Investing in some sectors of the market can be very profitable but can also be highly volatile. For example, the technology sector is twice as risky as it was seven years ago but is nevertheless one of the most profitable markets. In hindsight, investors should have taken profits on technology unit trusts last March but many were deterred from doing so because they would have paid capital gains tax. Baring Asset Management is offering an answer to this by launching its Leading Sectors trust combining investment in five sectors – financials, technology, healthcare, telecoms and media. These five sectors, as defined by the MSCI indices, have shown an annual return of 20.5 per cent since 1993 while the MSCI World index returned 13.9 per cent a year. This outperformance looks likely to continue. Combining these five sectors in one portfolio significantly reduces volatility. In a survey carried out among IFAs, 76 per cent said they were more wary of single sector funds than 12 months ago. However, 90 per cent would be willing to recommend a fund investing in a basket of sectors as opposed to one.
Lucy Macdonald, the fund manager, believes there will be a strong recovery in TMT stocks and a continued impressive performance from financials and healthcare. Initially, the likely portfolio weightings will be 33 per cent in financials, 25 per cent in IT, 21 per cent in healthcare, 14 per cent in telecoms and 7 per cent in media, while geographical allocation is likely to be 58 per cent in North America, 31 per cent in Europe and 11 per cent in the rest of the world.
Because of the growth prospects for these sectors and the Barings Global Team's investment expertise, especially in North America, this fund should outperform the MCSI World index by considerable margins.