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Circus Capital walks with-profits tightrope

Circus Capital has established two offshore funds that invest in a portfolio of with-profits funds.

The company says there used to be little difference between with-profits providers, but poor equity performance over the last few years has altered this. With providers making a series of cuts to bonus rates, factors such as the financial strength of providers have become important when separating the best providers from the worst.

The diversified smoothed growth fund &#45 US dollar segregated portfolio and the diversified smoothed growth fund &#45 Euro segregated portfolio invest in an underlying mix of international equities, fixed-interest, property and cash through with-profits funds.

With-profits funds are analysed using quantitative factors such as past performance and qualitative methods such as face-to-face interviews with the managers. Circus Capital will also use external research provided by industry analyst Ned Cazalet to assess which providers are most likely to stay in the with-profits market, as these will be best placed to provide smoothing against stockmarket fluctuations.

Peter French, director of financial planning at IFA firm Berns Brett and Co says advisers would be concerned about the application of market value reduction factors (MVRFs). Circus Capital aims to deliver returns free from MVRFs for investors who hold the fund for at least five years.

However, MVRFs may be applied on early surrender and where the underlying investments are lower than the fund&#39s surrender value, which may put some investors off.

French points out MVRFs are an important consideration for advisers when recommending individual with-profits funds to their clients. He is wary of the Circus Capital fund because he feels clients would hold advisers responsible for the choice of with-profits funds if poor performance led to the application of MVRFs.


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