CF CHEVIOT MANAGED
Type: Unit trust
Aim: Growth by investing in UK and international equities fixed interest and cash
Minimum investment: Lump sum £5,000
Investment split: 85% equities, 10% fixed interest, 5% cash
Isa link: Yes
Pep transfers: Yes
Charges: Initial 5%, annual 1.5%
Commission: Initial 3%, renewal 0.5%
Tel: 020 7566 4040
The panel: Martin Dilke-Wing, investment director, Morgans Independent Advisers, Keith Lewis, proprietor, Hartley Greatbatch, Michael Both, proprietor, Michael Philips, David Flowers, director, Ronald Blue & Co
Suitability to market:2.6
Investment strategy: 4.0
Product literature: 4.0
The CF Cheviot managed fund is a unit trust which will be run along the same lines as Cheviot Capital's discretionary and advisory portfolio management services.
First, the panel discuss the fund's market suitability. Both says: “The details of the fund are so vague that it is impossible to say. In broad terms, it sounds appealing, but so did the invasion of Iraq.” Lewis says: “It's a new product from a fairly new name. The market is possibly turning more confident and this fund could do well on the back of this.” Flowers thinks it will be more of use to direct sales than IFAs. Dilke Wing says: “This fund is a standard UK All Companies fund. It has no obvious merit above any other fund in its sector. It will rise or fall depending on the competence of its fund managers. There is no good reason for retail investors who have no existing relationship with Kingston Smith or Cheviot to support this as far as I can see.”
Identifying the type of client the fund could suit Lewis says: “Mainly high-net-worth clients and pension trustees as part of a portfolio. I assume it is picking the larger end of the market.” Dilke-Wing says: “In the long-term, shares go up - it's not exactly rocket science is it? Show me a fund manager who says anything different. Unfortunately, most fail to deliver. I see no reason to believe Cheviot is any different.”
Both says: “Clients who don't like to look at track records before investing. No doubt the FSA would approve of this, since it doesn't have any faith in past performance.” Dilke-Wing says: “This fund is suitable for existing clients of Cheviot or Kingston Smith to get into a collective because they like those companies and enjoy a good relationship with them.” Flowers suggests non-sophisticated clients looking for a simple investment, who have no more than £50,000 to invest.
Looking at the marketing opportunities for the fund Flowers says: “None, there are too many known alternatives in the market.” Both says: “None for me. I need a lot more detail before I would take the risk of recommending a fund from a group with which I have had no previous dealings and no way of analysing its track record.” Lewis says: “Maybe the pension transfer market as trustees seek to come out of several failed or failing funds. It offers active management as opposed to with-profits funds or other types of poor-performing managed funds.”
Highlighting the main useful features and strong points of the fund Dilke-Wing says: “Without any actual, simulated or back-tested performance figures based on the manager's previous achievements, there are absolutely none.” Both says: “I wish I could find some.” Lewis mentions the small but personal touch, while Flowers likes its simplicity.
The panel evaluate the investment strategy. Flowers says: “It's a good idea but in my view its applied wrongly. What is the point of an asset allocation strategy which is amended by subjective views of the market?” Both says: “It sounds good in theory, but the practical application of the marketing puffery will matter to investors. The investment screens sound appealing, and could be very successful. But I wonder if the hurdle of 3.5 per cent for annual prospective dividend yield might not rule out most growth stocks, unless it is selectively applied, which then devalues it as a screen. I note that it is above the yield on almost the entire balanced managed sector.”
Looking at the fund's disadvantages Both says: “A complete absence of publicly available, independently assessed, past performance data on any of the funds under management or managed by any of the named managers rather kills it for me.” Lewis says: “It is an unknown name compared with other fund managers, for example Premier, in this type of market.” Dilke-Wing says: “Nobody has heard of Cheviot. According to the literature, the fund managers do not appear to have any verifiable track record in managing retail funds. In a market where qualitative abilities make all the difference, based on the literature I wouldn't invest two pence of my client's money. There are too many competitors with a much better story.” Flowers mentions a flawed investment philosophy and costs.
Next the panel put the company's reputation under the spotlight. Flowers says: “It is a private equity company that has only dealt with the parent company's private clients.” Dilke-Wing says: “There is no reputation. The world is full of investment managers who have run long-only portfolios for private client stockbrokers or fund managers. The experience of the last three years of bear markets has sorted the wheat from the chaff. I see no compelling reason to believe that this fund is wheat.”
Considering the company's investment past performance record Both says: “The chief executive, Kenneth Levy, boldly states 'Cheviot Capital has demonstrated its ability to outperform over this period 'I would love to know where it has demonstrated this publicly, since this is its first retail fund.”
The panel suggest likely competition for the fund. Both says: “The Edinburgh fund of funds portfolio would be a good comparison.” Lewis says: “Other larger, established names such as Premier and fund managers with discretionary funds such as Credit Suisse and Jupiter.” Flowers says: “Established balanced and managed funds from brand name companies.” Dilke-Wing says: “Absolutely anybody and everybody. This is a tough marketplace and there is no way I would give them any of my clients' money based on the initial marketing documentation. It's like giving money to somebody who seems plausible on a golf course.”
The panel are asked for their thoughts on the fund's charges. Flowers thinks they are too expensive while Both says: “They are in line with the market but I would say for a new launch from a virtually unknown manager, the initial charge is too high to entice curious investors.” Dilke-Wing thinks the charges are fair.
Assessing the commission Both says: “It is in line with the market, but it depends upon how Cheviot performs in practice. I would only touch a fund like this through a wrap service like Transact, so the commission should be irrelevant. I would therefore expect to see a lower annual charge if a lot of the administration is handled by the wrap service.” Lewis and Dilke-Wing think it is fair.
Casting an eye over the product literature Dilke-Wing says: “The product literature is exceptionally good provided we look at style not substance. It is very client-friendly and the presentation is professional - but bland to the extreme.” Flowers thinks it is reasonably easy to read and straightforward. Both concludes: “It elevates the term bland to new heights. The only specific information about the investment strategy is a line saying full details of the aims and objectives can be found in the fund's prospectus. This document helpfully indicates that no investments will be made in Fiji but is otherwise so vague as to be worthless except perhaps for wrapping fish and chips.”