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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

Your investments: a change of stewardship
<div class="track"><img alt="" src="http://hits.guardian.co.uk/b/ss/guardiangu-feeds/1/H.15.1/27262?ns=guardian&pageName=A+change+of+stewardship%3AArticle%3A1216853&ch=Money&c4=Ethical+money%2CInvestments%2CMoney%2CBusiness%2CInvestment+funds&c6=Heather+Connon&c8=1216853&c9=Article&c10=Comment&c11=Money&c13=Your+investments&c25=&c30=content&h2=GU%2FMoney%2FEthical+money" width="1" height="1" /></div><p>Next month Britain's oldest ethical fund, F&C's Stewardship Growth, celebrates its first quarter century. It will be doing so without Ted Scott, who has been sole manager since 2000 and involved its running more or less since it launched. </p><p>He has just returned from a period of sick leave and has decided to concentrate on macro-economic analysis and market strategy rather than day-to-day fund management. He is also giving up his roles as manager of Stewardship Income and the conventional UK Growth & Income.</p><p>His successor at the Stewardship funds is Catherine Stanley, who has run the firm's UK Smaller Companies fund since November 2004. The choice of a small company expert makes sense: Stewardship's ethical criteria rule out around two-thirds of the FTSE 100. Adrian Lowcock, senior investment adviser at BestInvest, says Stanley's record is "reasonable but not outstanding" - her fund is in the top third. But it will take time for Stanley to show whether she can combine performance and screening as successfully as Scott. </p><p>Scott's successor at UK Growth and Income is Hilary Aldridge, who has been co-managing the fund since 2005.</p><p>The Stewardship fund has suffered in recent years because industries like tobacco and mining, which are banned from the fund, have been performing strongly while small companies have been out of favour. These are the among the largest and most reliable of the ethical funds and Darius McDermott, managing director of Chelsea Financial Advisers says investors should not panic, but instead keep a watchful eye on Stanley's performance.</p><div class="related" style="float: left; margin-right: 10px; margin-bottom: 10px;"><ul><li><a href="http://www.guardian.co.uk/money/ethical-money">Ethical money</a></li><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&spacedesc=rss&system=rss&transactionID=12466847688423881662385779269270"><img src="http://ads.guardian.co.uk/image.ng/richmedia=yes&site=Money&spacedesc=rss&system=rss&transactionID=12466847688423881662385779269270" border="0" /></a></div><div class="terms"><a href="http://www.guardian.co.uk">guardian.co.uk</a> &copy; Guardian News & Media Limited 2009 | 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/help/feeds">More Feeds</a></div><p style="clear:both" />
Your investments: Now the small-cap fits ... so wear it
<div class="track"><img alt="" src="http://hits.guardian.co.uk/b/ss/guardiangu-feeds/1/H.15.1/39574?ns=guardian&pageName=%5BNo+Headline+-+page+id%3A+3745508+article+id%3A+16153563%5D%3AArticle%3A1213062&ch=Money&c4=Investments%2CInvestment+funds%2CMoney&c6=Heather+Connon&c8=1213062&c9=Article&c10=&c11=Money&c13=Your+investments&c25=&c30=content&h2=GU%2FMoney%2FInvestments" width="1" height="1" /></div><p>Forget the FTSE 100 rally: small companies have been the place to be this year. </p><p>While the Footsie has risen by almost a quarter since it bottomed at the start of March, the small-cap index is up 42%. That puts small companies in positive territory over the year so far, with a rise of around 15%, while the Footsie is still 5% below where it started the year. </p><p>It is a welcome rally. Last year, the small-cap index lagged behind a dismal Footsie by around 10% and, while the latter has fallen 36% from its peak, the small-cap index is down 45%. </p><p>Harry Nimmo, manager of Standard Life's UK Smaller Company's fund, jokes that small companies tend to rally in years that end with a three or a nine - 2003, 1999 and 1993 were also good for the tiddlers. But there is a more scientific reason: four months ago, investors were convinced the world was about to end and were eschewing anything even remotely risky in favour of gilts and cash. Small companies, which can be particularly vulnerable to economic downturns or a lending freeze by banks, were in the front line.<br /> <br />And some of the worst-performing sectors during the slump, such as housebuilders and retailers, are also disproportionately represented among the small-cap indices. </p><p>Now, however, investors are willing to believe that recovery is just around the corner and are enthusiastically buying into recovery stocks, including those that were fighting for survival just weeks ago. </p><p>Richard Plackett, head of small- and medium-sized companies at Blackrock, points out that some of the companies driving the small-cap rally were in, or close to, the FTSE 100 this time last year, companies like Taylor Wimpey - up from 4p to 50p - Yell - which has quadrupled in value - and Punch Taverns, up more than five-fold. </p><p>Despite the dramatic rise, small-cap fund managers think there is much more to come. Plackett points out that the recent rise has reversed only part of last year's dismal performance and adds that small- and mid-cap companies tend to do very well as economies move out of recession - 2003, when the market was recovering strongly from the technology crash, was a bumper year. "If the world economy is going to recover, there is good reason to expect small-caps to lead the way," he says. </p><p>He thinks that valuations still look reasonable with price-earnings multiples and the gap between the yield on small companies and bonds - two traditional measures - around their historic lows. He also expects takeover activity to resume as buyers, too, get more confident about the outlook for the economy. </p><p>His special situations fund, which must have at least 50% in small- and mid-cap companies, now has 65% in this area and that is likely to increase further as markets improve. </p><p>Nimmo, too, expects small companies to continue to do well as economic recovery strengthens. His funds have been among the best performers during the slump - his Smaller Companies fund is third over three years and second over five - but he warns that he tends to do less well than rivals during a recovery phase as his strategy is to seek out companies with good long-term growth prospects rather than chasing recovery stocks. That means he has companies like Asos, the online retailer, and home furnishings group Dunelm in his portfolio rather than Debenhams and Sportsworld. </p><p>"Valuations are still below their long-term average," he says. "Another encouraging sign is that directors dealings [in their company shares] is high and they are still buying. That is normally a prelude to a strong performance in the market." </p><p>Those who agree that small companies are ripe for recovery - and, over the long-term they do tend to beat the big boys, albeit with occasional long periods of underperformance - should consider Nimmo's fund, Blackrock UK Smaller Companies or Old Mutual UK Select Smaller Companies, all of which have a good record. <br /></p><div class="related" 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&spacedesc=rss&system=rss&transactionID=12466847688458265759282128704288"><img src="http://ads.guardian.co.uk/image.ng/richmedia=yes&site=Money&spacedesc=rss&system=rss&transactionID=12466847688458265759282128704288" border="0" /></a></div><div class="terms"><a href="http://www.guardian.co.uk">guardian.co.uk</a> &copy; Guardian News & Media Limited 2009 | 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/help/feeds">More Feeds</a></div><p style="clear:both" />
Heather Connon: Weighing up Isa tactics is a taxing task for all
<div class="track"><img alt="" src="http://hits.guardian.co.uk/b/ss/guardiangu-feeds/1/H.15.1/73933?ns=guardian&pageName=Weighing+up+Isa+tactics+is+a+taxing+task+for+all%3AArticle%3A1209630&ch=Money&c4=Isas%2CInvestments%2CMoney%2CSavings+%28Money%29&c6=Heather+Connon&c8=1209630&c9=Article&c10=Comment&c11=Money&c13=Your+investments&c25=&c30=content&h2=GU%2FMoney%2FIsas" width="1" height="1" /></div><p>If you're over 50 there's no need to wait until October to take advantage of the rise in the Isa allowance to &pound;10,200 unveiled in last month's budget. </p><p>Ben Lundie, head of the Vantage funds supermarket run by Hargreaves Lansdown, says regular savers can increase monthly contributions to &pound;850 immediately as they will have put in less than the &pound;7,200 cap by October. Malcolm Cuthbert of Killik & Co points out investors are eligible for the new limit on their 50th birthday.</p><p>Restricting the increased allowance to the over 50s in the first instance channels the tax break at those best able to use it: younger people are more likely to be spending money on their children. But is this a good time for anyone - over 50 or not - to be taking the plunge into a stocks and shares Isa or should you stick with cash, where the limit was raised from &pound;3,600 to &pound;5,100?</p><p>The paltry returns on cash Isas - the best pay 3.5% - seem to be persuading a growing number of investors to opt for equities: Cuthbert says Killik has been doing brisk business - it is paying exit fees for investors switching to its own Isa wrapper. Barclays Stockbrokers reports a 37% rise in Isa openings for the new tax year, while the amount invested in its Isa accounts is up 150%. </p><p>The pick-up may also be driven by an increase in the top tax rate to 50%, and the cost of bailing out the banks and stimulating the economy means that rise is unlikely to be the last. </p><p>As Mark Dampier at Hargreaves Lansdown points out, the next move could be an increase in capital gains tax (CGT) from 18%, which would further enhance the attractions of Isas. You may think CGT does not apply to you, but given you can make just &pound;10,100 of tax-free gains in a year, the cumulative effect of investment without the protection of an Isa could mean CGT becoming an issue.</p><p>Of course, the 3.5% interest on a cash Isa can be guaranteed while the value of an equity Isa can fall. And, while equities have recently staged a bit of a recovery, market watchers are forecasting more turbulence before shares get back on an even keel. But this is undoubtedly a better time to invest in equities than two years ago, when the FTSE 100 topped 6,700. </p><p>The right home for your extra allowance will depend on your future: if you are planning to retire at 55, you will be looking for a safer investment than someone resigned to working until 70. </p><p>The favourite pick among advisers for those seeking a relatively safe source of income is corporate bond funds. They can pay a good rate of income - and under current Isa rules this is tax free, unlike equity funds. But they are not as secure as some advisers make out: the companies which issue the bonds - a form of debt - can stop paying interest or fail to repay the bonds when they fall due. Last week General Motors was talking about paying 10p for every 100p of bonds issued as part of its restructuring while our own banks have been buying back bonds at well below face value.</p><p>The income on government bond, or gilt, funds is more secure as defaults are rare. But the price of bonds, and thus the value of the fund, can rise and fall - they have been doing the former for most of the past two years. As fears about the government's ability to fund its rescue package grow, gilt prices have started to fall and that could accelerate.</p><p>Bearing that in mind, Jason Walker, senior adviser at investment adviser AWD Chase de Vere, recommends M&G Optimal Income, which has few restrictions on the category of bonds it can invest in; Old Mutual Corporate Bond fund, which has good recovery potential after a poor year ; and Schroder Strategic Bond fund, which is similar to M&G's but with the added spice of exposure to US mortgage debt.</p><div class="related" style="float: left; margin-right: 10px; margin-bottom: 10px;"><ul><li><a href="http://www.guardian.co.uk/money/isas">Isas</a></li><li><a href="http://www.guardian.co.uk/money/moneyinvestments">Investments</a></li><li><a href="http://www.guardian.co.uk/money/savings">Savings</a></li></ul></div><div class="guRssAdvert"><a href="http://ads.guardian.co.uk/click.ng/richmedia=yes&site=Money&spacedesc=rss&system=rss&transactionID=12466847688483168704498418474408"><img src="http://ads.guardian.co.uk/image.ng/richmedia=yes&site=Money&spacedesc=rss&system=rss&transactionID=12466847688483168704498418474408" border="0" /></a></div><div class="terms"><a href="http://www.guardian.co.uk">guardian.co.uk</a> &copy; Guardian News & Media Limited 2009 | 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/help/feeds">More Feeds</a></div><p style="clear:both" />
Your investments: is playing safe fraught with danger?
<div class="track"><img alt="" src="http://hits.guardian.co.uk/b/ss/guardiangu-feeds/1/H.15.1/37567?ns=guardian&pageName=%3Cb%3EIs+playing+safe+fraught+with+danger%3F%3C%2Fb%3E%3AArticle%3A1205828&ch=Money&c4=Investments%2CShares%2CMoney%2CObserver&c6=Heather+Connon&c8=1205828&c9=Article&c10=Feature&c11=Money&c13=Your+investments&c25=&c30=content&h2=GU%2FMoney%2FInvestments" width="1" height="1" /></div><p>If you are saving regularly into an investment fund, stop right now. That is the view of Philippa Gee, newly appointed head of marketing and communications at fund of funds manager T Bailey. She thinks you should, instead, be investing all you can afford in the market straight away.</p><p>That runs counter to conventional wisdom, which advocates drip-feeding money into the stockmarket over a long period to iron out the peaks and troughs. Research by companies such as Fidelity consistently suggests that is a more sensible way to save than trying to guess when the market is at a peak or has hit rock bottom - something even professional investors are bad at doing.</p><p>While Gee is not presuming to call the bottom of the market, she does believe that there will be substantial gains over the next 12 to 18 months - albeit with the risk of a lot of turbulence on the way. Anyone who waits until next year, or holds back some of their investment for regular savings, risks losing out on that recovery.</p><p>There has already been a decent rally, with the FTSE 100 rising 14% since the low point at the start of March, while the mid- and small-cap indices, which fell much more sharply, have risen 20% or more. But few are brave enough to bet that this marks the end of the bear market - and the jitters at the start of last week, after poor news from companies such as Bank of America and IBM, show just how fragile investor sentiment is.</p><p>Mark Lyttleton, manager of BlackRock's UK Absolute Alpha fund, thinks the market is "still quite attractively valued. There are signs that some of the money being put to work [economic stimulus packages and bank rescues] is having an impact. A lot of shares were priced for a very gloomy outlook, and some have now bounced back from their dramatically oversold positions to a more reasonable valuation, on a 12- or 18-month view. If the world continues to haul itself out of the mess we are in, shares will increase further".</p><p>He points out many small companies have doubled, tripled or even quadrupled in price in recent weeks, on a switch in sentiment rather than due to concrete good news - although many have still to get back to previous peaks.</p><p>Rupert Robinson, chief executive of Schroders private bank, is slightly more positive. "The current rally has further to run. But we are likely to see a correction of some sort during the summer which will set a new (higher) floor for the market to move up firmly, as governmental measures stimulate growth around the world, probably by mid-2010. </p><p>"It's at this point that equities will start to face some headwinds. Interest rates will begin to rise again, and governments will pull back on the liquidity they have made available through their emergency measures. Taxes will have to rise at some point to plug deficits. </p><p>"The two great tonics of equity markets in recent years, globalisation and deregulation, have been discredited. We will have greater regulation, greater government intervention, some deglobalisation and even some trade friction. This all means that companies will see slower profit growth or even profit contraction."</p><p>It is unlikely we have seen the worst for the economy, either: so far, consumers seem to have been happy to spend what they are saving on mortgage payments but, as Adrian Lowcock at BestInvest points out, unemployment is forecast to rise by as much as 50% from here and could touch 3.5 million before it declines again. That could temper enthusiasm for spending. He says that any good news on profits has, generally, come from cost-cutting rather than any increase in demand. "The FTSE 100 at 4,000 feels expensive," he said.</p><p>Neil Dwane, chief investment officer for Europe at RCM, the specialist global equity company within Allianz Global Investors, agrees that it is too early to call the turn. "We really do not believe that we are at the beginning of the next bull market. At the moment we are still seeing massive sector rotation. There is a bit of risk appetite back in the market, but if we get another nasty economic shock, then people are likely to turn tail very quickly again. We need to be prepared for the fact that markets may not go anywhere after this rally for the next few months."</p><p>The increased appetite for risk among investors is clear from the rally in the kind of companies which depend on consumers, such as retailers and housebuilders. The former have outperformed the market for almost a year, while the latter have rallied strongly on the back of measures to stimulate the housing market announced in the budget.</p><p>Lyttleton cautions the enthusiasm for retailers looks overdone. He says that, while spending has held up, retailers have yet to feel the impact of higher costs on their margins - which could start to appear later in the year.</p><p>Unlike Gee, Lowcock advocates continuing to drip money gradually into the market, rather than plunging in, hoping that this marks the bottom. </p><p>Certainly, even if shares do rise further from here, it is unlikely they will quickly rise to previous highs. A cautious approach looks sensible, at least for the next few months.</p><h2>What's emerging? Growth and sustainable business</h2><p>If China, India and the other emerging markets embrace the consumerism of the western world, we would need at least three planets to provide the raw materials, according to David Gait, a fund manager at emerging markets specialist First State. Which is why he prefers to concentrate on finding companies that would prosper from encouraging a more sustainable approach.</p><p>It is adding an emerging markets sustainable fund to its Asia-Pacific sustainable fund, which has been one of the best-performing ethical funds since its launch three years ago. Gait, who will co-manage the fund with Angus Tulloch, says companies are already feeling the impact of population growth in these areas through land and energy shortages. And with emerging markets accounting for virtually all the projected 2 billion increase in world population over the next 40 years, that can only intensify. </p><p>So, investing in companies that can provide greater energy efficiency or better use of water resources should be good practice. First State also devotes considerable effort encouraging the companies to improve environmental performance, which has reaped dividends in the past.</p><p>Emerging markets have rallied even more than those in developed countries in recent weeks and Gait says there are fewer obvious bargains than there were - but there are still pockets of value, for example, in Russian consumer companies. For long-term investors, this fund combines two key themes - emerging markets growth and sustainable business. First State is also one of the best emerging markets managers, so this fund is worth considering.</p><div class="related" 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></ul></div><div class="guRssAdvert"><a href="http://ads.guardian.co.uk/click.ng/richmedia=yes&site=Money&spacedesc=rss&system=rss&transactionID=12466847688517376432516824650691"><img src="http://ads.guardian.co.uk/image.ng/richmedia=yes&site=Money&spacedesc=rss&system=rss&transactionID=12466847688517376432516824650691" border="0" /></a></div><div class="terms"><a href="http://www.guardian.co.uk">guardian.co.uk</a> &copy; Guardian News & Media Limited 2009 | 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/help/feeds">More Feeds</a></div><p style="clear:both" />
Heather Connon: Forget the name - these funds are not for the faint hearted
<div class="track"><img alt="" src="http://hits.guardian.co.uk/b/ss/guardiangu-feeds/1/H.15.1/39938?ns=guardian&pageName=%3Cb%3EForget+the+name+-+these+funds+are+not+for+the+faint+hearted+%3C%2Fb%3E%3AArticle%3A1195174&ch=Money&c4=Investment+funds%2CInvestments%2CMoney%2CObserver&c6=Heather+Connon&c8=1195174&c9=Article&c10=Comment&c11=Money&c13=Your+investments&c25=&c30=content&h2=GU%2FMoney%2FInvestment+funds" width="1" height="1" /></div><p>What would you expect if you bought a fund labelled "cautious managed"? If you thought it meant your capital would be relatively secure, you might be surprised to learn that a third of the funds in that sector have lost money for their investors over five years - the worst 25%. Also that just three out of the 79 funds with a three-year track record have made money over that period and the same number - from a higher total of 129 - have achieved that over one year.</p><p>To be fair, the average fund has done substantially better than the FTSE 100 index: the average cautious managed fund gained 5% over five years, and has lost just more than 16% over both one and three years, compared with declines of 33%, 21% and 14% over one, three and five years for the FTSE 100. And the last year has been one of the most exceptional for investors, with virtually every asset, barring gilts and gold, plunging in value. But it still hardly complies with most people's idea of cautious.</p><p>According to Tim Cockerill, head of research at Rowan, the problem stems from the desire to climb up the performance tables to attract extra money from investors. "The only way to do that is to operate with greater risk."</p><p>Any fund manager who did that when markets were booming a few years ago by buying into higher risk bonds, property or equities will be suffering now. Indeed, the worst funds - as usual, New Star is bringing up the rear - have lost substantially more than the FTSE.</p><p>David Jane, who runs M & G's Cautious Multi-Asset fund, is disappointed with his own 4% decline over the past year. He admits there is still too much uncertainty over which classes of assets will perform best, so his strategy is to diversify as much as possible so that, if one area disappoints, a good performance elsewhere will compensate.</p><p>He is confident about a few things: government gilts now look expensive, index-linked gilts are underpriced; the dollar is overvalued and corporate bonds are discounting too much.</p><p>He also believes that corporate profits have further to fall and that Brazil and Asia - particularly China - are where investors want to be in the long term. </p><p>He has positioned his portfolio accordingly. Just over 40% is in equities, including convertible shares, medium-sized companies and some bombed-out retailers and engineers which will benefit if the economy recovers rapidly. That is balanced with 5% in gold and 10% in agricultural commodities. He also has a decent exposure to corporate bonds and index-linked gilts. He has reduced his currency exposure - for a time 80% of the fund's assets were overseas, reflecting his expectation that sterling would fall, but that now stands at around 45%. </p><p>The search for relatively safe returns has become the holy grail for fund managers as is clear from the rash of absolute return funds and structured products flooding the market. Cockerill thinks cautious managed funds are better for risk-averse investors than absolute return funds as he fears that the latter - and Blackrock's Absolute Alpha in particular - are attracting too much "hot" money that will disappear as soon as markets recover and risk appetite returns.</p><p>Structured products - Blue Sky Asset Management has just launched another, offering a 6% yield for five years with capital protected unless the stock market halves from here - are another avenue but are not risk-free: those wanting to cash in during the term may lose a lot of money and, because they rely on a bank to provide the instruments behind the guarantee, they all also carry credit risk. </p><p>Those considering a cautious managed fund should be cautious about who has their money. Cockerill likes Investec Managed Distribution, which is up 13% over five years. Jane's fund has only been going for a year but his performance has been impressive enough to make his fund worthy of consideration.</p><p>Jane is not the only one to be enthusiastic about Asia: specialist fund managers in the region are also lining up to laud opportunities in the region. Mark Mobius, Templeton's emerging markets guru, said he was finding "terrific opportunities" - prices had fallen substantially, far more than earnings. In emerging markets, the picture is very different from Europe and the US.</p><p>Andy Beal, manager of Henderson's TR Pacific Investment Trust, agrees. "Asia is better equipped to deal with the downturn than most other regions and fiscal and monetary stimulus will mitigate the impact of the export slowdown."</p><p>Beal warns, however, that this will be the worst year for Asian economies since the crisis of 1997 as US and UK consumers slash spending on consumer goods. </p><p>Last week's G20 summit was encouraging for its evidence that the Chinese authorities are thinking about their role in the global economy and are willing to press the country's own case rather than just fall into line with western leaders.</p><p>Marcel Porcheron, research analyst at Bestinvest, agrees that valuations of emerging economies are looking attractive. He is still quite cautious on the region in the short term, but thinks it is a good long-term play. He recommends funds run by the Asian specialists at Aberdeen and First State, which generally take a conservative approach.</p><div class="related" style="float: left; margin-right: 10px; margin-bottom: 10px;"><ul><li><a href="http://www.guardian.co.uk/money/investmentfunds">Investment 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&spacedesc=rss&system=rss&transactionID=12466847688625723082025532653586"><img src="http://ads.guardian.co.uk/image.ng/richmedia=yes&site=Money&spacedesc=rss&system=rss&transactionID=12466847688625723082025532653586" border="0" /></a></div><div class="terms"><a href="http://www.guardian.co.uk">guardian.co.uk</a> &copy; Guardian News & Media Limited 2009 | 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/help/feeds">More Feeds</a></div><p style="clear:both" />
Heather Connon: Equities worth a look as bonds market is shaken, but not stirred
<div class="track"><img alt="" src="http://hits.guardian.co.uk/b/ss/guardiangu-feeds/1/H.15.1/5475?ns=guardian&pageName=Equities+worth+a+look+as+bonds+market+is+shaken%2C+but+not+stirred%3AArticle%3A1191232&ch=Money&c4=Isas%2CBonds%2CShares%2CMoney%2CObserver&c6=Heather+Connon&c8=1191232&c9=Article&c10=Feature&c11=Money&c13=Your+investments&c25=&c30=content&h2=GU%2FMoney%2FIsas" width="1" height="1" /></div><p>Stockmarket watchers will know that Isa returns and retail sales peaked at the same time as shares hit an all-time high. The stockmarket peaked at 6,930 in December 1999, fuelled by the technology boom, while sales collapsed just as it hit the low of 3,287 in 2003. Anyone who bought at the top of the market will still be nursing painful losses. However, those brave enough to invest when the market was plumbing the depths will have been rewarded: the average fund has grown by 26.36% in the last six years.</p><p>That should give heart to those still debating whether or not to use this year's &pound;7,200 allowance for a stocks and shares Isa before the 5 April deadline. While there is no guarantee that the market has hit bottom, investment gurus such as Invesco Perpetual's Neil Woodford and Anthony Bolton, the former Fidelity fund manager, think it could have found its low point - although Woodford in particular cautions that the market could remain volatile for some time yet. </p><p>That could mean a rocky ride but, for those who take a long-term view- and, of course, who select their fund with care - this should be a much better time to invest than when everyone was piling into the latest over-hyped technology share. And with rates on cash Isas so low - the best are offering just 3.5% and that figure could fall further - equities look even more attractive.</p><p>Fidelity, which runs its own funds supermarket, says low interest rates are boosting demand for stocks and shares Isas, with corporate bond and equity income funds doing particularly well. Indeed, some commentators are warning of a bubble inflating in corporate bond funds, so great has been the stampede among investors looking for income that carries less risk than equities.</p><p>However, bond funds don't necessarily supply that. While governments rarely default, gilts prices have been rising sharply amid the economic crisis and could fall just as dramatically as the economy recovers, or if investors start to doubt the government's ability to deal with the crisis. That could mean capital losses in gilt funds.</p><p>The same holds true for corporate bonds. Investment-grade bonds from the most credit-worthy issuers have also risen sharply. Lower-grade bonds - particularly those issued by banks - are very cheap, but that is because of the growing risk that companies which have issued them could go bankrupt or default. While bond fund managers say risk is overstated, it does make careful fund selection vital. M&G has proved adept at avoiding the worst pitfalls of the credit crunch and its Gilt and Fixed Interest fund has great flexibility.</p><p>Equity income funds have been battered by the collapse of the banks - which had been big dividend payers - and by dividend cuts elsewhere. But a well-run fund should avoid the pitfalls: Woodford's High Income and Income funds have proved themselves in all markets, while Tony Nutt's Jupiter Income is on an upward trend. </p><p>Those who are worried about volatility could consider an absolute return fund, such as Blackrock UK Absolute Alpha or Newton Absolute Intrepid. Those who already have a good UK portfolio could consider an international fund, such as Murray International Investment Trust. For higher risk but with potentially higher reward, Geoff Tresman, the chairman of Punter Southall Investment Management, tips First State's Asia Pacific Leaders fund.</p><div class="related" style="float: left; margin-right: 10px; margin-bottom: 10px;"><ul><li><a href="http://www.guardian.co.uk/money/isas">Isas</a></li><li><a href="http://www.guardian.co.uk/money/bonds">Bonds</a></li><li><a href="http://www.guardian.co.uk/money/shares">Shares</a></li></ul></div><div class="guRssAdvert"><a href="http://ads.guardian.co.uk/click.ng/richmedia=yes&site=Money&spacedesc=rss&system=rss&transactionID=12466847688663135778581042311689"><img src="http://ads.guardian.co.uk/image.ng/richmedia=yes&site=Money&spacedesc=rss&system=rss&transactionID=12466847688663135778581042311689" border="0" /></a></div><div class="terms"><a href="http://www.guardian.co.uk">guardian.co.uk</a> &copy; Guardian News & Media Limited 2009 | 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/help/feeds">More Feeds</a></div><p style="clear:both" />
Shifting stellar alignments as Henderson takes New Star
<div class="track"><img alt="" src="http://hits.guardian.co.uk/b/ss/guardiangu-feeds/1/H.15.1/54340?ns=guardian&pageName=Shifting+stellar+alignments+as+Henderson+takes+New+Star%3AArticle%3A1187560&ch=Money&c4=Investment+funds%2CMoney%2CNew+Star+Asset+Management+Group+%28Business%29%2CHenderson+Group+%28Business%29%2CBusiness%2CObserver&c6=Heather+Connon&c8=1187560&c9=Article&c10=&c11=Money&c13=Your+investments&c25=&c30=content&h2=GU%2FMoney%2FInvestment+funds" width="1" height="1" /></div><p>Your Investments</p><p>Richard Pease, manager of New Star's European Growth fund, takes his dog to Hyde Park each morning before walking it to the firm's Knightsbridge office. It could make Caesar, the dog, a key factor in his decision whether to join Henderson when that firm's acquisition of New Star completes next month.</p><p>This kind of dispensation was commonplace at New Star when chairman and founder John Duffield nurtured his constellation of talents, and even those without such unusual working arrangements have been thinking hard about whether to opt for Henderson's rather more conventional working practices. Henderson wants to retain some of the brightest stars - after all, its acquisition aims to garner presence among retail investors. And Mark Skinner's appointment last week as head of retail business is a sign of that determination: he was in charge of New Star marketing when it became one of fund management's best-known names.</p><p>Some key names who have opted to transfer have already agreed terms with Henderson: most notably the fund-of-funds team led by Craig Heron and Mark Harris, and Guy de Blonay, who runs its Financials fund. But Tim Steer, the highly regarded manager of its UK Alpha fund, has opted to join Artemis instead. New Star investors will be praying for an end to uncertainty; their funds have been languishing for more than a year as Duffield's laissez-faire strategy of allowing all the managers to do their own thing produced some dismal performances, aided, no doubt, by their demotivation at watching the company's share price - which was what accounted for the bulk of their earnings - plunge.</p><p>Henderson is aware of the need to offer these investors some reassurance, particularly given its own rather mixed record of running retail funds. It admits that it will have to improve its UK performance quickly and it is likely to want to keep Trevor Green, the UK fund manager recruited last year from Allianz to help it do that. But advisers think it may also have to look outside for a fund manager to replace Steer. </p><p><strong>Fickle bunch</strong></p><p>So what should investors do? Tim Cockerill, head of research at financial adviser Rowan, says the trouble with selling now is that many of New Star's funds are at a very low ebb, so investors would simply be locking in unpalatable losses. The passing of a few months, with some stability and a bit more poise in the stock markets, could bring about a dramatic improvement. </p><p>Attracting these key fund managers is only a small part of getting them to improve their performance: fund managers are a fragile, fickle bunch even when they haven't just seen the bulk of their wealth evaporate in their company collapse. Welding together two fund management firms without affecting performance and losing fund managers is tough; better firms than Henderson have failed miserably. </p><p>The Absolute Alpha fund, hitherto run by Steer, has already been put on the watch-list by a number of advisers. In the absence of more information about who's going to run it in future, a fund such as Newton UK Opportunities or M&G Recovery could represent a better alternative. Fund-of-funds holders should stay put - its managers are well-regarded and, unless performance falters, there's no reason to sell out now. International property fund investors have no choice but to do the same, as dealing has been restricted thanks to depressed property values, and there's similarly little point in selling its UK property fund. Likewise, it is worth sticking with Pease's European fund and James Gledhill's bond funds until their decisions are known. Investors should watch New Star and Henderson funds for a year for signs the takeover is undermining performance.</p><div class="related" style="float: left; margin-right: 10px; margin-bottom: 10px;"><ul><li><a href="http://www.guardian.co.uk/money/investmentfunds">Investment funds</a></li><li><a href="http://www.guardian.co.uk/business/newstarassetmanagementgroup">New Star Asset Management</a></li><li><a href="http://www.guardian.co.uk/business/hendersongroup">Henderson</a></li></ul></div><div class="guRssAdvert"><a href="http://ads.guardian.co.uk/click.ng/richmedia=yes&site=Money&spacedesc=rss&system=rss&transactionID=12466847688757488801741473142838"><img src="http://ads.guardian.co.uk/image.ng/richmedia=yes&site=Money&spacedesc=rss&system=rss&transactionID=12466847688757488801741473142838" border="0" /></a></div><div class="terms"><a href="http://www.guardian.co.uk">guardian.co.uk</a> &copy; Guardian News & Media Limited 2009 | 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/help/feeds">More Feeds</a></div><p style="clear:both" />
New stockmarket-linked investment products claim to offer security and returns
<div class="track"><img alt="" src="http://hits.guardian.co.uk/b/ss/guardiangu-feeds/1/H.15.1/19721?ns=guardian&pageName=%3Cb%3EThe+limited+satisfaction+of+a+guarantee%3C%2Fb%3E%3AArticle%3A1184046&ch=Money&c4=Savings+%28Money%29%2CMoney%2CFTSE&c6=Heather+Connon&c8=1184046&c9=Article&c10=Analysis&c11=Money&c13=Your+investments&c25=&c30=content&h2=GU%2FMoney%2FSavings" width="1" height="1" /></div><p>As the Isa deadline approaches, so the pace of new product launches gathers speed. Among them is a wave of structured, or guaranteed, products which are supposed to give investors a degree of security that they will get their money back, along with some sort of "kicker" giving a share of the performance of an investment index. </p><p>Two launches by Barclays - a leading issuer of these type of products - are typical. First, there is the FTSE 100 Protected Defined Returns Investment note, a five-year product offering a 32% return if the index at the end of its life is higher than at the start - and, even if it falls, investors will get their money back. The second, the FTSE 100 Accelerated Returns Investment Note, is higher risk. It offers five times any gain in the FTSE 100 over five years, up to a maximum of 100%. Capital is protected provided the index does not drop more than 50% - if it does, investors lose 1% for every 1% it has fallen below the starting level.</p><p>Scottish Widows launched a six-year product this week, offering a maximum 50% growth. Alliance & Leicester has a variation on the FTSE index plan, along with one offering returns based on the Halifax house price index, under which investors can earn up to 50% of the averaged growth in the index and a minimum of 10% should it fall or stay the same.</p><p>These may sound quite attractive - after all, the FTSE 100 index is back where it was 13 years ago, while house prices have fallen to 2004 levels. A bet on either index rising from here could seem pretty safe, although a number of commentators are warning of further substantial stockmarket falls, while the housing market is likely to remain depressed for at least another year. But investors should not be fooled by the presence of words like "guaranteed" attached to these products: they still carry significant risk - and not just because of falling indices.</p><p>These products work by putting most of the money into conventional investments and using options and other derivatives to fund the guarantee. These are only as secure as the bank which is writing them and, while A&L - now part of Abbey - and Barclays are both established and reputable issuers of structured products, the experience of thousands of investors who put money into products backed by Lehman Brothers, the US bank which collapsed last year, know that is not always the case. These investors are still waiting to find out whether they will get any money back and, with the liquidation process expected to take years, it could be a long wait.</p><p>Many investors will not even have known they were exposed to Lehmans. Often providers do not disclose who is backing these products, claiming that regulation prohibits them from doing so. The Financial Services Authority (FSA) disagrees and is working with providers to overcome any obstacles.</p><p>The FSA is also looking at the way these products are marketed and sold as well as co-operating with a Europe-wide review of the area. The Investment Management Association has complained that, unlike its own fund manager members, providers of structured products have no obligation to report on their performance, disclose their charges or to follow the rigorous rules on advertising imposed on unit trusts and other such products. And it has questioned whether the returns are attractive enough to justify their complexity.</p><p>"Investors may not realise just how much return they are giving up in order to be protected against what is a rare event," said Richard Saunders, the IMA's chief executive. </p><p>Investors should be aware that these are not products which can be bought and sold freely: if you do not hold them for the full term, you may lose a substantial amount of your investment. And Alan Gadd, head of research at IFA network Lighthouse Group, adds that investors should also make sure they understand the tax treatment. While some pay out income, in others the return is treated as a capital gain. Which option is the best will depend on your individual circumstances.</p><p>If you are tempted by the guarantees you must take care to examine the small print. But for many people, opening a building society account with the bulk of your money and buying an index tracker could be a better bet.</p><h2>Nurturing the green shoots of a recovery fund</h2><p>Standard Life is launching a more traditional UK Equity Recovery Fund aimed at taking advantage of what it sees as a low point for the stockmarket. The Scottish insurer points out that the stockmarket has suffered its worst falls in more than 30 years. "There exists an outstanding opportunity for investors to capitalise on low stock valuations and negative investor sentiment," says Jacqueline Kerr, Standard Life's head of mutual and life fund investments. Since 2007, equity markets have fallen dramatically and we are keen that clients and investors will benefit from a recovery, as and when that happens."</p><p>The fund will be managed by David Cumming, head of UK equities at Standard Life. While he has not managed any retail funds for some time, he is a respected manager of pension funds and other institutional money. He can also draw on the talents of Standard Life's retail investment team such as Karen Robertson and Harry Nimmo, who run its equity income and smaller companies portfolios.</p><p>Its initial bias will be towards companies in depressed sectors like retail, media and industrial, rather than defensive industries like tobacco.</p><p>M&G has run its own version of this fund, M&G Recovery, for 40 years and it has had just three managers in all that time. The current one, Tom Dobell - who took over nine years ago - has a good track record, having achieved an average return of 7.2% a year for the last five years - double the return on the FT All Share - and a cumulative return of 38% since he took over, compared with a 6.3% fall in the index.</p><p>Investors prepared to take a risk could find this a good time to back a fund which takes a contrarian approach - but they should prepare for a long wait before they reap the benefits.</p><div class="related" style="float: left; margin-right: 10px; margin-bottom: 10px;"><ul><li><a href="http://www.guardian.co.uk/money/savings">Savings</a></li><li><a href="http://www.guardian.co.uk/business/ftse">FTSE</a></li></ul></div><div class="guRssAdvert"><a href="http://ads.guardian.co.uk/click.ng/richmedia=yes&site=Money&spacedesc=rss&system=rss&transactionID=12466847688787506121028117198338"><img src="http://ads.guardian.co.uk/image.ng/richmedia=yes&site=Money&spacedesc=rss&system=rss&transactionID=12466847688787506121028117198338" border="0" /></a></div><div class="terms"><a href="http://www.guardian.co.uk">guardian.co.uk</a> &copy; Guardian News & Media Limited 2009 | 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/help/feeds">More Feeds</a></div><p style="clear:both" />
Heather Connon: Your wallet is going to be busy enough without HSBC
<div class="track"><img alt="" src="http://hits.guardian.co.uk/b/ss/guardiangu-feeds/1/H.15.1/43851?ns=guardian&pageName=Your+wallet+is+going+to+be+busy+enough+without+HSBC%3AArticle%3A1180243&ch=Money&c4=Investments%2CRights+issues+%28Business%29%2CHSBC+%28Business%29%2CMoney%2CBusiness%2CObserver&c6=Heather+Connon%2CLisa+Bachelor&c8=1180243&c9=Article&c10=Comment&c11=Money&c13=Your+investments&c25=&c30=content&h2=GU%2FMoney%2FInvestments" width="1" height="1" /></div><p>Last week's &pound;12.5bn rights issue from HSBC was a record-breaker, pipping Royal Bank of Scotland's cash call by &pound;500m. HSBC's record may stand for a while but there will be plenty of calls on investors' wallets before the year is out. </p><p>Companies are falling over themselves to raise new capital: analysts estimate that the total asked for by companies could reach more than &pound;100bn by the end of the year - or more than twice the value of HSBC. </p><p>Jonathan Jackson, head of research at Killick, divides the recent rights issues into two camps: first, the walking wounded in need of cash to fill holes in their balance sheets or pay off debts. RBS was in that category. Second are those from companies already well financed but wanting to build up a war chest. Cookson, Tullow Oil and Autonomy could all count themselves in this camp.</p><p>HSBC likes to think it joins them. It was keen to stress last week that, unlike RBS, it is not raising money because it has to but because it wants to be able to move rapidly to take advantage of any opportunities that arise. There should be plenty of those: RBS alone is leaving as many as two-thirds of the countries it is operating in, including some of the far-east markets which are HSBC's main target for expansion. </p><p>Not everyone agrees with the bank's justification for its rights issue. While it is in much better shape than rivals like RBS or Citigroup, it is far from immune to the global crisis. HSBC admitted that the acquisition of HFC in 2005 was one of its most expensive mistakes. But even after the write-offs, the loans in that business are in HSBC's books at far more than they would currently raise on the open market, albeit that HSBC is confident its debt collection procedures mean it should be able to realise far more than their current market value. </p><p>The sharp fall in its shares since the rights issue was announced suggests not everyone agrees with it. While HSBC is likely to survive, it could be a long slog back to a decent level of profitability. </p><p><strong>Banking disaster</strong></p><p>So what should you do? Nick Raynor at the Share Centre is advising clients to take up their rights - although a final decision will depend on the price of its existing shares when the rights issue closes early in April. If the shares fall below the rights price of 254p, there would be no point subscribing for new shares. While that looks unlikely at this stage, a further banking industry disaster cannot be ruled out.</p><p>Before deciding whether or not to subscribe, investors need to analyse their portfolios to see where else they might be required to cough up. Among the companies which could yet launch rights issues are Legal & General, Prudential and Rio Tinto, where investors are furious about its attempt to raise cash by selling some of its shares to a Chinese investor. "If you have a large portfolio of investments, you will not be able to afford to [subscribe for] all the rights issues," Rayner said. "If you own HSBC and Land Securities and also have, say, Legal & General, you will have to make choices."</p><p>Richard Turnill, head of global equities at Blackrock agrees - and warns that the flood of rights issues could depress share prices. "Investors will be reluctant to support a company coming to market from a position of weakness," he said.</p><p>Some stockbrokers say that retail investors should take up their rights to avoid dilution of their holdings as the company's profit is divided among the higher number of shareholders. In practice, however, retail investors' stakes are generally so low that the impact of dilution will be insignificant. Better, says Jeremy Batstone, head of research at Charles Stanley, is to decide whether you would buy new shares in that company at the moment: if the answer is no, there is little point in subscribing.</p><div class="related" 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/rightsissues">Rights issues</a></li><li><a href="http://www.guardian.co.uk/business/hsbcholdings">HSBC</a></li></ul></div><div class="guRssAdvert"><a href="http://ads.guardian.co.uk/click.ng/richmedia=yes&site=Money&spacedesc=rss&system=rss&transactionID=12466847688819137402640279323374"><img src="http://ads.guardian.co.uk/image.ng/richmedia=yes&site=Money&spacedesc=rss&system=rss&transactionID=12466847688819137402640279323374" border="0" /></a></div><div class="terms"><a href="http://www.guardian.co.uk">guardian.co.uk</a> &copy; Guardian News & Media Limited 2009 | 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/help/feeds">More Feeds</a></div><p style="clear:both" />
Putting absolute return funds to the test
<div class="track"><img alt="" src="http://hits.guardian.co.uk/b/ss/guardiangu-feeds/1/H.15.1/69270?ns=guardian&pageName=%3Cb%3EPutting+absolute+confidence+to+the+test%3C%2Fb%3E%3AArticle%3A1176534&ch=Money&c4=Investments%2CInvestment+funds%2CMoney%2CShort-selling%2CObserver%2CBusiness&c6=Heather+Connon&c8=1176534&c9=Article&c10=Feature&c11=Money&c13=Your+investments&c25=&c30=content&h2=GU%2FMoney%2FInvestments" width="1" height="1" /></div><p>Absolute return funds, which aim to make money for investors in rising and falling markets, are enjoying a flurry of activity. Half of the 20 funds in the sector have been around for less than a year, three have been launched in the past month - by SVM, Gartmore and Argonaut - while Pictet has said it is planning one and a number of other fund managers are considering joining the fray.</p><p>There are three key reasons for the flood of launches. First, managers have only recently been allowed to use techniques such as shorting in retail funds. Second, with stock markets down 40% in the past year and some pundits predicting further falls, it makes sense to launch a fund that claims to be able to make money for its investors even when share prices are falling. Third, there is evidence from companies such as BlackRock - whose UK Absolute Alpha fund was one of the best-selling retail funds last year - that there is retail interest in buying these products. So should you join them?</p><p>Iain Stewart, manager of the longest-running absolute return fund - Newton Absolute Intrepid, launched to institutional investors in 1993 - thinks this will be the future of fund management. He has run the Newton Exempt pension fund since 1992 and, back then, the trustees' aim was to beat wage inflation.</p><p>"That was how pension funds were structured then. The 25-year bull market has made people think they can own any random collection of assets and still make money. But the environment now is very different." </p><p>With virtually every class of asset except gold plummeting, making money will be far harder. These days, absolute return funds aim to give a better return than holding cash - which doesn't sound that hard given interest rates are so low. They aim to do that by using the powers for shorting stocks - that is, selling shares they do not own in the hope that the price will fall - and other hedging techniques that are now open to conventional fund managers under European directives. </p><p>Stewart, for example, uses what is called a multi-asset approach - which means he can invest in a wide range of asset types - and invests directly, rather than through funds. </p><p>"We run the fund as an old-fashioned portfolio. A group of generalists look at the world and tailor the portfolio to the world we see. We buy specifics - for example telecoms, defence and pharmaceuticals at the moment. We do not own the market." </p><p>He is not afraid to resort to cash when that seems the best option.</p><p>BlackRock's UK Absolute Alpha and SVM's UK Absolute Alpha, which will be formally launched on 11 March, invest only in UK equities; Gartmore's European Absolute Return fund and Argonaut's European Absolute Return fund will use similar techniques in European equities; Henderson SG, Scottish Widows and Threadneedle offer absolute return bond funds that invest in the global bond market; companies such as Standard Life and Marlborough share Newton's multi-asset approach. What all do share, however, is a use of derivatives and hedging techniques to enhance the return during bear markets such as this one, and to protect the value of investors' capital. That, at least, is the theory, but does it work in practice?</p><p>All the managers stress that investors should not expect the funds to make money for them month in, month out; but over the medium term - say three to five years - they should produce positive returns. They also warn that, while they should do better than conventional funds in a bear market, they may lag well behind them in a raging bull market. Darius McDermott, managing director of Chelsea Financial Services, likens them to what with-profits insurance policies were supposed to provide - relatively safe reliable returns - but which most have recently failed to achieve.</p><p>Few retail absolute return funds have long enough records to judge whether they can achieve that. Newton's is about to come up to its five-year anniversary and has produced an average annual return of more than 22% since launch; BlackRock's is about to celebrate its third birthday and has returned 18.44% since inception.. SVM says its new fund will mirror its exiting Saltire fund, which has averaged 12.7% a year since it was launched in 2002, capturing 80% of the rise in the markets but protecting against the downside. In 2008, for example, it grew 19.7%, while the market fell 29.9%.</p><p>But not all absolute return funds are that consistent. Only five of the 19 funds with a one-year track record made positive returns last year, according to statistics produced for Cash by Chelsea. While most lost less than 10%, so beating the rest of the market by a considerable stretch, that still does not meet most investors' perception of an absolute return fund. </p><p>Even admired managers can have bad patches: Lyttleton had a difficult autumn as his bet on oil companies failed to pay off but a portfolio restructuring has improved performance since then.</p><p>These funds are expensive, so the onus is on the managers to justify their fees. Most will charge a flat annual fee of around 1.5% plus a performance fee, which is generally 20% of the return above Libor - the interest rate that banks charge each other. McDermott says that investors should ensure this performance fee has what is known as a high-water mark: that is, if it falls in value, it must make up these losses before the performance fee kicks in again.</p><p>Adrian Lowcock, senior investment adviser at Bestinvest, adds: "Investors should look carefully at the fund they invest in as the asset class absolute return will include hedge funds, which have a wide range of risk profiles and objectives. In the retail market, most absolute return funds aim to be cautiously managed and shouldn't take on too much risk. </p><p>"If a fund promises exceptional returns then it will not be cautiously managed; likewise if it is cautiously managed it will underperform in a bull market. These funds should provide stable returns, form part - but not too large a part - of a well-diversified portfolio, and can be used to reduce volatility of a client's investments, helping maximise returns."</p><p>? This article was amended on Friday 1 May 2009. The quoted figure of 18.44% as the return for BlackRock's UK Absolute Alpha fund was not an average but the accumulated return since the fund's inception three years ago. This has been corrected.</p><div class="related" 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/business/shortselling">Short-selling</a></li></ul></div><div class="guRssAdvert"><a href="http://ads.guardian.co.uk/click.ng/richmedia=yes&site=Money&spacedesc=rss&system=rss&transactionID=12466847688866853133979625286191"><img src="http://ads.guardian.co.uk/image.ng/richmedia=yes&site=Money&spacedesc=rss&system=rss&transactionID=12466847688866853133979625286191" border="0" /></a></div><div class="terms"><a href="http://www.guardian.co.uk">guardian.co.uk</a> &copy; Guardian News & Media Limited 2009 | 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/help/feeds">More Feeds</a></div><p style="clear:both" />
Your investments: Heather Connon on problems that go to the very Heart of Africa
<div class="track"><img alt="" src="http://hits.guardian.co.uk/b/ss/guardiangu-feeds/1/H.15.1/4292?ns=guardian&pageName=%3Cb%3EProblems+that+go+to+the+very+Heart+of+Africa%3C%2Fb%3E%3AArticle%3A1169299&ch=Money&c4=Investment+funds%2CMoney%2CNew+Star+Asset+Management+Group+%28Business%29%2CBusiness%2CObserver%2CInvestments&c6=Heather+Connon&c8=1169299&c9=Article&c10=Analysis&c11=Money&c13=Your+investments&c25=&c30=content&h2=GU%2FMoney%2FInvestment+funds" width="1" height="1" /></div><p>Yet more disgrace befell New Star, the once stellar fund manager brought down by excessive borrowings and inadequate fund performance, last week. </p><p>It announced that it is to wind up its Heart of Africa fund, blaming a wave of redemptions and a freezing of some of the key markets on the continent. Dealing in the fund was suspended in December and New Star has now concluded: "Illiquid markets and poor prospects for new inflows into the fund, were it to reopen, mean there is little likelihood of the situation improving in the short-term.</p><p>"To reopen the fund to dealing would disadvantage the remaining investors, who would be left with a residual portfolio of increasingly illiquid stocks." </p><p>New Star is in an unusual position as it is in the process of being acquired by rival fund manager Henderson, which is no doubt encouraging a review of its range of funds. At just </p><p>&pound;18m - down from a peak of &pound;88m - Heart of Africa is too small and its performance too poor to merit saving.</p><p>But the closure is still a portent of things to come. Dean Cheeseman, head of multi-manager products at F&C, calculates that 38% of retail funds are less than &pound;30m in size - and among emerging markets and other specialist funds, it is 41% and 54% respectively. </p><p>It is very difficult for a fund management company to make a profit from running a fund that small, given the legal, regulatory and administrative overheads. That might not have mattered too much in the roaring bull market, when rising share prices and inflows from investors meant there was at least a prospect of a small fund growing to a more acceptable size. The global recession, tumbling stock markets and investors fleeing for the safety of cash and gilts has put paid to that.</p><p>Cheeseman thinks that will spark significant rationalisation: some firms will opt to close uneconomic funds or merge them with other products; others will opt to be taken over or merge with a rival - a number of deals, including New Star's, have already happened - and several other fund managers are also in effect up for sale. </p><p>"Some of the smaller funds in the industry may be vulnerable to an overhaul, as companies reassess products and asset management firms merge," says Cheeseman. "Both investors in the funds and their advisers will need to monitor their portfolios carefully."</p><p>Consolidation can often be bad news for investors in the funds affected. New Star is looking for a buyer to take on the full Heart of Africa portfolio and is believed to have already received expressions of interest. </p><p>But any buyer will know that New Star is in effect a forced seller and will therefore price its offer accordingly. In the meantime, the suspension means that investors are more or less locked in and cannot get access to their funds. While the Heart of Africa fund was not directly marketed to retail investors, the &pound;12,500 minimum investment requirement was low enough to have made it accessible to them. </p><p>Rob Pemberton, investment director of HFM Columbus, says this is a reminder not to get taken in by high-risk, specialist products, simply because they are launched by a big-name firm. While booming markets can make them look attractive, "All turkeys fly in a gale."</p><p>Other fund managers, not in the throes of takeover, may chose to merge their fund either with others in the stable - Heart of Africa could, for example, have been absorbed into an emerging markets fund - or even with products from a rival firm.</p><p>Tim Cockerill, head of research at Rowan, says he will not consider a fund until it is "quite a lot bigger" than &pound;30m. Heart of Africa's closure should act as a warning to investors to review their portfolios and weed out the small, risky funds while they still can.</p><h2>What makes it the 'lost decade'? A 1.05% return</h2><p>Barclays Capital is calling the last 10 years "the lost decade" for equity investors. Its latest Equity-Gilt Study, which analyses investment returns over more than a century, shows that shares produced a return of just 1.05% between 1998 and 2008. Putting that into real money, &pound;100 invested in the stockmarket at the start of the decade would have grown to just &pound;111, even taking account of dividends - a performance well below gilts, corporate bonds and cash. That is the second-worst performance of any 10-year period in the last 110 years - the wooden spoon goes to 1964 and 1974, which produced just 1.02% a year. </p><p>So much for the argument that equities are the best place to put your money for the long term. Most people define five years as long-term, so 10 years should surely give shares long enough to prove their mettle. Tim Bond, head of global asset allocation at BarCap, and one of the authors of the study, blames the dismal performance on what he calls the "extreme overvaluation" of the stockmarket back in 1998. </p><p>"Although the growth in corporate profits has been robust over the period, investors were paying a very high premium to access these profits at the start of the decade. This has hampered, not to say eradicated, positive returns."</p><p>The Equity Gilt Study looks at the market as a whole: retail investors pay fund managers fees to do better than that. Alas, however, that does not always work. Ten-year performance charts for UK funds, prepared for the Observer by Tim Cockerill, head of research at Rowan, shows that some fund managers have done dramatically better than the market, and some substantially worse. In UK Equity Income, for example, Neil Woodford's Invesco Perpetual Income Fund produced a return of 133% over the decade to 9 February, and his High Income Fund was not far behind: at the other end of the scale, New Star UK Strategic Income lost 70% of its value. </p><p>The lesson, once again, is to choose your manager carefully. </p><p>The good news is, the stockmarket crash has eradicated that over-valuation: indeed, says Bond, "Prospective returns from equities are at the most attractive levels seen for some 20 years in the US and over 25 years in Europe and the UK." </p><p>The best fund managers, like Fidelity's Anthony Bolton, have long preached that the best time to buy is when everyone else is selling. BarCap's research shows how right they are.</p><div class="related" style="float: left; margin-right: 10px; margin-bottom: 10px;"><ul><li><a href="http://www.guardian.co.uk/money/investmentfunds">Investment funds</a></li><li><a href="http://www.guardian.co.uk/business/newstarassetmanagementgroup">New Star Asset Management</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&spacedesc=rss&system=rss&transactionID=1246684768889611723523338069792"><img src="http://ads.guardian.co.uk/image.ng/richmedia=yes&site=Money&spacedesc=rss&system=rss&transactionID=1246684768889611723523338069792" border="0" /></a></div><div class="terms"><a href="http://www.guardian.co.uk">guardian.co.uk</a> &copy; Guardian News & Media Limited 2009 | 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/help/feeds">More Feeds</a></div><p style="clear:both" />
For now, all that glisters really is gold
<div class="track"><img alt="" src="http://hits.guardian.co.uk/b/ss/guardiangu-feeds/1/H.15.1/20722?ns=guardian&pageName=%3Cb%3EFor+now%2C+all+that+glisters+really+is+gold%3C%2Fb%3E%3AArticle%3A1165255&ch=Money&c4=Investment+funds%2CInvestments%2CCommodities+%28oil+gold+etc%29%2CAviva+%28Business%29%2CMoney%2CBusiness%2CObserver&c6=Heather+Connon&c8=1165255&c9=Article&c10=&c11=Money&c13=Your+investments&c25=&c30=content&h2=GU%2FMoney%2FInvestment+funds" width="1" height="1" /></div><p>Pity the poor investors who have their money tied up in business premises, shops and hotels. Shockingly, not one of the UK commercial property funds has made money over the last five years. Half of the funds in the UK all-companies sector, two-thirds of sterling corporate bond funds and three-quarters of UK small company funds are in the same position. And with the economy just entering what could be the worst recession for at least two decades - and possibly since the 1930s - no one is predicting a swift rebound for any of these assets. Indeed company profits, commercial and residential property are all likely to fall further, while defaults on corporate bonds are likely to rise sharply.</p><p>Small wonder that investors are heading for safety - and they think they may have found it in gold. The gold price has surged through $900 an ounce again and has risen by more than a fifth in three months. The plunge in the value of the pound has made that performance look even better - translated into sterling, the rise is more than 70% since the end of October. More optimistic commentators think this could just be the start of a long bull run for the precious metal as it regains its status as a safe haven. </p><p>The number of attractive investment areas is certainly dwindling. Government bonds have been rising sharply and are now looking expensive - and the thousands of billions of pounds that governments across the world are spending to bail out their banks and kickstart their economies mean the risks of holding gilts are also increasing. Credit ratings of countries such as Greece have already been downgraded and others - Britain included - could follow suit.</p><p>The rapid global slowdown has also hit demand for industrial and agricultural commodities. Oil has been among the worst hit, having plunged from more than $140 a barrel to less than $50 in little over six months, but everything from copper to cotton has fallen sharply and the Dow Jones Commodity Index stands at less than half last year's peak. Even cash has lost its appeal as interest rates have fallen - in the United States, they are effectively zero and more than a third of retail savings accounts here are paying investors nothing.</p><p>ETF Securities, which offers exchange-traded funds tracking the gold price, reports record demand for these products. In the last week of January more than $244m (&pound;167m) was poured into gold ETFs, with total invested funds standing at more than $6bn. According to the World Gold Council, these funds now hold 1,190 tonnes of gold.</p><p>Graham Frost, head of research at BestInvest, points out that demand for the real thing is also rising: "Demand for gold coins has caused stocks to run out in some countries. Coin sales in Japan jumped over 120% last year."</p><p>But he adds that demand for jewellery is falling as the high price deters buyers. Nor is there much evidence of its status as a hedge against inflation - the price did surge during the 1970s era of high inflation, but it has been little use since.</p><p>Evy Hambro, manager of Blackrock's World Gold and World Mining funds, is an enthusiast: "Gold production fell last year and may fall further in 2009. This is partly due to the lack of exploration success by the gold mining industry. On the demand side, the rising wealth of emerging economies is likely to support jewellery demand, while ongoing financial turmoil and inflationary pressures will continue to stimulate investment demand."</p><p>Before you succumb to the gold bug, however, remember that you will earn no income from it and that sentiment can turn against commodities as quickly as it turned in their favour.</p><h2> Aviva review Norwich Union asset decision</h2><p>Aviva is to review its decision to distribute around &pound;1bn of assets - the so-called inherited estate - from the with-profits funds of its Norwich Union subsidiary to policyholders. </p><p>This is not surprising - I warned four months ago that Aviva might do this. Since it announced it was thinking of distributing the surplus, the stock market has fallen by more than a quarter and the price of other assets in the fund have also dropped sharply. At the same time, concern about the insurer's capital and its exposure to bonds and shares issued by banks has grown sharply. That means the value of any surplus in the with-profits funds will have dipped. </p><p>While Norwich Union was going to retain about a third of the inherited estate from the fund, it would have had to raise cash to fund the payment to its members and that might have required a rights issue. City investors were unlikely to be enthusiastic about giving funds to Aviva simply to pay off policyholders in the current climate. </p><p>Some pay-out is still possible. Aviva is talking to Claire Spottiswoode, the policyholders' advocate who is looking after their interests, about restructuring the offer and will give an update in the next few months. She says their aim is to keep the principal parts of the deal in place including a minimum payment. "Policyholders will be able to make their own decision about what to do, and if they decide not to accept they will be in broadly the same position as they are now against a wide range of economic circumstances."</p><div class="related" style="float: left; margin-right: 10px; margin-bottom: 10px;"><ul><li><a href="http://www.guardian.co.uk/money/investmentfunds">Investment funds</a></li><li><a href="http://www.guardian.co.uk/money/moneyinvestments">Investments</a></li><li><a href="http://www.guardian.co.uk/business/commodities">Commodities</a></li><li><a href="http://www.guardian.co.uk/business/avivabusiness">Aviva</a></li></ul></div><div class="guRssAdvert"><a href="http://ads.guardian.co.uk/click.ng/richmedia=yes&site=Money&spacedesc=rss&system=rss&transactionID=12466847688934457221703295115228"><img src="http://ads.guardian.co.uk/image.ng/richmedia=yes&site=Money&spacedesc=rss&system=rss&transactionID=12466847688934457221703295115228" border="0" /></a></div><div class="terms"><a href="http://www.guardian.co.uk">guardian.co.uk</a> &copy; Guardian News & Media Limited 2009 | 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/help/feeds">More Feeds</a></div><p style="clear:both" />
Buyer caution takes shine off gifts
<div class="track"><img alt="" src="http://hits.guardian.co.uk/b/ss/guardiangu-feeds/1/H.15.1/73649?ns=guardian&pageName=%3Cb%3EBuyer+caution+takes+shine+off+gilts%3C%2Fb%3E%3AArticle%3A1157754&ch=Money&c4=Banks+and+building+societies%2CRoyal+Bank+of+Scotland+%28Business%29%2CMoney%2CInvestments%2CInvestment+funds%2CShares&c6=Heather+Connon&c8=1157754&c9=Article&c10=&c11=Money&c13=Your+investments&c25=&c30=content&h2=GU%2FMoney%2FBanks+and+building+societies" width="1" height="1" /></div><p>Picture the scene: a bust government forced to go cap-in-hand to the International Monetary Fund. No, not a documentary about the 1970s recession but a warning of what could be in store for the UK, given the huge amount of borrowing it is having to take on as it wrestles with the problem of a bankrupt banking system.</p><p>Jim Rogers, the veteran US investor and former partner of George Soros, the famous speculator who broke the Bank of England in 1992, thinks the UK is already finished. "I would urge you to sell any sterling you might have ... I would not put any money in the UK," he told the Reuters news agency last week. </p><p>James Foster, manager of the Artemis Strategic Bond Fund, is rather more measured but he still thinks that a visit to the IMF is "possible" - particularly if there is a buyer's strike in the bond market.</p><p>A strike is a serious threat. Two successive bank bailouts cost a lot of money. No one exactly knows what last week's package of insurance and guarantees will cost but a total of &pound;500bn is not outrageous. Funding that will mean the bank could have to issue as much as &pound;200bn in gilt-edged securities - more, as a percentage of gross domestic product, than was issued when then chancellor Denis Healey went to the IMF in the 1970s.</p><p>So far, there has been a reasonable appetite for gilts - not least because they are seen as safe at a time when investors are unwilling to put their money anywhere there is a whiff of risk. Gilt yields have fallen sharply over the last year and are still close to their all-time low.</p><p>But there are already some worrying signs. The interest rate on benchmark 30-year gilts has risen from 3.8% to 4.3% in the last week or so as investors have demanded higher returns for buying into the UK government. The debt management office itself - the organisation responsible for auctioning gilts to investors - has admitted that the risks of an auction failure are increasing. It is not just the UK that is flooding the market with gilts: across Europe and in the US, governments are having to raise vast sums and Germany struggled to complete an auction last week.</p><p>The gilt market matters to retail investors because many of them have fled risky equities in favour of bond funds. If yields rise sharply as investors lose confidence in the UK, that may mean more income, but it will also mean capital losses because a rising yield is another way of expressing falling prices. </p><p>Quentin Fitzsimons, manager of Threadneedle's Absolute Bond fund, admits that there are "very material risks" in the gilt market but he believes that the sheer scale of issuance required means the government must act to ensure that the market does continue to function. That, he says, means giving the Bank of England the power and the funds to buy in gilts at the same time as it is issuing new ones: quantitative easing, or printing money, in the current jargon.</p><p>"I think the authorities will listen," said Fitzsimons. "The market will say that they can't keep issuing new bonds, as the market will blow up and send the pound through the floor." Buying back gilts will also ensure that yields, and thus the cost to taxppayers, are kept to a minimum. </p><p>Foster, however, likes corporate rather than government bonds. "I like some bank bonds. The ones which the government is protecting yield more than gilts and are also protected by the government."</p><p>The risk with corporate bonds, of course, is that the company behind them will go bust or simply default on payment. Defaults will undoubtedly rise but probably not as much as the market is expecting. Buying into a bond fund will spread the risk of defaults: Tim Cockerill, head of research at Rowan, likes M&G's and Invesco Perpetual's corporate bonds funds.</p><h2>When selling at the low prices is the best option</h2><p>The latest round of government support seems to have done the banks no good: shares in Lloyds Banking Group, Barclays and Royal Bank of Scotland have plunged to previously unthinkable lows. But Nick Rayner at the Share Centre still thinks investors should sell, even at these low prices. He believes there is still a big risk of full nationalisation - and with RBS's shares as low as 10p, there seems little to be gained by keeping it on the market. Even if there is any compensation for investors should that happen, it will be a small amount and will take a long time coming.</p><p>That has not stopped the Share Centre's investors from piling in: demand for the bombed-out banks has been brisk, says Rayner, as punters gamble on a quick recovery. That looks unlikely. RBS's profits may have been particularly badly hit by its ill-judged acquisition of ABN Amro, but write-offs unrelated to that acquisition - on things like loans to Russian oligarchs and American homeowners - have already risen sharply and that is before the recession really takes hold. The sad truth is that no-one can yet predict how bad the write-offs will get. </p><p>Buying the banks without that knowledge makes no sense - and, indeed, few mainstream fund managers are doing that yet. There are far better investment opportunities around for those brave enough to be still buying equities: Rayner suggests defensives like GlaxoSmithKline and British American Tobacco.</p><div class="related" style="float: left; margin-right: 10px; margin-bottom: 10px;"><ul><li><a href="http://www.guardian.co.uk/money/banks">Banks and building societies</a></li><li><a href="http://www.guardian.co.uk/business/royalbankofscotlandgroup">Royal Bank of Scotland</a></li><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></ul></div><div class="guRssAdvert"><a href="http://ads.guardian.co.uk/click.ng/richmedia=yes&site=Money&spacedesc=rss&system=rss&transactionID=12466847689118939766806145961147"><img src="http://ads.guardian.co.uk/image.ng/richmedia=yes&site=Money&spacedesc=rss&system=rss&transactionID=12466847689118939766806145961147" border="0" /></a></div><div class="terms"><a href="http://www.guardian.co.uk">guardian.co.uk</a> &copy; Guardian News & Media Limited 2009 | 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/help/feeds">More Feeds</a></div><p style="clear:both" />
Has New Star fallen into a black hole?
<div class="track"><img alt="" src="http://hits.guardian.co.uk/b/ss/guardiangu-feeds/1/H.15.1/21714?ns=guardian&pageName=Has+New+Star+fallen+into+a+black+hole%3F%3AArticle%3A1122458&ch=Money&c4=Investments%2CNew+Star+Asset+Management+Group+%28Business%29%2CMoney%2CInvestment+funds&c6=Heather+Connon&c8=1122458&c9=Article&c10=&c11=Money&c13=Your+investments&c25=&c30=content&h2=GU%2FMoney%2FInvestments" width="1" height="1" /></div><p>John Duffield, chairman of New Star Asset Management, has a reputation for being an exacting taskmaster who demands the best from his fund managers, but rewards them well when they perform. Both qualities had deserted him over the past year, but last week he took some radical action to regain both his own and his firm's reputation.</p><p>His most dramatic move was to sack New Star's joint chief investment officer, Stephen Whittaker, who also runs one of its flagship funds, UK Growth. Whittaker has been with the firm for six years but his performance has been very poor. UK Growth has lost 52 per cent of its value over the past year and is down 23 per cent over five years, putting it 907th out of the 935 UK All Companies funds ranked by Trustnet over one year, and 620th out of 671 over five years. This is partly due to his conviction that banks were undervalued at the start of the year - a conviction that proved disastrously wrong - but it was not his only mistake.</p><p>His replacement will be Trevor Green, who joined the group in June and has recently taken over Patrick Evershed's New Star UK Growth fund, which has lost 38.1 per cent over five years, putting it second-bottom among the 671 UK funds with a five-year record. Evershed remained heavily invested in the dismally performing Alternative Investment Market.</p><p>The changes do not stop there: Duffield has also taken the Hidden Value fund away from Jamie Allsopp, leaving him with just the recently launched Heart of Africa fund. Change at Hidden Value was also long overdue: it ranks 914th out of the 935 UK funds in the past year, having lost 55 per cent in that year and it has only just broken even over five years, lagging well behind its sector. Two further funds will also be merged with others: Monthly Income is being combined with Managed Distribution while European Leaders is being bundled into European Value.</p><p>'I recognise we have been too slow in some of our funds in adjusting to the sustained falls in securities markets,' Duffield says. 'But I am determined to restore New Star's reputation for delivering first-class returns for our investors.'</p><p>There will also be more fundamental changes to the way New Star manages its investment process. Historically - as its name suggests - it has been a collection of independent star managers, who were allowed to pursue their own investment strategies without interference, and there was little communication, never mind collaboration, between them. Duffield seems now to recognise this is not a sensible strategy, so, while managers will still be allowed some autonomy, there will be move more collaboration and sharing of ideas. </p><p>There are some bright spots among New Star funds. Tim Cockerill, head of research at Rowan, likes Richard Pease's European Growth fund, which, although it has had an indifferent 12 months, is still well ahead of most of the competition over three and five years. Tim Steer, who is taking on Allsopp's Hidden Value, is also going through a bad patch, but Darius McDermott of Chelsea Financial Services is among those who still rate him. New Star's UK and European property funds too are in line with, or better than, their peers. But that sector as a whole has performed poorly, which raises questions over New Star's aggressive promotion of these funds: their markets peaked 18 months ago.</p><p>But turning underperforming funds around would be difficult for Duffield even if markets were roaring ahead. New Star itself is in a parlous position: its shares languish at less than 30p compared with a 225p when it floated in 2005 and a peak in 2007 of 519p. Fund managers have traditionally taken most of their salary and bonuses in shares; the price collapse is having a serious impact on their motivation.</p><p>While the management changes - provided they also bring an improvement in fund performance - may help to discourage investors from cashing in, it may not have that much impact on New Star's share price, as its collapse is largely due to its crippling debt - a legacy of its &pound;364m return of capital to shareholders (including Duffield and some of his managers) during 2007. The remaining &pound;236m of debt has just been refinanced, but the group has to pay an extra 1.5 per cent interest or &pound;3.5m a year.</p><p>Some analysts suggest the firm could go bust; others speculate it could be taken over by a rival such as Henderson or Aberdeen, or that Duffield himself might buy it back. If that does happen - and the debt is a big disincentive - it is unlikely to be at anywhere close to the flotation price, never mind last year's peak. Uncertainty about its future will not help fund managers, old or new, to perform well. </p><p>John Jay, New Star's development director, admits that its share-based bonus scheme has been undermined by the collapse in its share price, so it plans to introduce a cash-based scheme which will pay out 'only if they generate superior and sustained risk-adjusted returns for investors'.</p><p>That may help to motivate the remaining fund managers, but turning performance round takes time. Neither of the two new managers - Charles Deptford, who has replaced Whittaker at UK Equity Income, and Green - are particularly well-known among financial advisers, which may not be a bad thing given the poor performance of some of its so-called stars. </p><p>Those who are still invested in New Star's underperforming UK funds will doubtless be considering moving their money, which may be the right strategy. But cashing in at this low point in its fortunes, and at this stage in the cycle, means crystallising some horrendous losses. It may be preferable to give Duffield the benefit of the doubt and wait to see whether his actions do finally start to turn the business around.</p><p>But it will be a long, hard slog, and there is a risk that New Star will not stay independent long enough for Duffield to see it through. Keep a close eye on the funds and prepare to switch if performance worsens - or just fails to improve.</p><div class="related" 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/newstarassetmanagementgroup">New Star Asset Management</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&spacedesc=rss&system=rss&transactionID=12466847689136723783031303067546"><img src="http://ads.guardian.co.uk/image.ng/richmedia=yes&site=Money&spacedesc=rss&system=rss&transactionID=12466847689136723783031303067546" border="0" /></a></div><div class="terms"><a href="http://www.guardian.co.uk">guardian.co.uk</a> &copy; Guardian News & Media Limited 2009 | 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/help/feeds">More Feeds</a></div><p style="clear:both" />
America's not beautiful, but it might look better soon
<div class="track"><img alt="" src="http://hits.guardian.co.uk/b/ss/guardiangu-feeds/1/H.15.1/15735?ns=guardian&pageName=America%27s+not+beautiful%2C+but+it+might+look+better+soon%3AArticle%3A1114816&ch=Money&c4=Investments%2CMoney&c6=Heather+Connon&c8=1114816&c9=Article&c10=Analysis&c11=Money&c13=Your+investments&c25=&c30=content&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 class="related" 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&spacedesc=rss&system=rss&transactionID=12466847689142777503608107893683"><img src="http://ads.guardian.co.uk/image.ng/richmedia=yes&site=Money&spacedesc=rss&system=rss&transactionID=12466847689142777503608107893683" border="0" /></a></div><div class="terms"><a href="http://www.guardian.co.uk">guardian.co.uk</a> &copy; Guardian News & Media Limited 2009 | 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/help/feeds">More Feeds</a></div><p style="clear:both" />

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