. But the aim, like the others, is to produce a positive return, over the medium to long term, in all market conditions.</p><p>Cockerill prefers funds to have a bit of a track record before he will consider them, so is keen to see how Standard's fund will fare in different market conditions. Those considering buying them should be aware that, as Lyttleton's experience shows, they cannot always buck the markets. Losses are inevitable at some point - and they will never shoot the lights out as a conventional equity fund can. But they certainly have a place in a diversified portfolio.</p><p>Plunging stock markets have also sent investors running to the kind of structured products which guarantee that you will not lose money, but promise to let you share in the profits should they start to rise again. These are particularly popular with banks, which regularly promote new issues to their customers.</p><p>Dick Saunders, chief executive of the Investment Management Association, thinks they should not be taken in. He points out that these products are very opaque: the costs are never made clear to those who buy them and, because there is no requirement to publish performance figures, it is not clear what kind of returns investors are actually getting. </p><p>One of the few to produce statistics is National Savings & Investments and an analysis of its returns by the association shows that, after taking account of charges, their returns are much more similar to those expected from a cash deposit account than from a stock market product. </p><p>'While the products offer a guarantee against the index falling over a five-year period, that is a relatively unusual event,' said Saunders. 'The index has, of course, seen significant falls since 2000, though it is currently over 30 per cent higher than its level of five years ago. But before 2002, the last time it was down over five years was in 1978. Investors may not realise just how much return they are giving up in order to be protected against what is a rare event.' </p><p>Of course Saunders's organisation exists to promote investment funds and even the most cautiously managed of these can end up losing money when stock markets, or the managers' skills, are poor. But he is surely right to complain about the lack of regulations and guidelines for their sale when so many other parts of the investment market are enmeshed in red tape. The simple fact is that, if you are scared enough of the stock market to be tempted by these products, your money is best left in a building society.</p><div style="float: left; margin-right: 10px; margin-bottom: 10px;"><ul><li><a href="http://www.guardian.co.uk/money/moneyinvestments">Investments</a></li><li><a href="http://www.guardian.co.uk/money/shares">Shares</a></li><li><a href="http://www.guardian.co.uk/money/investmentfunds">Investment funds</a></li></ul></div><div class="guRssAdvert"><a href="http://ads.guardian.co.uk/click.ng/richmedia=yes&site=Money&country=gbr&spacedesc=rss&system=rss&transactionID=1227107060436111915041937545"><img src="http://ads.guardian.co.uk/image.ng/richmedia=yes&site=Money&country=gbr&spacedesc=rss&system=rss&transactionID=1227107060436111915041937545" border="0" /></a></div><a href="http://www.guardian.co.uk">guardian.co.uk</a> &copy; Guardian News & Media Limited 2008 | Use of this content is subject to our <a href="http://users.guardian.co.uk/help/article/0,,933909,00.html">Terms & Conditions</a> | <a href="http://www.guardian.co.uk/webfeeds/1,,1309488,00.html">More Feeds</a>
Bonds can pay off, but not if there's a top-10 bank crash
<div><img alt="" src="http://hits.guardian.co.uk/b/ss/guardiangu-feeds/1/H.15.1/37826?ns=guardian&pageName=Money%3A+Bonds+can+pay+off%2C+but+not+if+there%27s+a+top-10+bank+crash&ch=Money&c3=The+Observer&c4=Bonds%2CInvestments%2CMoney%2CBanking+sector+%28Business%29%2CBusiness%2CInvesting+%28Business%29&c5=Personal+Finance%2CInvestments%2CBusiness+Markets&c6=Heather+Connon&c7=2008_09_01&c8=1076816&c9=article&c10=GU&c11=Money&c12=Bonds&c13=&c14=&h2=GU%2FMoney%2FBonds" width="1" height="1" /></div><p>Equity investors are not alone in closely monitoring the performance of banks: the fate of bond fund managers is also closely linked to how these financial institutions will fare over the next six months or so. </p><p>Opinions between fund managers vary sharply. Indeed, the level of exposure to banks has been a key determinant of bond-fund performance: those who decided that the US Federal Reserve's rescue of Bear Sterns in March marked the nadir for bank bonds and duly piled in have done badly. After a brief fillip, prices continued to fall, while funds such as M&G's European Corporate Bond fund, which have resisted the temptation to buy bonds, have had a good year. </p><p>Opinions on banks still vary wildly. Managers such as James Foster at Artemis and Nick Hayes at New Star think bank bonds are 'cheap and attractive'. Cheap they certainly are: the yield on the bonds issued by some of our biggest banks is as high as 12 per cent, a level usually associated with basket-case companies poised to default. Yet, as Hayes points out, shareholders in Bear Sterns and Northern Rock may have lost their shirts when they were rescued by the US and UK governments, but bond holders have continued to receive their payments and, barring a global meltdown, should have their capital repaid when it falls due. </p><p>However, a couple of weeks ago, Kenneth Rogoff, a former chief economist at the International Monetary Fund, warned that the bad news was far from over. He predicted that a banking 'whopper' - a large investment or commercial bank - would go under within a few months. And the risk is growing that US home-loan giants Fannie Mae and Freddie Mac will effectively be nationalised. </p><p>Jim Leaviss, head of retail and institutional fixed interest at M&G, says that if a top-10 bank fails, the poor state of many governments' finances means they may not be able to keep on organising rescues: 'They can do it once or twice, but they can't keep on doing it.' </p><p>He also believes that the banks' own performances could deteriorate further, even though many are already suffering losses: 'The banks have got into this state before we are even in a recession. By the year-end, all industrial economies could be in or nearing recession, so banks' customers will start defaulting.' </p><p>Leaviss also questions the conventional wisdom that bank bonds are immune from default, pointing out that there are at least three layers of bonds, and that while the first two may be secure, the third layer often have clauses allowing a suspension of interest payments if, for example, the bank stops paying a dividend. </p><p>Over at Artemis, Foster thinks the price falls that have already affected bank bonds could spread to other industries. He points out that there have been few new issues so far, but that fund-raisings are likely to rise as banks cut back on the facilities they offer to corporate clients. 'When they do come, companies will be shocked at the price we [bond investors] will charge,' he adds. These high rates will feed through to existing bonds, causing their prices to fall, which Foster says has already happened in the US after new issues such as that by insurer AIG. </p><p>Foster is wary about predicting how long the uncertainty will last - 'I expect at least six months more' - and thinks that funds that can only buy corporate bonds will be in an uncomfortable place. His own strategic bond fund can buy a mix of assets - it has 10 per cent in government bonds and a further 50 per cent in investment-grade or highest-quality bonds, most of which are banks. </p><p>Leaviss also prefers government bonds, which have recovered sharply as investors have begun to bet that the inflationary spike could be ending as oil prices start to fall. John Pattullo, bond fund manager at Henderson, agrees: 'The market thinks inflation will peak next month or the month after. That means interest rates could start to fall, and that is good for bonds.' </p><p>Bond funds are offering decent yields at the moment - M&G's European Corporate Bond fund is offering a conservative 4.15 per cent, but Artemis's Strategic Bond offers almost 7 per cent, while New Star's High Yield Bond is over 8 per cent. Tim Cockerill, head of research at Rowan, likes the New Star corporate bond fund as well as Invesco Perpetual's corporate bond fund and says that, on a 12-month view, these may be producing good returns. But if Leaviss and Foster are right, the capital value of these funds could fall further and, with many building society accounts offering more than 6 per cent, it may be too early to invest. </p><p>Bond fund managers may think inflation has peaked, but that does not mean it has gone away. After years in which prices of everything from milk to microwaves have fallen, it may be time to come to terms with paying more for basic commodities. Companies, too, are facing higher costs, which could mean lower profits and therefore lower returns for investors. </p><p>Aruna Karunathilake, manager of Fidelity's UK Aggressive fund, has identified companies that could benefit from rising prices, and others that are insulated from their effects. His largest holding is in Royal Dutch Shell - an obvious beneficiary of high oil prices - but he also looks for companies that will benefit indirectly, such as German fertiliser producer K&S. </p><p>Some companies are effectively immune from price pressure, such as National Grid, whose regulatory regime means that its own revenues are linked to inflation, while others, such as Tesco, are able to pass on price rises to customers.</p><div style="float: left; margin-right: 10px; margin-bottom: 10px;"><ul><li><a href="http://www.guardian.co.uk/money/bonds">Bonds</a></li><li><a href="http://www.guardian.co.uk/money/moneyinvestments">Investments</a></li><li><a href="http://www.guardian.co.uk/business/banking">UK banking sector</a></li><li><a href="http://www.guardian.co.uk/business/investing">Investing</a></li></ul></div><div class="guRssAdvert"><a href="http://ads.guardian.co.uk/click.ng/richmedia=yes&site=Money&country=gbr&spacedesc=rss&system=rss&transactionID=1227107060443111915041937545"><img src="http://ads.guardian.co.uk/image.ng/richmedia=yes&site=Money&country=gbr&spacedesc=rss&system=rss&transactionID=1227107060443111915041937545" border="0" /></a></div><a href="http://www.guardian.co.uk">guardian.co.uk</a> &copy; Guardian News & Media Limited 2008 | Use of this content is subject to our <a href="http://users.guardian.co.uk/help/article/0,,933909,00.html">Terms & Conditions</a> | <a href="http://www.guardian.co.uk/webfeeds/1,,1309488,00.html">More Feeds</a>
Heather Conno, Your investments: Where can investors hide from the bear?
<div><img alt="" src="http://hits.guardian.co.uk/b/ss/guardiangu-feeds/1/H.15.1/37626?ns=guardian&pageName=Money%3A+Heather+Conno%2C+Your+investments%3A+Where+can+investors+hide+from+the+bear%3F&ch=Money&c3=The+Observer&c4=Investments%2CShares%2CMoney%2CInvestment+funds&c5=Personal+Finance%2CInvestments&c6=Heather+Connon&c7=2008_07_20&c8=1008831&c9=article&c10=GU&c11=Money&c12=Investments&c13=&c14=&h2=GU%2FMoney%2FInvestments" width="1" height="1" /></div><p>We are in a bear market: it's - almost - official. The Tuesday before last, the FTSE 100 dipped below 5,150, a 20 per cent fall from last October's 6,724 peak. </p><p>If you hold anything other than mining and oil companies, however, you will have been suffering a bear market, if not an out-and-out rout, for months. Household names such as Bradford & Bingley, Barratt Developments, Taylor Wimpey and Land of Leather have lost more than 90 per cent of their value and even FTSE 100 stalwarts such as HBOS and Marks & Spencer stand at little over a third of their year's peak. </p><p>In contrast, companies such as Rio Tinto and Tullow Oil have doubled during the year. It is too painful to speculate on what will happen to stock market indices if there is any sign of cracks in the commodity bull run which has been keeping such companies buoyant.</p><p>News on the domestic economy is unremittingly gloomy. Last week, Persimmon, Redrow and Bovis became the latest building companies to slash jobs and, for the latter two, dividends, as house sales plummeted. M&S has confirmed that the high street is also suffering, while this month's British Chamber of Commerce survey suggests that a recession is looming. </p><p>Where can investors hide? Ted Scott, manager of F&C's UK Growth and Income funds, warns against hunting for bargains among bombed-out stocks: 'Some will argue that the valuation of UK stocks is attractive at 12 times earnings, but I'm cautious. Unlike the period prior to the bear market of 2000-03, we have not been in a valuation bubble but may have reached a peak in cyclical earnings - an earnings bubble. Earnings expectations are being downgraded for domestic cyclical stocks and any fall-back in commodities could see substantial downgrades.'</p><p>Many traditional havens look a bit less secure this time. Pharmaceuticals companies have a dearth of drugs in the pipeline, while regulatory costs and legal battles over patents are growing; food companies are suffering from commodity cost increases; electricity and water companies have enjoyed a bull run for years, fuelled by takeover speculation and rising fuel prices. Scott is still keen on utilities, but is also buying in telecoms and tobacco, where earnings are relatively unaffected by economic swings.</p><p>The troubles are particularly acute for fund managers and retail investors looking for income. Banks, as well as builders and retailers, are likely to have been an important part of any income portfolio, but many in this sector have already cut their dividends or warned that they will soon. None the less, private-client investment manager Brewin Dolphin says: 'If you are very selective, it is still possible to generate safe income growth by sticking to more defensive areas like utilities and tobacco, where yields are lower than banks and retailers but dividend growth forecasts are higher.' </p><p>It has put together an Income Model Portfolio, drawn from companies in the FTSE 350 index, with a yield of 4.8 per cent, including companies like GlaxoSmithKline, Vodafone, Imperial Tobacco and National Grid, all of which should be relatively resilient to an economic downturn, and which could even benefit if investors' love affair with commodities turns sour.</p><p>But Elaine Coverley, a divisional director at Brewin Dolphin, says it is also possible to get a generous and relatively secure income by buying selective banks and retailers. She points out that Lloyds TSB and Barclays both offer a yield of more than 11 per cent, yet are expected to hold their dividends - though some analysts have raised questions about Barclays - while M&S and Kesa, also expected to hold their payments, are not far behind.</p><p>Of course, there could be more bad news from both these industries, so the share prices could fall further, but the good dividends will compensate those prepared to wait for recovery. </p><p><strong>Be relatively careful about absolute return funds </strong></p><p>Few retail investors are braving the stock market at the moment; instead, they are sheltering in cash or seeking the apparent haven of absolute return funds, which claim to make money for investors regardless of market conditions. But research by Standard & Poor's Fund Services suggests that investors may not always find what they are looking for.</p><p>Kate Hollis, lead analyst at the firm, says that just because a fund is aiming to achieve a return of, say, 4 per cent above Libor (the rate at which banks lend to each other) it does not mean it will achieve it. 'Equity funds aim to outperform their index; some do and some don't.' </p><p>She adds: 'Investors must take great care that they understand exactly what each fund does and whether the manager has sufficient skill and experience to apply the process effectively.'</p><p>S&P found that just three of the 10 sterling-denominated absolute return funds beat Libor last year, although all managed positive returns. In Europe, where these funds have a longer pedigree, just over half made a positive return, while only a third did better than the European equivalent of Libor.</p><p>The spectacular success of equity funds like Blackrock's Absolute Alpha fund and Cazenove UK Absolute Target fund, which use shorting techniques to generate returns in poor markets, is encouraging other fund managers to consider launches in this area. </p><p>Hollis says investors assessing such funds should be sure that they are comfortable with the markets the fund will be investing in, the process it will use to generate returns and the skills of the fund manager and team.</p><div style="float: left; margin-right: 10px; margin-bottom: 10px;"><ul><li><a href="http://www.guardian.co.uk/money/moneyinvestments">Investments</a></li><li><a href="http://www.guardian.co.uk/money/shares">Shares</a></li><li><a href="http://www.guardian.co.uk/money/investmentfunds">Investment funds</a></li></ul></div><div class="guRssAdvert"><a href="http://ads.guardian.co.uk/click.ng/richmedia=yes&site=Money&country=gbr&spacedesc=rss&system=rss&transactionID=1227107060449111915041937545"><img src="http://ads.guardian.co.uk/image.ng/richmedia=yes&site=Money&country=gbr&spacedesc=rss&system=rss&transactionID=1227107060449111915041937545" border="0" /></a></div><a href="http://www.guardian.co.uk">guardian.co.uk</a> &copy; Guardian News & Media Limited 2008 | Use of this content is subject to our <a href="http://users.guardian.co.uk/help/article/0,,933909,00.html">Terms & Conditions</a> | <a href="http://www.guardian.co.uk/webfeeds/1,,1309488,00.html">More Feeds</a>
As America's economy comes up for air, Europe prepares to plumb the depths
<div><img alt="" src="http://hits.guardian.co.uk/b/ss/guardiangu-feeds/1/H.15.1/83113?ns=guardian&pageName=Money%3A+As+America%27s+economy+comes+up+for+air%2C+Europe+prepares+to+plumb+the+depths&ch=Money&c3=The+Observer&c4=Investments%2CMoney%2CShares%2CHBOS+%28Business%29%2CCredit+crunch+%28Business%29%2CBusiness&c5=Personal+Finance%2CInvestments%2CCredit+Crunch%2CBusiness+Markets&c6=Heather+Connon&c7=2008_07_06&c8=996253&c9=article&c10=GU&c11=Money&c12=Investments&c13=&c14=&h2=GU%2FMoney%2FInvestments" width="1" height="1" /></div><p>Last week, we wrote that investors were becoming more interested in the US despite the worsening economy, threat of rising interest rates and a weakening dollar. Europe is almost the mirror image; its major economies, Germany in particular, are relatively robust; its currency has risen sharply against both the dollar and the pound and is expected to continue to do so; its consumers have, for the most part, avoided the debt finance binge America and Britain have indulged in; and, outside Spain and Ireland, the housing market is not on the brink of collapse.</p><p>Yet, while investors think America could be getting over the worst of its downturn, they fear Europe is only just beginning. Feras al-Chalabi, manager of the CF Odey Continental Europe fund, thinks that the 8 per cent or so growth forecasts by analysts for this year will prove too optimistic and warns that earnings could be flat at best and maybe down as much as 6 per cent, with more of the same in 2009.</p><p>'It's hard to find a time in history when there has not been two poor years after a peak,' he says. 'Revenue growth is hard to come by and Europe only recovered in early 2005, while the UK and US have enjoyed five years of rampant growth.' </p><p>While earnings growth in 2006 was driven by cost-cutting and restructuring, costs are now moving against companies. The rise in commodity prices is hitting European companies, too, though the impact has been reduced by the strengthening of the euro against the dollar, the currency in which most commodities are still priced.</p><p>German steel workers have won 6 per cent rises, government workers 8.5 per cent and rail unions are holding out for 11 per cent. Those kind of increases are adding further fuel to the inflation figures, putting pressure on interest rates. And, while US companies are enjoying rising exports, courtesy of their weak dollar, European businesses are suffering from the euro's strength.</p><p>Al-Chalabi also thinks Europe is only just starting to suffer the worst effects of the credit crunch. He estimates that around 60 per cent of European company debt comes from banks - in contrast to Britain, where corporate bonds are increasingly popular - and are seeing their rates and loan terms being dramatically tightened by cash-strapped banks. Defaults, he says, generally follow six months later.</p><p>But he still thinks there are interesting investment opportunities in Europe. He looks for industries facing opportunities not yet reflected in share prices. At the moment, that includes things such as electricity, where years of underinvestment means prices are rising sharply, agriculture, also driven by rising prices, and food. 'Any industry still managing to increase prices in this difficult environment is what we are looking for.' </p><p>Tim Stevenson, of Henderson's Eurotrust, thinks that European companies have a 'different timescale and ethos' to British ones. They think long-term, rather than short. 'The result is that the UK is left with weak infrastructure and companies with thin balance sheets. But the European companies have sound balance sheets and are prepared for stormy weather.</p><p>Among his preferred companies are industrial groups such as Atlas, Copco and ABB, but he has become even more cautious about consumer businesses, selling Nokia, for example, as it seems incapable of coming up with a decent consumer alternative to the Blackberry.</p><p>It is quite likely that shares everywhere will fall further before they start to recover. But long-term investors should have some European exposure and Stephenson or al-Chalabi's funds have excellent long-term records and are a good place to start.</p><h2>Buy HBOS, but forget about the rights issue </h2><p>HBOS investors who hold shares in its nominee accounts have to decide by Friday whether to take up their entitlement to buy shares in its &pound;4bn rights issue; other investors have a week longer.</p><p>When the issue was announced, we said that HBOS's shares looked a good, long-term bet, albeit that its profits would undoubtedly be hit by the slowing housing market and the credit crunch. A price of 275p, a discount of more than 50 per cent on the price the shares were then trading, looked reasonably attractive. Since then, however, the shares have fallen sharply and, for much of the past week, were trading at below the rights issue price. </p><p>Mortgage lending and housing transaction data suggest the market has hit a brick wall, so HBOS's forecasts for a 9 per cent fall in house prices and a halving of activity may be too optimistic. The problems of house builders such as Taylor Wimpey, which has failed to raise &pound;500m from its investors, and Barratt do not augur well for the value of HBOS's large holdings in the sector.</p><p>Anyone with both the money and desire to take up the HBOS rights is likely to find it cheaper to buy shares in the market, either now or after the rights issue closes in two weeks' time.</p><div style="float: left; margin-right: 10px; margin-bottom: 10px;"><ul><li><a href="http://www.guardian.co.uk/money/moneyinvestments">Investments</a></li><li><a href="http://www.guardian.co.uk/money/shares">Shares</a></li><li><a href="http://www.guardian.co.uk/business/hbos">HBOS</a></li><li><a href="http://www.guardian.co.uk/business/creditcrunch">Credit crunch</a></li></ul></div><div class="guRssAdvert"><a href="http://ads.guardian.co.uk/click.ng/richmedia=yes&site=Money&country=gbr&spacedesc=rss&system=rss&transactionID=1227107060455111915041937545"><img src="http://ads.guardian.co.uk/image.ng/richmedia=yes&site=Money&country=gbr&spacedesc=rss&system=rss&transactionID=1227107060455111915041937545" border="0" /></a></div><a href="http://www.guardian.co.uk">guardian.co.uk</a> &copy; Guardian News & Media Limited 2008 | Use of this content is subject to our <a href="http://users.guardian.co.uk/help/article/0,,933909,00.html">Terms & Conditions</a> | <a href="http://www.guardian.co.uk/webfeeds/1,,1309488,00.html">More Feeds</a>
Your investments: Take a leap of faith: invest in the US rollercoaster
<div><img alt="" src="http://hits.guardian.co.uk/b/ss/guardiangu-feeds/1/H.15.1/34072?ns=guardian&pageName=Money%3A+Your++investments%3A+Take+a+leap+of+faith%3A+invest+in+the+US+rollercoaster&ch=Money&c3=The+Observer&c4=Money%2CInvestments%2CUS+economy+%28Business%29%2CBusiness%2CUS+news&c5=Personal+Finance%2CInvestments%2CNot+commercially+useful%2CBusiness+Markets%2CUS+Economy&c6=Heather+Connon&c7=2008_06_30&c8=992970&c9=article&c10=GU&c11=Money&c12=Investments&c13=&c14=&h2=GU%2FMoney%2FInvestments" width="1" height="1" /></div><p>Consumer confidence is at a 16-year low, house price falls are accelerating, losses in the banking sector are still rising and inflation is becoming a real headache: on the face of it, there are even fewer reasons to invest in the US than there are in our own equity markets. Yet a small but rising number of analysts and fund managers think that now could actually be a good time to start putting money into the American market.</p><p>Stock markets are constantly looking forward; just as investors will sell when there is the merest whiff of bad news, so they will start to anticipate recovery long before it is evident from the statistics. While the news from the US is unremittingly bad, the country is actually far further through the process of recession and recovery than we are. Its housing market started sliding two years ago while our own has only just gone into reverse, bringing down consumer spending and confidence with it. </p><p>Ben Bernanke, chairman of the Federal Reserve, reacted predictably with sharp interest rate cuts; while fears about inflation mean we are stalled at 5 per cent, US rates have been cut to just 2 per cent. And, while the next move is likely to be up, it will be from that low base. The government has also been doing its bit to get consumers spending again with a $100bn (&pound;50bn) package of tax rebates to make them feel a bit wealthier. And the US dollar is not only tempting Europeans across on shopping trips and holidays, but it is making exports by American companies much cheaper for foreign buyers. </p><p>Equity strategists at HSBC think company profits in the US may already have hit the bottom. They say: 'We think that it is quite possible that... S&P earnings will double' in the final quarter of this year, compared with the same period last year. Excluding the banks and other financials, they say earnings downgrades seem to have all but stopped, 'and the tech sector is actually seeing a veritable surge in upgrades this month'.</p><p>Felix Wintle, who runs Neptune's US Opportunities fund, says: 'This is a good time to have exposure to the US.' He thinks the stock market looks cheap - the S&P stands on around 15 times earnings, below the average for the US market - while foreign investors have the added advantage that the weak dollar makes investing there cheaper still. </p><p>The trick, US experts agree, is to be selective. Wintle says that some sectors have been 'unduly punished' - banking is one - but there are plenty of others with attractive opportunities.</p><p>His biggest bet is on metals and mining and agricultural companies, which are benefiting from rising commodity prices and booming demand from China and other emerging markets. His biggest holding is Nucor Steel and he has around a quarter of the fund in commodity-related areas. As with the UK, the good performance of companies in these areas is masked in the index by the continued slide in financial companies. </p><p>Technology shares are among the favourites for Tom Walker, manager of the highly-rated Martin Currie North American Alpha fund. He points out that companies such as IBM and Hewlett Packard are global businesses - IBM generates around two-thirds of its sales overseas - and are enjoying strong growth, yet are valued on less than 14 times earnings. </p><p>Both Wintle and Walker agree that the banking sector still looks unattractive. 'The problems in the banking sector still have some way to run,' says Walker.</p><p>International investors have been shunning the US: Wintle points out that the typical allocation of UK investors to the country is just 0.5 per cent, yet it remains the world's largest investment market. That may reflect the fact that it is one of the hardest markets to do well in: the majority of funds, whether managed from the US or the UK, struggle to beat the index. Explanations vary. Some say it is because the US is the best-researched market, reducing the chances of finding undiscovered gems, while others say fund mangers tend to be too wary of straying far from index weightings.</p><p>That means investors need to be careful about which fund managers they pick; Wintle and Walker are among the few to have consistently beaten the index. Others include Scottish Widows and Schroders, which also have highly-regarded US funds.</p><p>The relatively poor performance of American funds means that some advisers believe the best way to get US exposure is to invest through exchange traded funds ( ETFs), which simply track the performance of the market. Unsurprisingly, active fund managers disagree: Walker points out that these would have exposed investors to the collapse in financial companies and to the biggest businesses. His fund owns just five of the 20 biggest US stocks.</p><p>But there are ETFs available that track individual industries or sizes of companies. Specialist Spa-ETF offers products for technology, materials, energy and industrial sectors as well as for large, medium and small companies. Ashok Shah, chief investment officer of London and Capital, which owns Spa-ETF and specialises in managing funds for wealthy individuals, thinks that large companies, excluding financial ones, look attractive, driven by their export earnings: 'The dollar is very competitive so US goods are competitive and exports should increase rapidly. The balance sheets of very large companies are strong too.'</p><p>Investing in the US may seem like a giant leap of faith - indeed, there is still a risk that all equity markets will fall further, particularly if commodity prices continue rising. But with the UK housing market decline accelerating, European economies likely to slow markedly and China and India showing signs of strain, it is one of the more attractive places at the moment. This is not a time to put all your savings in equities, but a small holding of funds from the good US managers - Wintle, Walker, Schroders or Scottish Widows - could be a good long-term bet.</p><div style="float: left; margin-right: 10px; margin-bottom: 10px;"><ul><li><a href="http://www.guardian.co.uk/money/moneyinvestments">Investments</a></li><li><a href="http://www.guardian.co.uk/business/useconomy">US economy</a></li><li><a href="http://www.guardian.co.uk/world/usa">United States</a></li></ul></div><div class="guRssAdvert"><a href="http://ads.guardian.co.uk/click.ng/richmedia=yes&site=Money&country=gbr&spacedesc=rss&system=rss&transactionID=1227107060481111915041937545"><img src="http://ads.guardian.co.uk/image.ng/richmedia=yes&site=Money&country=gbr&spacedesc=rss&system=rss&transactionID=1227107060481111915041937545" border="0" /></a></div><a href="http://www.guardian.co.uk">guardian.co.uk</a> &copy; Guardian News & Media Limited 2008 | Use of this content is subject to our <a href="http://users.guardian.co.uk/help/article/0,,933909,00.html">Terms & Conditions</a> | <a href="http://www.guardian.co.uk/webfeeds/1,,1309488,00.html">More Feeds</a>
Your investments: Winners and losers in race to beat the gloom
<div><img alt="" src="http://hits.guardian.co.uk/b/ss/guardiangu-feeds/1/H.15.1/92386?ns=guardian&pageName=Money%3A+Your+investments%3A+Winners+and+losers+in+race+to+beat+the+gloom&ch=Money&c3=The+Observer&c4=Investments%2CInvestment+funds%2CMoney&c5=Personal+Finance%2CInvestments&c6=Heather+Connon&c7=2008_06_22&c8=989558&c9=article&c10=GU&c11=Money&c12=Investments&c13=&c14=&h2=GU%2FMoney%2FInvestments" width="1" height="1" /></div><p>It has, in sporting terms, been a difficult race to predict. While the stock market as a whole fell around 14 per cent over the last year, that masks a big divergence between sectors: if you backed miners and oil service companies you could be sitting on gains of 32 per cent and 50 per cent respectively; but if you predicted a rally in banks, building companies or general retailers, you would have lost around 40 per cent of your money. </p><p>There is little sign of that changing: most statistics about mortgage lending, house prices and retail sales over the past months has been gloomy, sending shares of companies exposed to these sectors falling again. Commodities prices, from oil to wheat, by contrast, continue to rise sharply. Not surprisingly, it has been a year of divergent performances from fund managers too. Those who made the wrong bets have suffered while those who took a 'stronger for longer' view of commodities have avoided the worst of the market's decline.</p><p>Perhaps the biggest disappointment has come from retail investors' most popular funds: UK equity income. Banks, construction companies and retailers have been among the most generous dividend payers in recent years so have formed a large proportion of the average equity income portfolio. The drop in share prices in these sectors has sent the value of funds plunging - the average UK equity income unit trust lost more than 16 per cent over the last year, according to statistics prepared for The Observer by Chelsea Financial Services, making it the third worst retail sector; even worse, dividends look to be under threat at a number of companies, which means income funds may struggle to maintain their yields at current levels. </p><p>Some banks - including HBOS and Royal Bank of Scotland - say they will pay their interim dividends in shares rather than cash, which some funds will struggle to distribute. HBOS will pay out a lower proportion of its earnings in dividends while some retailers have cut their payouts and builders are expected to follow suit. Some of the biggest names in equity income have suffered most: New Star, Liontrust and Axa Framlington are among the bottom 10 funds in the sector, with losses of more than 20 per cent, while Neptune, Threadneedle and Invesco Perpetual's Strategic Income fund are among the leaders, albeit that they are still down by around 5 per cent.</p><p>Darius McDermott, managing director of Chelsea Financial Services, says the current conditions favour Neptune's strategy of thinking first about sectors and secondly about individual stocks. Its chief executive, Robin Geffen, avoids banks, warning that they may need to raise yet more money as the impact of the financial squeeze worsens.</p><p>The other large UK sector, UK All Companies, has not fared much better than income with losses from the average fund of 13 per cent. But those who have managed to buck the trend have produced positive returns: Manek Growth, which had been a disappointment almost since its launch in 1997, has risen by 12.4 per cent while Liontrust, Newton and Blackrock's UK Dynamic fund have also returned more than 4 per cent. </p><p>Liontrust's First Growth fund manager, Jeremy Lang, buys shares where earnings are beating expectations and sells those that disappoint. When trends are as marked as this, that can be very successful - the positive surprises have come from the oil and mining companies. </p><p>Should investors still be following that momentum or should they be starting to hunt for bargains among the banks? Liontrust's Lang offers both ends of the spectrum: four of the five biggest holdings in his income fund are banks and he also has some builders, reflecting its deep value approach. He believes that will pay off in two to three years' time - little comfort to existing holders who have lost 21 per cent of their stake.</p><p>Robert Burdett, who runs some of Thames River's multi-manager range, is taking a small bet that these sectors will recover via a small holding in the Psigma fund run by his former Credit Suisse colleague Bill Mott. Rival multi-manager T Bailey has switched the majority of funds in its Best Ideas portfolio. </p><p>While equity UK funds generally had a poor year, emerging markets and commodities have rewarded investors handsomely. The emerging markets sector tops the table with an average rise of 9.3 per cent while, among individual funds, seven of the top 15 are commodities funds - and most of the rest are from emerging markets, whose performances are also largely driven by commodity prices. But the rampant price inflation benefiting commodities is now taking its toll even on emerging markets, where inflation levels are worrying investors.</p><p>One of Burdett's favourite funds is the opposite of an emerging market: Martin Currie North American Alpha. Although the US is likely to suffer a longer and deeper slowdown than the UK, the fund has risen more than 7 per cent this year, showing that good mangers can make money regardless of market conditions.</p><p>Market conditions are likely to remain poor - indeed, economists at Royal Bank of Scotland predict the worst stock market slump for a century. Mark Dampier from Hargreaves Lansdown is not quite that pessimistic, but he thinks shares could fall as much as 10 per cent more.</p><div style="float: left; margin-right: 10px; margin-bottom: 10px;"><ul><li><a href="http://www.guardian.co.uk/money/moneyinvestments">Investments</a></li><li><a href="http://www.guardian.co.uk/money/investmentfunds">Investment funds</a></li></ul></div><div class="guRssAdvert"><a href="http://ads.guardian.co.uk/click.ng/richmedia=yes&site=Money&country=gbr&spacedesc=rss&system=rss&transactionID=1227107060486111915041937545"><img src="http://ads.guardian.co.uk/image.ng/richmedia=yes&site=Money&country=gbr&spacedesc=rss&system=rss&transactionID=1227107060486111915041937545" border="0" /></a></div><a href="http://www.guardian.co.uk">guardian.co.uk</a> &copy; Guardian News & Media Limited 2008 | Use of this content is subject to our <a href="http://users.guardian.co.uk/help/article/0,,933909,00.html">Terms & Conditions</a> | <a href="http://www.guardian.co.uk/webfeeds/1,,1309488,00.html">More Feeds</a>
Heather Connon: Now who can match Burke's peerage?
<div><img alt="" src="http://hits.guardian.co.uk/b/ss/guardiangu-feeds/1/H.15.1/67507?ns=guardian&pageName=Money%3A+Heather+Connon%3A+Now+who+can+match+Burke%27s+peerage%3F&ch=Money&c3=The+Observer&c4=Investment+funds%2CInvestments%2CInvesco+%28Business%29%2CMoney%2CShares&c5=Personal+Finance%2CInvestments%2CBusiness+Markets&c6=Heather+Connon&c7=2008_06_16&c8=985672&c9=article&c10=GU&c11=Money&c12=Investment+funds&c13=&c14=&h2=GU%2FMoney%2FInvestment+funds" width="1" height="1" /></div><p>Ed Burke, manager of Invesco Perpetual's UK Aggressive fund, is two years older than his colleague, Neil Woodford, yet was touted as a potential successor to Invesco's fund management superstar, whose stewardship of &pound;20bn worth of funds is so crucial to their firm's success.</p><p>However, last week's announcement that Burke is taking early retirement at 50 puts paid to that suggestion. While hardly as serious as Woodford's departure would be to the firm - he insists that is not imminent - Burke's departure is still a blow; Mark Dampier of financial adviser Hargreaves Lansdown describes his early exit as a 'big loss'.</p><p>His long-term performance is impressive: the high-profile, &pound;291m UK Aggressive fund ranks 36th out of 355 UK All-Companies funds over the past five years, with a return of 94.8 per cent, while the &pound;1bn UK Growth fund is in 128th place with a return of 70.8 per cent. </p><p>More recently, however, Burke's performance has faltered, largely because of his affection for banks. While Woodford is still negative on banks, Burke thought they were attractive. UK Aggressive had almost a third of its portfolio in financials, while the Growth fund has around a quarter. </p><p>He also backed some of the wrong banks, including Northern Rock (though he sold well before the price collapsed) and retained confidence in Bradford & Bingley long after others had sold out. Largely because of that exposure, over both one and three years, both funds lag well behind their sector averages.</p><p>But all that, says Dampier, is only to be expected from an aggressive fund manager such as Burke; they take big bets and 'will get some things wrong'. The hope is that they will get enough right to produce good returns. The key question is whether Burke's successors will manage that tricky balancing act. </p><p>The two funds are getting different managers: UK Growth is to be run by Martin Walker, who currently manages the much smaller UK Opportunities fund (which will be merged into UK Growth) and the Invesco Children's fund. Both of Walker's funds have beaten Burke's UK Growth over one, three and five years and, while his recent performance has not been impressive, it has not suffered as badly as Burke's.</p><p>Stephen Anness, who is taking over the Aggressive fund, is harder to assess. He joined the firm six years ago as an analyst and has only been managing money since October 2004. His only retail fund is the pan-European equity fund that he runs with Katharina Hoyland, launched in October 2006. That has done all right, but two years is not long enough to judge a fund manager's skills.</p><p>It may be some comfort to investors that Woodford describes Anness as 'more than ready to take on this responsibility'. Darius McDermott of financial advisers Chelsea Financial Services, who met Anness in January, said he got a 'good impression' of his skills. </p><p>Anness's own comments on his approach are as vague as any fund manager's. 'The best way to manage risk on an absolute level is to complete thorough, fundamental analysis of the companies and sectors in which you're investing. And that feeds through to stock selection and the types of companies you want in your portfolio and how you construct that portfolio,' he says. 'There have been a number of stocks in a number of sectors that have de-rated, where they should prove to be essentially resilient.' </p><p>Walker is a little more specific: 'I'm looking at telecom and pharmaceutical stocks, even the oil and gas sector, where if you're an investor who is prepared to take a long-term view, there are great opportunities. It doesn't matter to me whether I'm getting return from capital gain or from dividend and, quite frankly, there are stocks out there with dividend yields that are so attractive the dividend yield alone is worth having.'</p><p>The key test will be how both managers perform over the next three years, not the next three or six months. McDermott and Dampier have put their ratings of the funds on hold while they assess the skills of the new managers. Both also highlight Richard Buxton's Schroder UK Alpha fund and M&G Recovery, run by Tom Dobell, as alternatives for those who don't want to take the risk that the new managers will underperform.</p><p>Tim Cockerill, of financial adviser Rowan & Co, warns that concentrated funds such as UK Aggressive can be too specialist for most tastes. He points to Rowan's own analysis, which puts the UK Aggressive fund in 198th place - down from second three years ago. </p><p>Those betting on who is being groomed to succeed Woodford will have Walker and Anness to their lists, but, following Burke's departure, there is another name ahead of them - Mark Barnett, manager of the Perpetual Income and Growth Investment Trust.</p><p>He shares much of Woodford's philosophy - financials are less than 8 per cent of his portfolio, while tobacco and utilities are key stalwarts. Not only has his one-year performance been better than Burke's, in net asset value terms, but he has also beaten him over the past five years.</p><div style="float: left; margin-right: 10px; margin-bottom: 10px;">