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Cautious outlook

Sarasin&#39s income portfolio is an Oeic that mirrors an existing Sarasin offshore fund. It invests in a mix of equities and bonds.

Assessing its suitability to the market, Stewart says: “With a strong emphasis on fixed interest but with some equity exposure, it should fit well in the cautious managed sector.”

Dilke-Wing says: “The Oeic fits into the market well as it seems to provide investors with returns from a balanced portfolio that is slightly different from the standard fixed-interest strategy whereby returns are enhanced by correctly predicting yield curves and credit risks or the alternative value-driven equity income model.”

Ferguson says: “As investors start to dip their toes back into the market, cautious funds will be more attractive.”

Identifying the types of client the fund could attract, Gaunt suggests: “A client looking for steady income who accepts some element of risk and the possibility of capital appreciation in the short term. This may be an older client supplementing pensions or trustees of as part of a wider portfolio.”

Ferguson says: “It is designed for the risk-averse client who is seeking to generate a large degree of income. No doubt it will appeal to investors who are looking to restructure equity investments.”

Stewart says: “This should suit the type of client who has a fairly cautious attitude to risk but wants some growth exposure and is more comfortable with investing mainly in the UK. It could also be suitable for those looking for income who want the relative security of fixed interest but also want some equity content.”

Next, the panel consider the fund&#39s marketing potential. Dilke-Wing says: “It will provide a useful addition in asset allocation models where a client may already have components such as a gilt/sovereign element, a high-yield element, an equity income element and a diversified portfolio of equity-based collectives.”

Stewart says: “In the current climate where there is a reluctance to invest in equities, this product may provide a good opportunity for cautious investors to enter the market tentatively.”

Ferguson says: “Following the recent drop in base rates, the fund could be marketed to clients in need of greater income without having to adopt a high-risk strategy. Care planning springs to mind.”

Gaunt says: “It would be marketed as a lower-risk fund with the possibility for fund growth and an achievable steady income.”

Highlighting the fund&#39s main useful features and strong points, Dilke-Wing says: “It focuses on Sarasin&#39s commitment to thematic investments. The experience of Sarasin globalsar would seem to indicate that Sarasin is a proficient manager in the cautious investor environment.”

Ferguson mentions its low-risk profile, asset mix and projected yields.

Stewart says: “The product offers a predominantly themed approach to equity investment while having the bulk of the investment in the safety of fixed interest. It also provides investors who have small amounts with access to institutional investment expertise.”

Evaluating the investment strategy, Stewart says: “I think the investment strategy is good for this particular time and should help investors back into the market. It will also be useful in better times for those wanting to consolidate gains in equities but who do not want to leave equities completely.”

Dilke-Wing says: “The strategy appears to work for Sarasin although I would question the wisdom of launching a bond-oriented fund at this stage in the economic cycle.”

Gaunt says: “It has a careful, thorough selection process with active monitoring on an ongoing basis. Hedging on currency risk reduces the investment risk and gives confidence to advisers and investors.”

Discussing the product&#39s drawbacks, Dilke-Wing says: “It may already have missed the boat. It may end up with the capital losses on the bonds dragging down the performance of the equity portfolio. It could be that the absence of a high-yield bond element will also drag down performance, depending on what happens to the bond sector as a whole.”

Gaunt says: “The income may be low compared with other products. If bonds become less attractive to investors, there is the danger that this may lead to capital depreciation although careful selection should reduce this threat. If equities perform well or interest rates increase, capital values could fall and therefore the timing of investments in the fund may be a problem.”

Asked to assess Sarasin&#39s reputation, Stewart says: “Although it may be a highly reputable private bank in Switzerland, its reputation does not go before it in the UK.”

Ferguson says: “The company has maintained a good reputation among professionals but is less recognised by consumers.”

Dilke-Wing says: “Sarasin has a good reputation as a global thematic manager and has featured strongly on a number of private-client managers&#39 buy lists and fund-of-funds providers&#39 portfolios.”

Sarasin&#39s past performance comes under the spotlight next. Dilke-Wing says: “The past performance record is pretty good. Sarasin&#39s four key principles appear to be working reasonably well and in the event that companies involved in e-business benefit from the upturn in tech stocks, the performance should continue to be strong.”

Stewart says: “It is nothing to get excited about. Its past five years&#39 performance have been quite poor.”

Looking at the potential competition that the fund could face, Stewart says: “Possibly Invesco Perpetual&#39s monthly-income fund, Edinburgh monthly income fund and Artemis high income.”

Dilke-Wing says: “The main competition will be provided by other cautious fund providers, whether the funds are centred on gilts, corporate bonds or equity income funds, and alternative investment strategies.”

Ferguson says: “Probably distribution funds and bonds.”

The panel switch their attention to the charges. Stewart says: “The charges are quite attractive compared with many funds that charge 5 per cent initial and a 1.5 per cent annual. But charges made to capital could be a disadvantage.”

Dilke-Wing would prefer back-end charges to an up-front sales charge.

Ferguson says: “They are reasonable compared with other Oeics but quite expensive compared with other forms of investment. Initial charges can be problematic in the current investment climate.”

The panel think the commission is reasonable.

Casting an eye over the product literature, Gaunt regards it as clear, concise and fairly detailed.

Dilke-Wing says: “Very good. The ethos of the fund is set out clearly and concisely. The case it makes is strong and there is little danger of any potential clients being unsure as to what they are buying.”

Ferguson finds it not overly appealing. Stewart says: “The booklet has been written in a very technical way and would not be suitable for many investors. Also, the print in the prospectus is too small.”

Summing up, Dilke-Wing says: “This product seems to fit quite appropriately into a lower-risk client&#39s potential portfolio. It applies a conservative barbell approach where returns are not chased at the opposite ends of a high-yielding bond or aggressive equity strategy but are judiciously selected to optimise returns from the middle of the spectrum.”

Gaunt concludes: “Funds for cautious investors are the most appropriate to attract business in the current environment. However, investors&#39 confidence is so low, attracting business will no doubt continue to be difficult.”

Don Stewart, principal consultant, Donart Financial Consultants, Martin Dilke-Wing, director, Morgans Independent Advisers,

Mike Ferguson, managing director, Ferguson Oliver, Alison Gaunt, partner, Gaunt Hall

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