THE ESTABLISHMENT INVESTMENT TRUST
Type: Investment trust
Aim: Growth by investing in bonds, equities and cash
Minimum investment: Subject to negotiation with stockbroker
Maximum investment: No maximum
Investment split: Cash 10%, bonds 40%, equities 30%, other 20%
Types of share: Ordinary
Isa link: No
Pep transfers: No
Redemption date: None
Charges: Annual 1%
Tel: 020 7659 1302
The panel: John Holian, Certfied financial planner, Maunby Investment Management,
Mark Dampier, Head of research, Hargreaves Lansdown,
Godfrey Bloom, Investment director, TBO Corporate Benefit.
Investment philosophy 7.3
Past performance 2.5
Company's reputation 3.0
Product literature 5.0
BDT Investment Management, a boutique investment house established in 2000, has introduced the establishment investment trust. This aims for capital growth through a portfolio of global shares, fixed interest securities and hedge funds. However, it will invest mainly in emerging markets and the Far East, as this is where the company specialises.
Looking at how the investment trusts fits into the market Dampier says: “We view the fund as a long-term holding to gain an absolute return from investments in Asia and the Far East over the market cycle.” Bloom says: “It fits in well, insofar as there are not many trusts unrestricted by index benchmarks.” Holian says: “It provides an alternative international investment trust with more freedom and asset allocation.”
Identifying the types of clients the fund could attract Bloom says: “We simply cannot think of any.” Holian says: “Those looking for international exposure with more active management. As the nature of the fund, I expect it to be suited to more adventurous investors.” Dampier suggests mainly institutional investors.
Highlighting the marketing potential for the trust, the panel are broadly in agreement. Holian says: “I personally do not see any special marketing opportunities.” Dampier says: “There are probably none, as most IFAs will not have heard of it. Also, it doesn't pay commission and it is an investment trust.” Bloom thinks here are very few marketing opportunities, especially in a bear market.
Considering the trust's strong points and useful features Dampier says: “It offers a total return and exposure to BDT 's investment management potential.” Bloom says: “We like the concept of having a fund benchmark which is made in percentage terms.” Holian says: “The investment strategy of absolute returns from global markets and the freedom to invest in a wide range of securities. This should free it from the usual constraints, to enable it to move faster in changing investment markets.”
Discussing the fund's investment strategy Bloom says: “We have ourselves more segregated portfolios to an old fashioned wage inflation benchmark. Many of the problems encountered over the last five years is that funds try to play catch up when they are underweight in the technology, media & telecommunications sector. This has led to so called defensive funds falling as much as aggressive growth trusts in the last 18 months. In short, peer group pressure is curtailed.”
Holian says: “The absolute returns from global markets is clear. It favours markets it knows about and is free to invest without benchmark constraints, this would be good but for the decision to invest 20 per cent of capital into one company - namely, the investment manager.” Dampier says: “It is eminently sensible. It invests in good long term business when offering real capital growth potential due to low valuations.”
Moving onto the drawbacks of the trust Holian says: “The fund will subscribe 20 per cent of capital to shares in the investment manager, BDT. There is also an interest free loan of £66,000 to the investment manager to gain large portions of funds it manages, but not the other way round.” He feels this is something shareholders could do without.
Dampier says: “It is small, shares are illiquid, the company is unknown and is not owned by private clients.” Bloom says: “There is a really thin line-up of fund management ability. The company simply has no track record.”
Assessing the company's reputation, Bloom labels it non-existent. Holian says: “The three executives listed as managers have extensive Asia experience, which should be beneficial in view of the fund's initial weighting in favour of Asian markets. Henry Thornton was head of emerging markets at Colonial First State, which again is beneficial as this is another favourite area. This leaves a possible lack of expertise in the US, Europe and UK, should these be more favourites in the future.” Dampier says: “It is still unproven at present, but its management team's reputation is high.”
Discussing past performance, Bloom points out that it is non-existent. Dampier repeats his earlier observation about its lack of a track record. Holian says: “The investment manager is new and therefore does not have a past performance record as such. Investors will have to have faith in its performance and the fund's investment philosophy.”
Pointing out the likely competition the fund could face Holian says: “The more established international investment trusts such as Foreign & Colonial and Witan, or unit trusts for absolute return could be competitors.”
Dampier mentions Asian investment trusts, while Bloom cites Merrill Lynch asset allocator.
Dampier thinks the charges are fair, while Bloom thinks they are just about reasonable. Holian says: “The annual management charge of 1 per cent may be higher than some other trusts, but investors should note the performance fee of 10 per cent in excess growth over 10 per cent a year.”
Looking at the product literature, the panel see it as a straightforward prospectus.
Summing up, Dampier says: “This is an exciting trust but unfortunately it doesn't fit in with the mainstream. IFAs appetite for it is also very small at present.” Bloom concludes: “I have tried to be as nice as I can, but really this trust looks like a bit of a lemon. It has no track record and there is a possible conflict of interest with the company's ownership of the management. One to avoid, I think.”