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Chipping away

Stockbroker firm CF Durlacher plus has entered the retail market with the blue chip plus fund, which aims to enhance returns by selling call options. It invests in a portfolio of between 30 and 40 UK-based blue-chip companies.

Considering how the fund fits into the market, Seymour-Cole says: “At first glance, this is yet another UK fund investing in blue-chip companies, but with a fairly tight stock selection criteria, as the selection is limited to those FTSE 100 companies that have options listed. However, using call options to replace lost dividends is innovative and may prove attractive.”

Gaunt says: “It is a pure equity fund offering some measure of smoothing the returns. The use of derivatives and some fixed-interest funds will reduce the risk but not increase the gearing. It does not offer a complete safety net in times of bear performance.”

Harford says: “The fund appears to create an opportunity in the market that has been sadly lacking lately due to the lack of dividend income distribution from corporates.”

Identifying the type of clients the fund could attract, Harford says: “Clients who would like to enjoy the benefits of real asset growth.” Gaunt says: “A client wishing to participate in equity investments over the medium to long term, but who requires less risk than a pure equity fund.”

Seymour-Cole says: “Anyone looking for total return from a UK blue-chip fund but it is more likely to appeal to the more sophisticated investors who can get to grips with the call option strategy.”

Discussing the fund&#39s marketing potential, Gaunt suggests it could provide opportunities for clients who are traditionally equity investors, but who would like some protection against the large falls seen in recent years. She adds that it will provide some protected equity exposure.

Harford says: “Hopefully it will improve confidence in investments in the equity market.”

Seymour-Cole says: “The options strategy adding an income kick to the overall action of the fund provides an alternative to the plethora of UK blue-chip funds currently available. But, as with any derivative-based strategy, a lot of investors may be put off by it. It is not a fund I would market heavily.”

Discussing the main useful features and strong points of the fund, Seymour-Cole says: “The fund is launching when markets are at a relative low and therefore have good potential for recovery. It has the ability to utilise the Isa allowance. A clearer strategy for replacing income at a time when dividends are falling.”

Harford mentions the call options and the fact that it invests in blue-chip companies. He also points out that if share prices rise or fall, a gain can be had and he feels the fund is reasonably priced. Gaunt says: “Exposure to equity markets with the inherent upside potential while reducing the downside risk.”

Assessing the fund&#39s investment strategy, Harford thinks it is useful in the current investment climate. Gaunt says: “The selling of call options will reduce risk without increasing the gearing which has caused some of the recent troubles. This will work well in a flat or slowly rising market.” Seymour-Cole says: “A blue-chip fund is nothing new but the call options strategy has the potential to make this fund stand out.”

Highlighting the downsides of the fund, Gaunt says: “There is the possibility of still losing if markets slide markedly. The premium retention may temper this but not eradicate it entirely. The selling of call options will also reduce the returns in a period of large upswing.”

Seymour-Cole says: “It could be considered to be just another blue-chip fund with limited stock selection due to the need to select only those stocks with an options listing.” Harford can see no drawbacks to the fund.

Considering the company&#39s reputation, Seymour-Cole says: “This is Durlacher&#39s first foray into the retail fund market and as such, they are a bit of an unknown.” But he believes the fund managers appear to have impressive enough credentials to do the job. Gaunt says Durlacher was previously unknown in the market.

Nominating the main competition for the fund, Gaunt suggests other derivative-based funds. Seymour-Cole says: “Most mainstream UK unit trusts with good offerings from ABN Amro, Artemis, Clerical Medical, Credit Suisse, Fidelity and Jupiter.”

Examining the charges, Seymour-Cole says: “The initial charge is reasonable at 4.5 per cent but the annual management charge is high at 1.5 per cent. I would have preferred to see 4 per cent initial and 1 per cent annual management charge, or 1.25 per cent at the most.”

Gaunt and Harford think that the charges are fair and reasonable.

Turning to commission, Seymour-Cole says: “Commission is fairly standard at 3 per cent and 0.5 per cent renewal. It is good to see renewal being offered on a unit trust and not just the Isa version.” Harford and Gaunt think the commission is fair and reasonable.

Looking at the product literature Seymour-Cole says: “The brochure is fairly simple and straightforward, enabling it to be read without much effort. The application form is relatively simple to complete.”

In Gaunt&#39s view, the literature is clear and concise but Harford thinks it is merely average.

Charles Seymour-Cole, Partner, Financial Independence,

Brandon Harford, Director, Howell Shone IFA,

Alison Gaunt, Partner, Gaunt Hall IFA


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