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Alpha a good bet

Schroders has introduced its Schroder UK alpha plus fund, a unit trust investing in 20 to 40 UK companies.

Looking at how the fund fits into the market, Dampier says: “It fits in with the newer breed of focus funds, funds looking to achieve absolute returns rather than looking for returns against the benchmark.”

Holian thinks that with the markets moving down and the uncertainty of future direction, a more active approach is required. He says: “A fund independent of the index may achieve this and show some demand.”

Milton says: “The theme of core investing has been gathering momentum. For a long time we have been concerned at the dominance of a limited range of stocks in our indices, brought by size, not value or quality.”

Webster-Smith thinks the fund is a best ideas fund that seeks to exploit market volatility. He says: “Not being tied to an index the fund manager is free to select the stocks and sectors that he believes will outperform the market.”

Wright feels that it fits into the market quite well, another slant on how to achieve something from UK equities.

Identifying the type of client the fund is suitable for, Milton says: “I suggest anyone, as part of a balanced remit. The limited stock range could increase volatility so a spread of such funds could be imperative.”

Dampier feels it would be ideal for most clients, he says: “It could be used in a core or satellite approach. I believe most clients will empathise with this product, believing most fund managers would buy what they feel is going up and not buy shares just because they are a large part of the index.”

Webster-Smith thinks the fund is suitable for a client who has a diversified portfolio and one who is prepared to accept above average risk in order to achieve greater reward.

Holian says: “The more adventurous investor and those with larger portfolios looking for some focused investment in the UK market.” Wright thinks the fund is suitable for Isa clients.

Turning to the marketing opportunities the fund will provide, Dampier says: “The product is ideal for today&#39s markets where a traditional buy-to-hold strategy is less likely to work. It is the antithesis of a tracker and there will be marketing opportunity in exploiting a more active approach.”

Milton thinks there will be some marketing opportunities, while Wright says: “None at this time as investors are rare.”

Analysing the main useful features and strong points of the fund, Milton says: “A good strategy, no benchmarking, confidence in its views is both a pro and a con.” Holian says: “It has a focused approach to investment and searches for good ideas and applies them without the restraints of an index or set allocation.”

Wright thinks the fund seems to be providing a truly managed approach to UK equ- ity investment as opposed to following the crowd.

Webster-Smith says: “This is a best ideas fund that is unconstrained by index components. It aims to identify the outperformers and to provide absolute returns. The performance of the fund manager, Richard Buxton, will thus be judged by this.”

Dampier lists its ability to use other instruments, that is, cash and gilts, and its flexibility to see absolute and not relative returns. Its top-down strategy is its key differential against other focus funds.

Discussing the investment strategy, Webster-Smith says: “Given current market volatility, the fund has adopted the best investment strategy to give it the best possible chance of providing absolute returns. The fund aims simply to identify those stocks that will provide the greatest return.”

Dampier says: “Stockmarkets over the next decade are going to look very different. Therefore investment strat-egies need to change. This fund looks set to exploit these differences and does look genuinely different from others.”

Wright is keen on this non-conformist approach. Milton feels the investment strategy is sensible but could have been done better being introduced and shouted from the rooftops in 2000. He says: “Big company shares are now becoming more attractive because they have fallen so much.”

Holian thinks it is good and appropriate for current markets, where there are still some companies growing and succeeding.

Turning to the fund&#39s disadvantages, Milton says: “Have I missed anything about anticipated yield? Value investors appreciate income, especially with capital values being low and high yields easier to acquire. A mistake or two could be detrimental to overall performance for some time to come because of limited diversity.”

Wright does not see any obvious drawbacks of the fund other than general market conditions at this time. Webster-Smith believes that should the fund manager pick the wrong stocks then your investment could potentially suffer considerably.

Holian says: “It will invest in a very small number of stocks so if one idea goes very wrong the funds suffers more. There is a lack of track record for this type of investment.”

Dampier thinks its flexibility and partial top-down approach could magnify mistakes, its strategy will mean it being potentially more volatile in the short term.

Looking at Schroders&#39 reputation, Milton describes it as very acceptable. “The group&#39s own share price performance is languishing, however,” he says. Holian says: “They are a quite large company, long established with a well-known name.” Webster-Smith thinks Schroders has an excellent reputation as an investment house. It has dedicated research teams with proven track records and has years of experience managing funds consistently ranked in the top quartile.

Dampier says: “Schroders went through a particularly rough patch a few years ago but has been coming out of it. Under head of retail investment David Gasparro, the UK team have been sorted out. Clearly you don&#39t attract people of Buxton&#39s reputation without having something to offer.”

Discussing the fund&#39s main competition, the panel list Gartmore focus, New Star UK aggressive, R&SA UK prime.

The panel agree that the charges and commission are fair and reasonable, although Milton thinks the charges seem as bit high.

Looking at the product literature, Webster-Smith thinks it is well presented, clear and offers brief answers to a wide variety of potential questions. Wright says: “It keeps restating the same point over and over.”

Dampier thinks it is excellent and Holian says: “Quite brief and to the point.”

Milton says: “OK, but a bit grey. Perhaps that&#39s best for the current climate.”

Summing up Webster-Smith says: “The Schroders fund is launching at a time when markets are at a six year low, despite the encouraging UK macroeconomic data. The opportunity to pick up stocks at fair value gives this fund the perfect starting opportunity.”

Mark Dampier, Head of research, Hargreaves Lansdown

John Holian, Certified financial planner, Maunby

Investment Management

Philip Milton, Managing director, Philip J Milton & Company Jonathan Webster-Smith, Research analyst, Brooks


John Wright, Proprietor, Investment Management Services


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