Aim: Growth by investing globally in developed and emerging market equities
Minimum investment: Lump sum £5,000
Investment split: 100% in global equities
Isa eligible: Yes
Charges: Initial 5%, annual 1.2%, performance fee 20%
Commission: Initial 3%, renewal 0.5%
Alliance Trust has recently launched its global thematic opportunities fund, with new recruits Ilario di Bon and Juergen Lanzer at the helm. They will fill the portfolio with around 50 to 55 stocks that will benefit from a number of global investment themes, such as energy efficiency and changing Asian consumption.
Chadney Bulgin partner Bruce Bulgin says: “The new fund is the first product from Alliance’s recently formed London-based global equities team and reinforces Alliance’s strategy to be seen as a leading boutique fund manager. It brings the total number of Alliance’s funds to seven.”
Bulgin adds that the target audience is retail, intermediary and institutional, so there are different share classes catering for each market. He notes that historically, Alliance Trust has been seen as one of the large and long established managers of investment trusts, and in particular the mighty Alliance Trust itself.
“In more recent times Alliance has also been promoting its self-invested personal pension proposition in the IFA sector,” he says.
Considering the managers’ credentials and the investment strategy they will use for the fund, Bulgin highlight’s di Bon’s former employment at Fidelity, where he managed its global opportunities fund, growing it from $250m to over $1bn in less than two years. Lanzer was previously with Schroders where he was a global financials sector specialist. Both managers previously worked together at UBS Global Asset Management.
Bulgin says: “Alliance appears to have done its homework in hiring such experienced fund managers and there is a well thought through investment process based on four top down frameworks that the fund managers believe are at the heart of a thematic approach to global investing. This takes account of the environment, innovation, demographics and global realignment.
“So, for example, advantage can be taken of themes developing in different parts of the world such as the growing middle class in Asia. Nevertheless, the fund managers are also aware that many established economies have companies that are thriving by delivering products and services to emerging markets. An example is Fanuc, a Japanese company that provides technology solutions to manufacturers globally.”
Bulgin observes that the fund will have around 50 holdings out of a global universe of around 10,000 and is unconstrained. “The managers are typically looking for a three to five year investment cycle with a slight bias over time to growth over income. The fund managers are of the opinion that this approach, which is neither value nor growth and when coupled with the longer term approach, means that the market’s short termism coupled with related overreactions can be exploited.”
He adds that the number of holdings is less than is typically the case with many global funds and with this number of holdings it is to be expected that the managers will have a good understanding of the companies they are buying.
Considering the fund’s market suitability, Bulgin says: “The new fund may well be of interest where an adviser or an investor is looking for a core global equity holding. Many investors hold the bulk of their equity exposure in their home economy, for instance in the UK the FTSE all share index with around 630 listed companies often represents about 65 per cent of a portfolio. “ He thinks that with a global approach where the universe is up to 10,000, there can be more diversification and exposure to a wider range of markets and industries.
“Clearly the active versus passive debate needs to be taken account of and some advisers would prefer to buy the market and to buy in line with market capitalisation. So that rather than having say 50 underlying holdings there will be thousands,” says Bulgins. He adds that there is no right or wrong answer and sees a place for all styles and all strategies.
Turning to the potential drawbacks, Bulgin says: “The passive approach is likely to be lower cost and the base costs of the Alliance fund are reasonable, but there is a performance fee which is calculated as 20 per cent of the Fund’s NAV relative to its benchmark, capped at 1.25 per cent. So if it does well, the charges will rise substantially.
“Conversely there appears to be no corresponding reduction in charges for underperformance.”
Looking at the charges in more detail, Bulgin points out that there is a 5 per cent initial charge on the retail share class. But many advisers will use a platform to buy the fund, so where appropriate the charge may be reduced.
Assessing the main competition, Bulgin says: “In tough economic times with largely flat returns – the so called lost decade – there still seems to be a large number of fund launches. It is a crowded space and Alliance will be up against a large number of established funds from giants such as Fidelity, M&G, Henderson and Invesco Perpetual as well as others such as Neptune and more recently Fundsmith – all of which have their own strategies, some of which have stood the test of time, and some have not.
“There are also a growing number of passive and quasi passive offerings from the likes of Dimensional and Vanguard where charges can be lower by a significant degree. In rising markets with double digit returns charges are of less importance, likewise where an active fund consistently outperforms the charges are less of an issue. History tells us that few active managers beat the market on a long term basis.”
However, Bulgin adds that there is no doubt that over the long term UK investors will need to ensure that their equity exposure is global. “If they or their advisers are advocates of active investment then the Alliance Trust global thematic opportunities fund is certainly worthy of consideration and based on the track record of its managers should deliver attractive returns.”
Suitability to market: Good
Investment strategy: Good