Anyone about the likely demise of MG Rover, Britain?s last volume carmaker, probably thinks UK manufacturing is a dead investment.

If so, think again. Of course, the country?s manufacturing industry has declined sharply: it employed 7.1m people in 1978, against just 3.5m by the end of 2004. Competitors from Asia and Eastern Europe with low labour costs have overtaken UK rivals.

But a handful of survivors have risen like phoenixes from the ashes of the UK?s manufacturing industry. And several fund managers have invested in them. The survivors include household names such as Aga Foodservice, which makes ovens of the same name.

?If you asked the guy in the street about British manufacturing, he?d say it?s dead. But no ? there?s a number of niche manufacturers,? says Sean O?Flanagan, a fund manager at Unicorn Asset Management.

The survivors include companies which have persuaded customers to pay top dollar for fashionable consumer goods. Other winners make ?just-in-time? goods which Asian competitors struggle to provide, because of the delays in transporting goods across the world to . In some cases, fund managers claim that these companies? share prices are supported by valuable assets including land.

A classic example of a company which has persuaded consumers to pay high prices is Aga Foodservice. Scott McKenzie at Morley Fund Management says Aga Foodservice took the strategic decision to quit the commodity end of the market because it could not go head to head with low-cost manufacturers. So it went upmarket. Aga can charge up to ?12,000 for an oven: ?People who buy Agas don?t want to pay ?199. There?s a kind of snob value,? says McKenzie.

O?Flanagan at Unicorn favours Rotork, the engineer, and Renishaw, the precision instruments group, citing robust balance sheets, healthy dividends, plus attractive operating margins and a healthy return on capital employed.

He believes Rotork isin a particularly strongposition because it supplies actuators?? devices that turn valves on and off ? to oil and utility companies who need the products so badly that they are willing to pay high prices. ?It?s key for the customer to buy best of breed,? says O?Flanagan.

James Henderson, fund manager of Lowland, an investment trust holding mainly UK equities, respects UK manufacturers? attractive yields, cash generation and asset-backing. He thinks companies which survived the rise of sterling in the 1990s have proved their value. Henderson has invested 11.8 per cent of Lowland in engineering and machinery companies, compared with their 0.8 per cent weighting in the FTSE All-Share index.

He has also invested in Aga Foodservice, citing strong recovery in profits, a growing US business and a valuation which he says could attract a venture capitalist to pay a premium to the share price. Lowland has also invested in Avon Rubber, which Henderson says makes attractive margins by selling gas masks to the UK and US security forces.

Investors who want exposure to manufacturers through a fund could consider Lowland, which has turned ?1,000 into ?2,573 during the past five years. Shares in Lowland were this week trading at a discount to net asset value, a cheap valuation compared with December when they were at a premium.

According to Simon Elliott, an investment trust analyst at broker Close Wins, other asset management groups which run funds that are overweight in UK manufacturing companies include Aberforth, which focuses on smaller companies, and Platinum Fund Managers.

However, there are significant risks. Some manufacturers rely on exports, exposing shareholders to rises in sterling, says Steve Medlicott at KBC Peel Hunt, a broker. Companies can hedge this risk but the cost of doing so can be prohibitive.

Then there are other costs: some manufacturers need to buy commodities such as steel and when these commodity prices rise, profits are likely to suffer.That is a significant risk if you agree with Hugh Hendry, a hedge fund manager who used to run a traditional fund, Odey Continental Europe, which made money during the bear market. He may not represent the majority view but he thinks commodities are the only major asset class which are not overvalued. If he is right and prices continue to rise, manufacturers could struggle. Again, hedging is possible but can be expensive.

As for returns, some companies? share prices have more than doubled in the past five years when investors take account of re-invested dividends (see table). Would-be shareholders should ask themselves whether the companies can sustain such performance.

However, Medlicott says: ?If a manufacturer has strong brands and products in niche markets, the outlook is good.?

And to many certified financial planners, buying individual shares, whatever their sector, is a risk too far. CFPs ? independent financial advisers with high-level qualifications - advise cautious investors to hit their financial targets without taking excessive risks. If they need stock market returns, they should invest in diversified funds but avoid stock-specific risks.

So far a handful of UK manufacturers have escaped falling victim to the country?s decaying industrial infrastructure ? but investors must watch the risks.

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