(Agencies)
Updated: 2008-02-27 23:21

* Andy Gadd, head of research at independent financial adviser Lighthouse Group, remains a fan of UK equity income funds for more cautious, long-term investors, despite a generally poor performance last year -- largely attributable to overweight positions in the banking sector which was hammered by the credit crunch.

"Equity income funds are normally invested into portfolios of blue chip stocks, mainly in the FTSE 100, that offer decent dividends as well as the possibility for growth," he says.

"If investors are concerned about a possible recession, then many high-yielding stocks are in defensive sectors and exposure to FTSE 100 stocks may be seen as defensive as many are multi-national with income sources from a number of global markets.

"Ultimately, even if capital values were to fall there is always the dividend income stream to help mitigate this."

Investors could also increase their exposure to bonds, which generally benefit as interest rates fall. Funds to consider include M&G's, Invesco Perpetual's and Old Mutual's corporate bond funds.

* Jason Britton, co-fund manager at multi-manager specialists T Bailey, says: "Nothing is recession proof, but some countries, like India and Brazil, have only 2-3 percent exposure to the US market and are growing rapidly.

"That is not to say emerging markets are not risky. We think China is overheated at the moment.

"Look to funds that give you significant exposure to a wide range of global markets -- not just one country or the limited BRIC funds."

* Peter Bickley, director of economics at Tilney, the UK arm of Deutsche Bank Private Wealth Management, says investors should consider hedge funds, a sector that returned around 10 percent last year.

"This is the point in the economic cycle when they (hedge funds) come into their own; they are a classic late-cycle asset, when straight equity might find life tougher and more accident prone.

"In the past we've used them really for their low volatility, because they are useful in managing risk.

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