Returns to be relished

The multi million pound 'its' ad campaign, featuring barbecues in the garden and 'nookie' in the bedroom, is trying desperately to shake off the out-of-date image of investment trusts.

These investment vehicles are more than a century old and were popular with private investors in their heyday. But they have since been overtaken in the popularity stakes by younger upstarts - unit trusts and open-ended investment companies (Oeics). Around ?80 billion of funds under management are tied up in investment trusts, while more than ?261bn is held in unit trusts and Oeics.

Nonetheless, many experts believe that today's investors are wrong to dismiss investment trusts - especially global growth funds.

More than ?17bn is invested in the likes of Foreign & Colonial, Alliance, Witan and Scottish Mortgage. They can justifiably be called the grandfathers of the investment trust world, because they were the pioneers of the industry, but they are far from past their sell by date.

Sue Whitbread at independent financial adviser Chartwell Investment Management, says: 'We would regard global growth investment trusts as a core holding for all types of investors - from novice to aggressive investors.'

The aim of international investment trusts is to reduce risk by spreading investment over a large area. Global growth funds embrace all the major world stock markets - the UK, US, Europe, Japan and even the emerging markets of Latin America and the Far East. Foreign & Colonial, for instance, the oldest and biggest fund at almost ?3bn, has holdings in 250 companies in more than 15 countries.

International investment trusts have significantly outpaced their unit trust rivals. Over five years the average global growth investment trust would have returned a worthy 193 per cent. Over the same period the average unit trust return in the global growth sector is 167 per cent before charges. Investment trusts have also beaten unit trusts over one and three year periods.

However, look beyond the average return and it is obvious that global growth investment trusts are far from a uniform group. Performance varies widely and some are more risky than others. Where in the world a fund invests and in which industries varies considerably from fund to fund. And some are run on more aggressive lines than others, making them more volatile but potentially more rewarding.

The giants of the sector, such as Foreign & Colonial and Scottish Mortgage, are far from aggressive. They are the steady-eddies of the investment world, combining big positions in the household names of the UK market, such as Glaxo SmithKline, with more exotic investments overseas. Whitbread recommends these funds for investors who want to buy for the long term without losing sleep.

But while the performance of these funds is solid over the longer term they can hit rocky patches.

Take Scottish Mortgage, run by Baillie Gifford. Over five years it has returned a respectable 174 per cent but last year was one of the worst performers in the sector.

The fund missed out on the huge rally in technology shares and then piled into the sector just as it was about to run out of steam.

British Empire Securities, managed by Friends Ivory & Sime, had a much more successful year returning an impressive 131 per cent, which placed it among the top five funds in the sector.

Investors tempted by strong performance figures should be aware the fund is aggressively run, with only around 60 holdings. This makes it riskier than Scottish Mortgage or any of the more widely spread funds.

Nor is British Empire constrained geographically like the giants of the sector, where at least half your fund will typically be invested in the UK and Europe. Only 18 per cent of its holdings are in the UK compared to 42 per cent of Scottish Mortgage. British Empire's biggest holding (30 per cent) is in Europe with 5 per cent in Japan, and just 2 per cent in the world's biggest economy, North America.

John Pennink, fund manager, says: 'We use a stock picking approach rather than investing along geographical lines. We invest in cheap companies with good growth prospects wherever we can find them.'

Going against the mould has certainly paid off. Over five years the fund has returned an impressive 201 per cent. Is that as good as nookie? Maybe not - but it certainly beats barbecued sausages.