Seven top tips to invest for higher-risk growth

High-risk growth funds are more volatile that other growth funds, but can boast of spectacular returns.Investing in a specific fund entails investors accepting different degrees of risk in return for a range of potential rewards. So when Helen Pridham asked financial advisers to predict which funds offer the best prospects for growth in 2014, she also urged them to consider which types of investor the funds would suit best.

Higher-risk growth funds are likely to be more volatile than solid growth or speculative funds and appeal to those with a higher risk tolerance.

Trusts can also increase their assets by borrowing extra funds. So long as this gearing is sensibly priced, it should accelerate the trust's gains in positive market conditions. However, gearing will exacerbate losses in any downturn.

When trusts trade at a discount, investors are getting more bang for their buck. The possible closing of the discount will also enhance share price returns.

Here, experts give us seven top tips for higher-risk growth investing in 2014.

For more in the series and to see our experts' profiles, read: Top seven tips for solid growth investing, Top tips for immediate income in 2014, Seven tips for growing income in 2014 and Top seven tips for balanced income in 2014.

Lazard Emerging Markets

Mick Gilligan believes the investment case for emerging market equities remains strong.

He says: "The equity markets in emerging regions are currently trading at their widest price-to-earnings (P/E) discount to developed markets since 2006. Although a number of emerging economies will struggle to maintain price stability without choking off economic growth in 2014, we believe many well-capitalised businesses that have shown strong financial discipline in the past should continue to generate good profits."

The Lazard Emerging Markets fund focuses on such businesses. It is managed in New York by a team, led by James Donald, that follows a strict investment process.

Rathbone Global Opportunities

Manager James Thomson has just completed 10 years in charge of the Rathbone Global Opportunities fund. It is a go-almost-anywhere, bottom-up, thorough stockpicking fund looking for undiscovered gems. Rob Burdett believes Thomson strikes the right balance in taking calculated risks for high returns, while maintaining around 20% of the fund in reliable defensive holdings to offset the more exciting growth stories.

Burdett says: "Mid caps are his bread and butter and he likes companies that are undertaking gentle innovation - moving online, for example - rather than game changers, as these have more potential to go wrong."

Investec Global Energy

The Investec Global Energy fund invests in companies that produce energy, mainly oil and gas generated, and provide services to the energy sector. Fund managers Tom Nelson and Charles Whall believe the consensus view regarding future oil prices anticipates weak demand and growing supply from US shale oil.

But they think differently, as does Yarrow: "Experience shows that oil, because of its more complex molecular structure, is harder to extract from shale than gas is. Meanwhile, demand for oil is growing as the developed economies recover. A higher oil price feeds straight through to the companies' profits."

Biotech Growth Trust

Peter Hewitt favours Biotech Growth, which has achieved scorching gains recently (up 172% over three years to 1 December 2013) as valuations in its sector have recovered from 10 years of underperformance.

It is managed in New York by Orbimed, a specialist healthcare and biotechnology investor with $7 billion (£4.2 billion) under management. It offers exposure to a mix of large and profitable biotech companies alongside emerging businesses. Most of its holdings are US-based, and they have benefited from a much more positive approach by the Federal Drug Authority - new drug approvals in 2010 were the highest for 10 years. Potential takeovers by big pharmaceutical companies looking to enhance their product pipelines are another reason for investor optimism.

Graphite Enterprise Trust

Andrew McHattie contends that as discounts on many trusts have narrowed, just one sector stands out as offering great value: private equity.

"These trusts were hammered in the credit crisis as their leverage and over-commitment policies came under strain, and discounts widened to extreme levels. They have been narrowing slowly but remain historically wide, in spite of strong asset performance from many trusts," he says.

His selection is Graphite Enterprise Trust, where the discount to net asset value remains at a level that rings alarm bells in most other sectors. Yet it has a strong track record and a relatively mature portfolio of shares that he expects to rise in value.

Fidelity Chinese Special Situations IOM4

Tim Cockerell says this high-profile trust has divided opinion. Launched with a fanfare in 2010, Fidelity Chinese Special Situations suffered a nasty setback in 2011 and 2012, but manager Anthony Bolton secured a better performance in 2013, returning 34.6% over the year to 1 December 2013.

"With Chinese equities looking cheap and the Third Plenum strategy now known, the long-term outlook for investing in China is positive,' Cockerill says.

"This fund invests in medium and small caps, an area where high growth can be achieved. The new manager, Dale Nicholls, is well qualified to take over - he has a similar style to Bolton. The combination of Fidelity, manager experience and China is compelling in the long term."

Scottish Oriental Smaller Companies Trust

The Scottish Oriental Smaller Companies Trust is favoured by Robin McAdam. Angus Tulloch has resumed management of the trust, following the retirement last April of Susie Rippingall, and is supported by the same experienced team.

The investment approach is unchanged: the team identifies quality companies offering sustainable, predictable growth. But McAdam notes that turnover has increased, reflecting a more cautious outlook where the managers believe Asian smaller companies are more fully valued.

"With 8% in cash, the trust may underperform if the market rises strongly, but the team's enviable track record and experience should be respected," he says.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.