Beware that faraway look in traders' eyes

Beware that faraway look in traders' eyes

'First state Indian Subcontinent', 'Neptune Russia and Greater Russia', 'Melchior Asian Opportunities': these rather eclectic funds were three of the 10 most popular for investors buying through Hargreaves Lansdown's Vantage fund trading platform in January.

And the remaining seven are not much more mainstream. The only 'traditional' UK fund on the list is Neil Woodford's formidable Invesco Perpetual Income; of the others, some are emerging-markets funds, two are commodities-based, one is a global equity fund and one is Mark Lyttleton's highly regarded Blackrock UK Absolute Alpha fund, which makes full use of the powers to hedge, short-sell and pursue other strategies recently granted by European investment management regulations.

Nor are these funds managed by big-name investment houses: firms like New Star, Fidelity and M&G are not represented, while niche boutiques like Neptune, with two funds, Melchior and First State, feature strongly. Blackrock has also got two funds - its Gold & General joins Absolute Alpha on the list.

The popularity of these funds is understandable: Neptune's Russia fund is top of the specialist sector over the last three years, with a return of more than 200 per cent, and Gold & General and JP Morgan's Natural Resources are not far behind. Lyttleton's Absolute Alpha has managed to buck a falling market over the last year and produce a positive return for investors.

The choice of sectors also looks sensible.....continued below

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enough. The US is poised on the brink of recession, the UK is struggling to avoid following suit, and European companies are likely to be affected by the strength of the euro against the dollar. China, India, Russia and other emerging markets, by contrast, are powering ahead. They learnt how dangerous debt can be during the Asian crisis a decade ago and have worked hard at improving their cash flows and cutting their borrowings - so much so that they are now flush with cash and virtually unaffected by the turmoil in Western markets.

Their populations are also growing increasingly wealthy and consequently their economies and companies depend far less than before on the West stocking up on consumer goods, so growth should not be too severely affected by the slowdown in the US and UK.

The investors who use Hargreaves Lansdown's Vantage platform do not rely on the firm's advice but take their own decisions; those who consult its army of advisers will be recommended the usual mix of funds that make up a balanced portfolio. Ben Lundie, head of development for the Vantage platform, says many of the investors on it are likely to be making adjustments to an existing portfolio rather than piling all their cash into gold or Russia. But other advisers, such as BestInvest, say gold, commodities and emerging markets have been popular since the start of the year.

Mark Harris, co-manager of New Star's fund-of-funds team, thinks considering some of these alternatives can be a good strategy. 'Russia and China are two very exciting and high-risk markets which have offered the braver investor some great returns in recent years. As long as investors know the risks that they are taking when they invest in these regions, and have a diverse portfolio of investments in other asset classes and regional markets, then there is nothing wrong with taking a little exposure.'