Aim: Growth by investing globally in equities and investing long and short through derivatives
Minimum investment: Lump sum £1,000, monthly £100
Investment split: 100% in global equities and derivatives
Isa link: Yes
Pep transfers: Yes
Charges: Initial 4.5%, annual 1.75%
Commission: Initial 3%, renewal 0.5%
Tel: 020 7597 1900
Investec Asset Management has brought out the Global Extension Fund, its interpretation of the 130/30 investment strategy, which involves investing in long-only portfolio, selling short 30 per cent of the value of this portfolio then reinvesting the proceeds from the short sales into the long portfolio.
Introducing the fund, Chadney Bulgin partner Bruce Bulgin thinks that in many ways Investec is to be applauded on the launch of this innovative new fund.
He says: “This is an innovative new fund which combines Investec’s 4factor process and extension portfolio strategies the aim of delivering attractive returns. The extension portfolio is commonly known as 130/30.”
Bulgin points out that the introduction of Ucits III regulations in 2006 has enabled Investec to take advantage of new financial instruments to add value for clients investing in the fund. He hopes that investors will be rewarded with superior returns.
“Essentially the way in which the fund works is that the fund could be invested 130 per cent long and 30 per cent short, but it will still have a market exposure of 100 per cent. The way this is done is that the fund manager will sell 30 per cent of the amount invested to buy short exposure and will match this with 30 per cent long exposure.”
Bulgin says this approach has been popular in the US for a number of years and Investec has back tested the process “ Owing to Investec’s 4Factor approach, this fund is more disciplined than that of many other fund managers that rely more on stockpicking and in the main are only investing long. Returns would appear to be positive,” he says.
Looking at the costs of the fund total expense ratio is a little above average. “Likewise the initial charge at 4.5 per cent is about average but again could be less for advisers using platforms,” he says.
Bulgin thinks the IFA commission is standard for this type of investment and that the minimum investment is low. However, he complains that complexity is the main problem with the fund “It would be difficult to explain how it works to many investors – perhaps the old adage of ‘if you don’t understand it then don’t invest’ applies.”
Bulgin says that although Investec has a strict investment process that has worked well and there is a track record with funds of this type in the US, it is relatively new to the UK. “In some circumstances the investment strategy could compound losses, especially where the stock picks do not work out,” he says.
It is not clear to Bulgin which sector the Fund will be benchmarked against and as with any global fund, there is likely to be an extremely broad remit, “The adviser and the investor will have little certainty as to where the fund is invested in terms of geographic and economic sectors,” he says.
Staying with the less appealing features, Bulgin believes the literature could be better. “It would be useful to have some explanation of how the fund works in terms that are comprehensible to the average investor,” he says.
Scanning the market for possible competitors Bulgin says: “There are a number of other funds that are being introduced which are taking advantage of Ucits III rules, albeit in a slightly different manner, such as some of M&G’s multi-asset portfolios. It is likely that some other investment houses will introduce similar funds that use derivatives either to enhance returns or to provide stability.”
He concludes that over time, there will be greater use of financial instruments so we will see many more funds that are not wholly invested in long positions. “In times of market fluctuations or where a fund manager wishes to take a short position this makes a great deal of sense,” he says.
Suitability to market: Good
Investment strategy: Good
Adviser remuneration: Good