The Man City Sheikh has a winning investment strategy

But it would be wise to be defensive on Barclays.

Pennon

481¼p +¼

Questor says BUY

Questor likes Sheikh Mansour bin Zayed al-Nahyan's style. His company's stake in Barclays has doubled in value – so he has decided to cash in and not risk his gains. He does, however, maintain some warrants in the group.

This is just the investment strategy that Questor has been advising for some time – banking gains as they present themselves. The market has risen very fast and is discounting a significant amount of optimism. This makes Questor nervous.

Questor is not alone in this view. Most professional investors agree.

According to a report released by Barclays Capital this week, just 17.5pc of the 605 investors they polled thought that the current stock market rally was sustainable. The investors surveyed included central banks, asset managers, hedge funds and international corporate clients.

So, investors should follow the lead of the sheikh, who also owns Manchester City Football Club . Gains should be banked as they present themselves and investors should not hang on in there for the last bit of profit. Two old stock market adages come to mind: "You don't go broke taking a profit" and "leave a little for the next man".

Therefore, Questor thinks that investing for income is still important and, as the appetite for risk has returned, defensive sectors like utilities have underperformed.

Questor has recommended buying shares in Scottish & Southern Energy and United Utilities over the last 10 days because of the lowly performance of the sector and the relative safety of their dividend payments.

Today, Questor maintains his buy stance on shares in Pennon, the utility group which owns South West Water and waste contractor Viridor.

Questor recommended buying Pennon shares on February 13 at 435p. Yesterday's full-year results statements came in ahead of market forecasts.

As is important with a defensive share, there was also good news on the dividend. The final dividend per share was raised
by 5.1pc to 14¼p, making a total payout for the year of 21p, an increase of 6pc. This is more than most brokers had expected – they had pencilled in nearer to 20½p.

The shares go ex-dividend on August 12, so there is still time to buy the share and bank this payment. The final dividend will be paid on October 7.

This leaves the shares trading on a prospective dividend yield of 4.5pc, which is not the best in the market, but it is well worth having. The company also has a dividend policy of growing dividends by 3pc above inflation in the current year.

In the year to March 31, pre-tax profits rose 6.4pc to £159.1m on revenues that were 8.9pc ahead at £952.9m.

Pennon said that it had seen a marginal impact from economic slowdown at South West Water, which is probably because the region in which it operates is not particularly exposed to industrial activity.

Not only is the group defensive through its water business, its Viridor unit offers real growth opportunities going forward, although the unit is facing some challenges because of the downturn.

Profits at the unit were up 12.7pc to £65.5m, but total landfill disposal volumes fell by 11pc to 4.6m tonnes in the year.

The slowdown at the unit is not surprising, given that industrial activity has been subdued – and therefore less waste created. There was also a fall in recyclate prices, but these have now returned to a more normal level, according to the company.

Questor still thinks that the company has great opportunities in its energy from waste operations and these could be a real growth part of its business in the next few years. The Government also has to spend about £15bn to meet European waste targets, which offers a great opportunity for the group.

The shares are trading on a March 2010 earnings multiple of 13.2 times and yielding 4.5pc and they remain a buy.

Barclays

273½p -42¾

Questor says AVOID

Questor has not made any recommendations in the banking sector in the last six months because of the level of uncertainty surrounding balance sheets.

Barclays management avoided handouts from the Treasury, so they must be pretty confident that their balance sheet is not in danger of crumbling.

However, Questor prefers investing to high-octane gambling and, despite the potential for good long-term gains, prefers to stay away from the sector for now. There is simply no way that an outside individual could get a handle on what lies in store regarding future bad debts.

Losses in the banking sector have been from structured credit associated with the sub-prime debt explosion – but there could be another stage of bad news to come.

Questor expects a wave of bad loans resulting from problems in the real economy will be the next wave of bad news, so remains cautious on the sector as a whole. Loan defaults and business bankruptcies are likely.

However, there is one long-term play in the banking sector that Questor believes should escape the worst of the newsflow - and it represents Questor's first buy in the banking sector for quite some time.

It is a long-term growth story in markets Questor likes – and Questor will reveal the latest strategic sector investment tomorrow. However, shares in Barclays are an avoid.

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