Funds Centre

Message Boards Property Pensions Savings Utilities UK Stocks Investments clear all debts then save or both? Split in assets... Gold Shares Liquidity or Solvency? GaBumping when is the best time to SPEND View boards: Your Money UK Stocks Also on Yahoo! Finance Mortgages Insurance Loans Credit Reports Credit Cards Banking Savings Cut Your Bills Mortgage articles Can you trust a new build home? Save £962 On Your Mortgage Help Is At Hand For First-Time Buyers! House Price Falls: The Winners And Losers View archive Personal finance articles Three cheers for the credit crunch How much more will your holiday cost? National Savings - safe but not sexy Bradford and Bingley - should we be worried? View archive Investment articles Asian growth to offset US slowdown A mixed first half Pennies from heaven? A return to basics View archive

By Mark Dampier, Head of Research, Hargreaves Lansdown

In our opinion Richard Pease, manager of the New Star European Growth Fund, is among the finest managers in the European sector. He is an accomplished stock picker with the courage to back his own judgment. When combined with the superb research resources of New Star - one of the country's leading investment houses - we believe the fund is an excellent showcase for the fund management industry.

When Richard Pease is choosing an investment he looks for companies that he thinks can generate a high level of cash, since this gives them ample capital to expand their business.

The quality of management is also a crucial consideration. He favours entrepreneurial managers that hold a significant number of the company's shares themselves. This not only demonstrates their confidence in their own abilities to grow their share price, it also encourages them to make decisions in the best interests of shareholders. Over the long-term such a strategy can deliver superb returns.

Outlook for the fund

Many stocks across the world have suffered from volatility recently. The New Star European Growth Fund inevitably suffered losses during this period, but Richard Pease feels that the outlook for the companies he holds is positive. In our opinion, it is during periods of market turbulence that the skill and experience of first-class fund managers is especially valuable, because this is when they can sow the seeds for potential future out performance.

An example of a stock that Richard Pease holds is Aalberts Industries. This is currently the biggest holding in the fund and a company in which he has been investing for years. The firm is involved with plumbing supplies and also coat metal for various uses in the car and aerospace industries.

He believes the company is fundamentally strong, with recent acquisitions in the US and France showing promising signs that they can add value to the business. This gives Richard Pease confidence that the stock can continue to grow its earnings beyond the forecast of market analysts, which would be likely to boost the share price. Please remember that shares and funds can fall in value as well as rise.

Turning volatility into an advantage

The New Star European Growth Fund remains one of the best-performing funds in its sector during 2006 and over the last three years, but you should remember that past performance is not a guide to future returns. Richard Pease is using the volatility to add to positions in companies that he believes have been hit particularly unfairly. Investors might consider adopting a similar approach, if they anticipate potential further growth over the coming years.

The New Star European Growth Fund is available through Hargreaves Lansdown with an initial saving of 4.75% until 31 August. Investors can apply online with a debit card or download application forms or transfer forms from our website.

The Fund of the Month is written by Hargreaves Lansdown. An independent broker offering unit trust, stockbroking, pension and investment services.

• More from Hargreaves Lansdown