Top tips to invest speculatively for growth

A huge variety of investment funds aim to generate capital growth for investors. They range from generalist funds to highly specialised versions.

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.

Speculative funds could take off and produce handsome returns in the coming year, but they could also dip sharply in value, so investors should not invest money they cannot afford to lose in this type of fund.

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, we look at the top seven expert tips to invest for speculative growth in 2014.

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

M&G Recovery

Brian Dennehy believes that Tom Dobell is a manager who backs his convictions, engages with the companies he invests in and has delivered long-term outperformance.

"Dobell's M&G Recovery fund has a clear value-style process and management stability. It invests in a wide range of companies that are out of favour or in difficulty, or whose prospects are not fully recognised by the market,' he says.

Dennehy acknowledges that the value approach means the fund underperforms periodically, but he says its long-term outperformance cannot be faulted.

Liontrust Special Situations

To stand out in a field or industry, you have to try to do something different from the crowd: to be a contrarian. This usually requires a degree of bravery - buying when others are selling and selling when others are buying - and a particular philosophy.

Husselbee says Liontrust Special Situation's Anthony Cross and Julian Fosh have established their own unique philosophy, known as the Liontrust economic advantage process. He believes this is a winning formula.

"They look for characteristics in a company that its competitors find difficult to replicate, such as intellectual property, distribution channels or recurring business."

Allianz BRIC Stars

The Allianz BRIC Stars fund aims to achieve capital growth in the long term by investing mainly in Brazil, Russia, India and China. The BRIC markets have fallen out of favour with investors over the past three years, as the meteoric growth in their economies has slowed.

However, Haynes points out that as investors have shunned these markets, valuations have become cheaper. He says: "For investors looking for a recovery story, I believe this fund is worth consideration. It has recently acquired a new manager, Kunal Ghosh, who is backed by a team of 75 analysts located around the world. The fund will typically hold around 40-60 of their best ideas."

Standard Life Equity Income subscription share

Andrew McHattie says warrant and subscription share choice is diminishing, now that the Retail Distribution Review is encouraging trusts to keep their structures as simple as possible. As a result, they are widely ignored. This can create opportunities for those who understand how they work.

As a leading specialist, he favours the subscription shares of Standard Life Equity Income, which can be exercised at 320p a share on various dates to the end of December 2016.

"They offer gearing of 3.7 times, and if the ordinary shares grow by more than 2.8% per year between now and the end of 2016, the subscription shares ought to outperform. The trust has performed well since changing its portfolio manager last year," he says.

Impax Environmental Markets

Robin McAdam considers Impax Environmental Markets an extremely interesting investment trust. It invests in companies seeking to provide cleaner or more efficient energy, and water and waste solutions to the growing problems faced by authorities around the world as they struggle with global population growth and resource depletion.

This creates opportunities for exposure to a rapidly changing marketplace, as well as to socially responsible investments. The discount has narrowed recently to around 10%, but he believes there is still potential for growth.

Hansa Trust

John Newlands sees potential in the A shares of Hansa Trust, which languish at a discount of more than 25%. He says that, whereas the trust's portfolio appears oddly skewed, with around a third of its assets in Ocean Wilsons, there is plenty of diversification on a look-through basis. This is because, although Ocean Wilsons is best known for its port operations business in the Americas, it has an investment portfolio of its own that stands at a discount to underlying value.

"One day, an attractive bid [may] be made for Ocean Wilsons that will enhance Hansa's NAV and simplify its capital structure, all to the good of its market rating," Newlands says.

Baker Steel Resources Trust

Jean Matterson persists in hoping for good returns from the Baker Steel Resources Trust, shares in which trade on a near 30% discount.

"It has not had an easy run of late, but we believe the underlying assets are attractive and that the mining projects in the company's portfolio will continue to progress," she says.