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Recommendations on the best funds - Isas, Oeics, unit trusts

This is Money has gathered tips from independent financial advisers on the best income funds, Isas for first-timers and funds for high-risk investors

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Where are the experts investing now?

Philip Scott, This is Money
18 October 2008

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Times are tough for investors - both private and institutional - so Philip Scott asked the experts what they are currently doing with their own cash.

Times are tough, and then some. This week saw three of the UK's biggest High Street banks effectively fall under governmental control.

Over the past 12 months the FTSE 100 index of the UK's largest firms has collapsed by some 40%.

The emergency interest rate cut of half a percentage point was not the solution many hoped it would be and while the banks appear to have gained some stability from their £37bn bailout, the threat of global recession has thundered into view.

Investors, both big and small as well as Governments across the globe, are understandably seriously concerned.

Trevor Greetham, asset allocation director at fund management group, Fidelity sums up the problems facing investors.

He says: 'The key tests will be the degree to which credit markets and inter-bank markets unfreeze and whether looser policy can reflate US residential property prices.

'Once this has happened, equity investors can look forward to a recovery as banks feel comfortable to lend, economic growth and profits start to pick up and falling inflation rates keep monetary policy loose.'

Of course timing the market is almost impossible and Greetham points out that with the Fidelity Multi Asset Strategic fund which invests across a wide range of asset classes, he has trimmed his underweight in equities a little in anticipation of a bear market rally as authorities around the world rush to administer First Aid.

He adds: 'I'm not turning bullish - even after these changes I am 7% underweight equities and 5% underweight commodities in all our multi-asset funds. I remain significantly overweight in cash and bonds. I've moved US equities overweight at the expense of Asia and the emerging markets.'

Looking at such decisions, This is Money asked four independent financial advisers what they are doing with their own personal investment portfolios right now:

Gavin Haynes, at Whitechurch Securities:

'As someone investing for long-term growth, surprisingly I have been adding income producing assets to my Isa portfolio recently. My current philosophy is to invest in interest sensitive areas of the market on the belief that the economic environment will lead to significant interest rate cuts over the next 12 months. I also believe that the current fear driven sentiment is leading to the mis-pricing of many areas of equity and bond markets, for investors prepared to take a longer term view.

'I have been investing in UK blue chip yielding stocks through PSigma Income managed by the highly regarded Bill Mott and also investing in Invesco Monthly Income Plus, which invests in a mix of high yield corporate bonds (which are providing double digit yields) and around 20% in UK equities. With current volatility it is impossible to pretend you can call the bottom of the market so I believe that dripping money in to take advantage of pound cost averaging makes sense.'

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Peter McGahan at Worldwide Financial Planning:

'The next year will be very interesting and not for the faint hearted. I am confident inflation will plummet with the mass selling of commodities and interest rates will follow as low as 3%. This will inject considerable cash into the pockets of investors but some stocks will gain and suffer off the back of it. Some will fall by the wayside, but those well capitalised stocks will be the ones to watch not only for their ability to maximise their gain from the pain of other stocks but also their ability to offer excellent dividends that the weaker alternatives won't have.

'Individual stocks such as Standard life and HSBC are hard to ignore from a closing price of 215p and 795p respectively. The larger caps are better accessed by Invesco Perpetual Income and Invesco Perpetual High Income funds as well as the ability to stock pick. Given the lack of leverage in Asia, Japanese stocks and Asian stocks could look valuable and Old Mutual's Japanese Select fund could well prove a valuable punt for the higher risk investor in the long run given their approach to investing only in highly liquid stocks that can be sold in a day. But prepare for a bumpy ride.'

Helen Blackburn at Oaklands Wealth Management:

'The things that I think about, is that my investments are for the long term. One of the cornerstones to achieving returns in the long term is to choose quality well-managed funds that invest in good quality companies; that in the long term will achieve positive results and particularly where sentiment in the short term has a very immediate effect on returns now.

'For a forward thinking fund of best ideas – I like the Schroder UK Alpha plus fund. If you look at the top stock choices amid the holdings that its manager Richard Buxton currently has, which include Barclays and Standard Chartered which as stock choices would seem a little outstanding at the current time. In the short term any further purchases would be fairly cheap to say the least and for the future UK plc will always need a banking sector.

'Other sectors that are always going to be in demand in the future and present opportunities now for fund managers are pharmaceuticals and it is interesting to note that on another one of the funds that has achieved our rating criteria is Neil Woodford's Invesco Perpetual Income Fund where he has recently increased his holding in this sector. Anthony Nutt is also very positive about this sector, more so than he has been in previous years and has been invested in this sector for his Jupiter High Income fund.'

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Ben Yearsley at Hargreaves Lansdown

'The market is swinging wildly on a daily and intra daily basis – as I write this the market has rebounded from over 8% down to only 6.5% down! Therefore I think inaction is the best option for many. It is very difficult making long term investment decisions when a couple of days can make 10% difference. Having fallen to these levels, the markets look good value for the long term; we are also getting close to the level where equities are yielding more than cash so to be perfectly honest, I wouldn't be selling now.

'There is clearly still a great deal of risk though. Turning to my own portfolio, I am not doing a great deal. I am still investing monthly in my pension, which is being invested in many different funds including Neptune Russia & Greater Russia and First State China. I do have some cash in my Isa though that I have been selectively investing.

'What I have been investing in is bond funds, more specifically Invesco Perpetual Monthly Income plus, Henderson Strategic and New Star Extra High yield funds. Some of these funds are yielding close to or even over 10% with many of the underlying holdings trading well below par. So not only are you getting a great income, you also have capital growth prospects.

'Obviously these bonds are trading below par for a reason – in that there is risk of default. With the state of the economy, this cannot be ruled out, however even assuming some defaults these funds look interesting investment opportunities at the current time.'