GILT TO EQUITY ISA
Type: Unit trust and Oeic maxi Isa
Aim: Income and growth by investing initially in the gilt yield trust, and then in the UK equity fund or UK equity income trust
Minimum investment: £7,000
Maximum investment: £7,000
Investment choice: Gilt yield trust and then choice of UK equity fund and UK equity income trust
Charges: Initial 3%, annual gilt yield trust 0.5%, UK equity fund and UK equity income trust 1.25%
Commission: Initial 3%, renewal 0.5%
Tel: 0800 848494
The panel: Bob Vaughan, Partner, Ashley Vaughan Partnership,
Brian Pack, Principal, Brian Pack Financial Services,
Barry Laymond, Senior practitioner, Barry Laymond Financial Services.
Suitability to market 7.3
Investment strategy 6.3
Past performance 5.8
Company's reputation 5.5
Product literature 7.3
Dresdner RCM's gilt to equity Isa allows investors to initially go into Dresdner RCM gilt yield unit trust, then gradually switch into the Dresdner RCM UK equity income unit trust or the Dresdner RCM UK equity fund. The switching occurs in three stages on predetermined dates.
Assessing how the Isa fits into the market Pack says: “This is not a unique product. Other fund houses offer phasing and I do not think it will quell investors' distrust of the current stockmarket position.” Posner says: “It is a balanced risk equity Isa, with a lower-risk phased entry into the more volatile sectors of the market. It offers options of income and growth, or just growth.
Vaughan says: “This product offers breathing space to the cautious investor. By arranging a plan now, they can take advantage of their Isa allowance without worrying whether or not it is the right moment to enter the market. Worry may still come later, but the phased approach over up to eight months should provide a cushioned re-entry to the market.” Laymond thinks the Isa fits nicely as a niche alternative to volatile funds.
Identifying the clients the Isa may attract Vaughan says: “Almost any client wishing to arrange a maxi equity Isa, but who is unsure as to when is the right time to invest, or if markets have yet reached rock bottom. The plan is also attractive to anyone who feels the time is right to invest in UK equities.” Laymond suggests all clients seeking a more stable investment in these uncertain times.
Posner says: “This should appeal to clients who wish to use their Isa allowances, but who feel that the market is still too volatile to fully commit to equities in the short term. They may believe that there will be an upturn in the UK equity market. It is aimed at the risk-averse investor who has accepted the wisdom of long-term equity investment as the only realistic method of enjoying higher returns.” Pack goes for ultra cautious investors who feel the market will grow gradually.
Looking at the marketing potential for the product Posner says: “This is a relatively straightforward product, providing phased investment into the equity market over the next few months. Accordingly, it should be suitable for most types of direct marketing, as well as face-to-face presentations.” Laymond thinks it could tempt clients sitting on the fence to invest instead of holding cash. Pack sees it as an alternative option for investors who are holding back from equity investments.
Accentuating the positive features of the Isa Laymond says: “The ability to benefit from pound cost averaging by switching from gilt to other Dresdner funds.” Vaughan says: “The concept is simple to understand and the product is specifically marketed for its phasing ability. But the option to bypass the phasing appears to be an attempt to attract all investors and could confuse the issue.”
Posner says: “The product seeks to address the apparent reluctance of many investors to invest into equities, while there is still some stockmarket uncertainty. By initially offering the safer haven of a gilt fund, feeding this by stages into equity funds, this investment may tempt investors to use their Isa allowances. It is intended that the money invested will be automatically invested into an equity fund in three equal quarterly tranches commencing in June 2002. Alternatively, the investors may choose their own timing and elect to transfer when it is prudent to do so.”
Examining the investment strategy Pack says: “Phasing is thought to offer some protection against highs and lows. Gilts are a good idea but equity funds are high risk.” Vaughan says: “The investment strategy is simple. Clients invest in gilts and their investments are phased into either a UK equity growth fund or a UK equity income fund in three stages.”
Posner says: “The investment strategy is reasonably sensible and sufficiently novel to be attractive to the target market. Dresdner gives the two equity funds relatively cautious labels. However, my perception of the funds is a little more aggressive, having regard to the volatility, which is slightly above sector average. Nevertheless, I feel Dresdner has chosen good funds in a well-marketed fashion, and the options are adequately broad for the nature of the product.” Laymond says: “It is an excellent alternative to mainstream funds and strategies.”
Turning to the drawbacks of the Isa, Pack mentions a lack of name awareness with the public. ” Laymond says: “The limitation to Dresdner funds when may investors prefer a wider multi-fund, multi-manager approach.” Vaughan says: “The only disadvantages appear to be limited investment choice of only two funds and the possibility of missing an early market rise unless picking the non-phased option. A monthly option to phase could reduce the risk of missing a sudden market recovery. Once the phased option is chosen, there does not appear to be an override choice.”
Considering Dresdner's reputation, Posner says: ” A relatively strong investment house, with a growing reputation within the UK.” Vaughan says: “The company has a solid reputation for consistent performance and strength.” Pack says: “Within the industry, it is just average.”
Examining the company's past performance record, Pack thinks it is nothing to set the world alight. Posner says: “It has a perfectly acceptable record, having achieved above sector average for the past five years, with only a slightly higher than average volatility for the funds on offer in this package. The funds are managed by people with extensive experience in the sector.” Vaughan says: “The UK equity income trust has consistently been first quartile, as has the UK equity trust.”
Identifying the likely competition for the fund Vaughan says: “A number of providers are introducing varying degrees of phasing. Invesco Perpetual appears to be a serious competitor, offering phasing over three, six or 12 months, with the ability to switch to full investment at any time.” Pack cites Fidelity, Skandia and Invesco.
Posner says: “Apart from, possibly, multi-Isas, I do not see major competition for this product. Obviously, the more financially aware client may design a more sophisticated bundle within a multi-fund investment, but I do not consider that relevant to the target market of this product.”
Pack thinks the charges are average. Posner says: ” The charges are undoubtedly both fair and reasonable and show a discount from those that would normally apply.”
Pachk also thinks the commission is average. Posner says: ” I consider the commission to be quite normal for this type of product and perfectly fair and reasonable. It might be a point worth noting that renewal commission is only payable once the money has moved away from the gilt fund, as this fund does not pay renewals.”
Looking at the product literature Laymond says: “It is clear, concise and to he point.” Vaughan says: “I am quite impressed with the literature. it is not too flash and guides the investor through the product features in an easy to understand format. I have received positive responses already from my clients.”
Summing up, Laymond concludes: “In a highly competitive market, this product will need selling and will not fly off the shelf. Its success may depend on advisers spending extra time to explain its merits.”