TARGET RETURN FUND
Income and growth by investing globally in fixed-interest securities
Lump sum £5,000
22% government bonds, 16% investment-grade short-term bonds, 13% investment-grade bonds, 7% high-yield bonds, 7% emerging debt, 6% convertibles, 28% cash, 1% central Europe
Commission: Initial 3%,
Tel: 020 7426 2929
Credit Suisse Asset Management has introduced the target return fund which invests in a range of fixed income assets, including government and corporate bonds, emerging European debt and convertibles.
Arch Financial Planning managing director Arthur Childs thinks this fund is a valuable product for IFAs as it extends the range of solutions that they can offer, particularly to lower risk clients. He says: “To the best of my knowledge this fund offers a unique approach. Increasing numbers of investors are becoming dissatisfied with performance linked to a benchmark and want to achieve a certain level of positive return. That is the objective of this fund and it could well become a core product choice for the risk averse investor.”
Childs points out that the fund is a global fixed interest fund with a special design which seeks to provide positive returns to the investor, year in, year out, whatever the market conditions. He adds: “CSAM believes this is achievable because many global fixed interest opportunities have a low correlation to one another and this will minimise the fund's overall risk profile.”
Childs notes that the aim of the fund is to target a gross return of 2.5 per cent above the six-month Libor rate _ currently just over 7 per cent. He says: “Taking account of the annual charge this is around 5.75 per cent gross. CSAM believes this is possible because a historical analysis over the last eight years has shown that there are always some fixed interest products that deliver quality returns at any point in the economic cycle. They have testing this concept with institutional investors since August 2000.”
Looking at the investment strategy Childs says: “Approximately two thirds of the fund's added value is to come from CSAM's top down allocation process. The balance comes from each specialist asset class team's management of the underlying assets. Although CSAM points out that the fund cannot guarantee capital preservation, it has a standard deviation roughly mid point between the FT Under 5 Year Gilt Index and the FT British Government All Stocks Index and can go 100 per cent cash if thought appropriate.”
Childs feels the fund could attract low-risk investors, investors nursing losses on equity funds after the last few years and bond investors who are now looking for ways of broadening their portfolios away from just UK bonds.
On the downside Childs says: “I think there is a problem with the R shares available for the clients of IFAs, simply because of the relatively high annual charge. There is an A share class available but there is a £50,000 minimum investment for this. While I appreciate that IFAs want to receive 0.5% pa fund based commission, I do think that an annual charge of no more than 1 per cent would have been preferred.”
He adds: “The fund is not currently approved for use in a Pep or Isa wrapper, as clarification is awaited from the Inland Revenue, nor can it receive regular contributions.”
Childs concludes that competition is likely to come from bond funds such as those from Baring, Invesco Perpetual, Newton and M&G.
Suitability to market: Good
Investment strategy: Good
Adviser remuneration: Good