Fund managers are always trying to steal a march on each other with new funds. In the past two months, we have had New Star with its unique international commercial property fund and then most recently, Schroders came along with its climate change fund (due to be launched in September).
New types of funds inevitably come under scrutiny, with questions asked on whether they will they live up to their billings? Many never do, of course.
When Skandia launched its innovative global best ideas fund last summer, it had all the ingredients of a marketing man’s dream and it had the good fortune to have the backing of one of the industry’s most colourful character’s in John Duffield. Perhaps not surprisingly, some advisers and rivals were quick to dismiss it as nothing but a gimmick but one year on, it would appear that the cynics were premature in their judgments.
To recap, the rationale behind the fund was to select 10 highly rated managers, take just their 10 best stock ideas and combine them into a single fund. They would be able to hold up to 25 per cent in a single stock and to move up to 25 per cent into cash if they felt it necessary.
Aside from the “marketing froth” swipes, some IFAs feared it could be a mismatch of styles while its risk profile could be high because it is potentially 100 per cent invested in equities, with 50 per cent overseas.
Another issue raised was what would happen if several of the managers choose the same stock, leading to excessive exposure within the portfolio. Doubters were also concerned about the cost. The total expense ratio on global best ideas was 2.5 per cent a year while UK best ideas had a TER of 2.45 per cent at least 50 basis points above the most funds.
The Skandia vehicles would have to add value if they were to justify the high charges, the doubters proclaimed.
But Skandia gave itself every chance of defying the cynics by assembling a decent team of managers, all of whom were held in high regard. They were Stephen Whittaker (New Star), Mark Tyndall (Artemis), Richard Plackett (MLIM), Ashley Willing (Gartmore) Roger Whiteoak (Axa Framlington), Tom Walker (Martin Currie), Crispin Odey (Odey), Angus Tulloch (First State), Nathan Gibbs (Schroders) and Hugh Young (Aberdeen) and, 12 months on, they remain in situ.
Skandia also claimed to have measures in place to ensure stock positions do not reach this level and it appears to have been telling the truth. There certainly appears to have been no compromise on style or stock selection.
For the global fund, no one stock has ever been more than 4 per cent of the fund over the past year and no one stock has ever been held by more than three managers at one time. The cash weighting of the fund is currently 5 per cent.
What of performance? Global best ideas launched on June 19, 2006 and by June 11, 2007 had returned 23.74 per cent, ranking it ninth out of 76 funds in the active managed sector, according to Morningstar. The UK fund, which was launched on November 13 last year, has started with a greater gusto. It has returned 12.25 per cent compared with the UK all companies average of 7.87 per cent, placing it firmly in the first quartile.
The best idea concept seems to be working – and it is not just at Skandia. Rensburg is delivering the goods with its best ideas fund – focus trust – using only its own four fund managers – Mark Hall, Colin Morton, Stuart Sharp and Paul Spencer. Each runs a 25 per cent slice of the portfolio. It has returned 22 per cent since launch in September – 8 percentage points above the average and a top quartile performer.
There is a good reason to be extra wary when a new fund comes on the scene and more often than not the cynicism is justified. It is still early days for Skandia. What happens when and if managers move on has yet to be tested. But the 60,000-plus investors who gave best ideas the benefit of doubt have so far been rewarded for their leap of faith.
Paul Farrow is money editor at the Sunday Telegraph.