CAZENOVE INVESTMENT FUND MANAGEMENT
CAZENOVE UNIVERSAL INVESTMENT BOND
Aim: Growth and income by investing in four multi-manager fund of funds
Minimum investment: Lump sum £50,000
Investment split: 100% in Cazenove universal UK growth portfolio, Cazenove universal balanced portfolio, Cazenove universal growth, portfolio or Cazenove universal international portfolio (ex-UK funds).
Income facility: Yes
Charges: Initial 4.5%, annual 1.95%
Commission: Initial 4%, renewal 0.5%
Tel: 0800 0159592
The panel: Robert Briggs, Partner, Robert A Briggs,
David Flowers, Director, Ronald Blue & Co,
Bob Leonard, Director, Advisory & Brokerage Services.
Company's reputation 8.4
Past performance 5.5
Product literature 6.7
The Cazenove universal investment bond is a unit-linked bond providing access to four Cazenove multi-manager funds through an AIG Life shell.
Looking at the market suitability of the bond Leonard says: “This takes the external fund manager concept to the next stage, whereby the underlying investment is a fund of funds concept.”
Flowers says: “This is a crowded market with many competitive offerings. Although both AIG and Cazenove bring something valuable to the table, I ma not convinced the bond will stand out drastically.” Briggs says: “I don't quite see who this will appeal to, especially in the current climate. All the funds have a very high equity content.”
Identifying the types of client the bond could suit Flowers suggests the larger investor who is security conscious. Briggs says: “Basic rate taxpayers or higher-rate taxpayers likely to become a basic rate tax payers. Also, lump sum investors with £50,000 or more wanting capital growth and income. Medium to high-risk investors.” Leonard says: “This is likely to appeal to clients who already utilise their capital gains tax allowance on a regular basis.”
Considering the marketing potential for the bond Briggs says: “For me, none.” Leonard says: “I would have thought that this is a very restricted market in that most clients either do not fully utilise their annual CGT exemption, or are so wealthy they have no need ever to sell.” Flowers feels there are not many that are not already covered.
Discussing the bond's attractive features Leonard says: “The strong point of the bond is that the underlying investments are constantly being reviewed and adjusted to take care of changes in investment conditions.” Flowers says: “AIG's financial strength is a major feature. Cazenove is offering a range of four fund of fund portfolios, which is probably not enough of a range to give the required flexibility. The bond is structured in such a way that the lower tax liability is not passed onto the client. This should give it an edge in performance.”
Briggs highlights tax efficiency for basic rate taxpayers, the tax-free withdrawal facility, the free switching between the fund and the fund of funds approach involving major investment houses.
Turning to the bnnd's drawbacks Flowers says: “It is not cheap. it is above the 1 per cent annual charge that is expected these days.” Briggs says: “It has limited fund choices, high annual management charges, the tax-free withdrawals may be affected by the Sandler report recommendations and there are no allocation rate encashments.”
Leonard says: “The main disadvantage would be the level of charges being imposed on the underlying funds. As well as the AIG charge of 0.45 per cent a year, the Cazenove Universal portfolio service charges a further 1.5 per cent. This is clearly stated in the brochure as a total 1.95 per cent a year. Unfortunately, there are additional fees incurred by the managers of the underlying unit trusts, which increase this already high annual charge. While there are no details, it would not be unreasonable to see the total annual management charge for all three layers of costs amount to at least 2.5 per cent a year or higher.”
Assessing the bond's flexibility Leonard says: “The degree of flexibility seems to be at an extremely high cost.” Flowers says: “There is not a great deal of flexibility on offer here.” Briggs says: “It has no more flexibility than most bonds, but the free fund switching is an okay feature.”
Turning to the company's reputation Flowers thinks Cazenove has a good reputation and a traditional values City image. He also thinks AIG's reputation is good and says it has a very secure financial position.
Briggs says: “Cazenove is not a household name by my any means, but it is a large and secure institution. It is the Queen's stockbroker, very blue-blooded and solid.” Leonard says: “Without a doubt, Cazenove's reputation is excellent.”
Moving onto past performance Briggs complains that he cannot find any statistics. Flowers says: “It is reasonable but difficult to research. Cazenove does not have a strong retail portfolio, but its main UK funds are okay.” Leonard says: “As this is Cazenove's first unitised multi-manager service, no past performance figures are available.”
Highlighting the main competition the fund could face Leonard says: “Personally, I would struggle to justify the use of an insurance bond as the ultimate wrapper and would suggest that the main competition would come from fund of funds unit trusts, including Cazenove's own offering.”
Flowers says: “There are many fund of funds coming onto the market. The best is probably the Scottish Widows' tie up with Frank Russell, although those funds are not cheap either. Few providers can compete with AIG for financial strength though.” Briggs mentions Scottish Widows and Skandia.
Evaluating the charges Flowers says: “The charges are reasonable, but are not particularly attractive. There are cheaper products around.” Briggs says: “The initial allocation is only 96 per cent, less a further 0.5 per cent. There are no enhancements to allocation rates for larger distributions and a 1.95 per cent annual management charge - ouch.”
Leonard says: “It is difficult to even guess on the overall level of charges being incurred by investors through the bond. But one must seriously question the degree of out-performance required to justify so many levels of charges.'
Flowers thinks the commission is standard while Leonard regards it as a realistic level for this type of product. Briggs says: “At 4 per cent initial and 0.5 per cent renewal, it is good. But I would normally only take 3 per cent initial so there is an opportunity to give up 1 per cent.”
Looking at the product literature Briggs thinks it is professional and comprehensible.” Leonard says: “The literature is clear and concise in regard to all areas, other than the additional charges being imposed by the unit trusts managers within the underlying funds.” Flowers says: “It is quite good really, easy to read and to skim.”
Summing up Leonard says: “I would struggle to see a place for the bond within my recommendations to clients as the level of charges is likely to make the overall structure financially unattractive.” Flowers concludes: “Cazenove has selected an unusual range of funds of funds