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Boston firm MFS unifies funds to boost UK sales

MFS Investment Management plans to attract UK multi-managers to its unified fund range by offering competitive total expense ratios on institutional share classes.

The Boston-based company is increasing the range of funds available to UK investors by merging its Cayman Islands and UK-domiciled fund ranges into its Luxemburg Sicav.

The merger is expected to take place in September , subject to regulatory approval. It will create a single range of 28 Ucits 3-compliant funds under the MFS Meridian Funds’ umbrella. The range will include 17 sterling-denominated funds which will qualify for UK distributor status. Details of the institutional TERs are not yet available.

Through the merger, the group is able to expand its UK offering across a range of asset classes without launching new funds or making acquisitions. ]

The group entered the UK market with three equity funds in 2001, but admits the timing was not good. Bond funds were then in demand, but MFS did not have an off- ering in that asset class. It will now have three Euro- pean fixed-income funds, five US fixed-income funds andthree global fixed-income funds to sit alongside six European equity funds, five US equity funds and six glo- bal equity funds.

The new range will be domiciled in Luxemburg rather than the UK because MFS wants to have a single fund range that can be sold across pan-European and global markets. As the new funds will be clones of existing funds, their track records will be transferred, providing regulatory approval is received.

MFS managing director Mark Rogers says: “We feel we will have the fund range, the size and the pricing range to allow us to be involved in funds of funds.”

The world’s financial climate is changing. Risks have increased, returns have collapsed. It used to be that diversifying overseas within equity and fixed-interest asset classes was enough to produce good returns but this is no longer the case. Little attention is paid to the problem that world stockmarkets have become increasingly closely correlated. Gone are the days of building a diversified portfolio, with reduced risk, using a variety of loosely correlated equity markets. The index-hugging nature of many funds means that when important sectors do well or badly, risk is increased.

This has had effects for investors, who have been hard hit by poorly performing funds. This has shifted investor priorities. Capital preservation and total returns are now of paramount importance. More attention is being placed on investments aiming to achieve the goal of potentially more stable returns from investment which is not wholly dependent on rising equity markets.

This means re-examining conventional investment methodology and making alterations to strategy. If we believe low inflation and low interest rates are here to stay, then we must reduce expectations on returns. Equities will have a significant role to play in providing real investment returns for those with an appetite for the associated risk but it will be wise to consider diversification into other asset classes.

The new style of fund management should take into account the full range of asset classes . Looking at the range of multi-manager and fund-of fund products on offer, whole sectors of markets are absent in almost all the Mom or Fof offerings. Specifically, commercial property, hedge funds, structured products, alternative investments and natural resources are not represented.

There is a demand for innovation within the multi-manager sector, beyond the long-only, brand-name-dominated market. A few multi-managers have gone beyond equity and bond funds in their fund selection to include, for example, commercial property, byt they appear to have stopped there. This may be because even the well established names lack the experience of running truly multi-asset portfolios.

We should remember the reasons behind adopting a multi-asset approach. It is not only in a quest to reduce correlation with equity markets but also to reduce sole reliability upon rising markets to do well. Adopting a multi-asset approach may mean we do not fully participate in an equity market upswing but that will not matter if more realistic investment targets have been set. From an investor’s perspective, the multi-asset approach provides a number of benefits. It offers prospects of more consistent, positive returns, less risk due to the diversified nature of the investment and less exposure to market volatility.

The investor’s search for a multi-asset product will raise two challenges – access and expertise. The multi-asset approach is identical to that employed by contemporary discretionary managers, whose services are often restricted to the very wealthy. How is the average investor able to access that approach? Providers such as Close Finsbury are looking to provide an investment that includes the full spectrum of asset classes and asset classes that are not directly connected to each other in terms of likely performance. These include global government and corporate fixed interest, commercial property, structured investments, alternative investments, hedge funds, natural resources and cash. Such products offer investors more consistent returns, with reduced volatility. A sensible risk management process minimises risk as far as possible, yet still allows for opportunities to outperform an index or composite index.

Pascale Moray is senior marketing manager atClose Finsbury Asset Management

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