Aim: Growth and the preservation of growth and capital by investing in UK equities and cash to maintain a target of 80% above the fund’s highest ever value
Minimum investment: Lump sum £1,000, monthly £50
Investment split: Up to 100% in equities, remainder in cash
Isa link: Yes
Charges: Initial 3.5%, annual 1.25%
Commission: Initial 3%, renewal 0.5%
Tel: 0800 414181
This Oeic aims for growth and the preservation of growth and capital by investing in UK equities and cash.
Discussing the merits of the fund Chadney Bulgin partner Bruce Bulgin says: “This is a simple concept where, in rising markets the fund’s exposure to equities can go up to a maximum of 100 per cent. But when markets fall, the fund can switch to cash.”
Bulgin notes that the intention is to restrict losses to protect 80 per cent of the amount invested, but this is not guaranteed. “Unlike other funds that offer protection, there is no use of derivatives. It is simply a case of fund managers Stephen Fulford and James Griffin overseeing the asset allocation model.” Bulgin adds that Fulford is responsible for the asset allocation while Griffin manages the equity content.
“Charges are competitive, with an estimated total expense ratio of 1.46 per cent. This is less than most actively managed funds and less by a considerable margin of other more complex structures,”says Bulgin
Bulgin points out that protection is expected to rise as the underlying share price increases and the relative exposure of equities and cash is reviewed daily with the allocation to each of these asset classes being designed to maintain the fund price at 80 per cent or more of its highest ever value.
“In short, the fund is aiming to iron out issues associated with market timing. Fidelity is using an innovative approach with a systematic process so that the fund is reviewed daily using an algorithm, rather than predictive techniques. Essentially, how the process works is that from at launch it is entirely in equities, then providing the unit price increases, the fund remains 100 per cen in equities. However, if the price falls, a proportion is held in cash on the basis that the protected fund price is deducted from the net asset value and multiplied by five, which is the amount that remains in equities. As the market rises then the amount is cash is gradually reduced.”
Bulgin says transactional costs could be huge. “However, Fidelity is using exchange listed FTSE 100 futures where the transactional cost is claimed to be only one basis point.”
Looking at the potential drawbacks Bulgin says: “ Many advisers will use their own asset allocation modelling and will be considering their clients’ time horizons, objectives and risk ratings, so that time in the market becomes of more importance than timing the market.
“It is generally accepted that asset allocation is responsible for delivering around 90 per cent of portfolio returns. As with any strategy that aims to predict future market movements, however robust, there is always the risk of the fund ending up with a high proportion in cash when the market has risen substantially and it is too late to take advantage of these gains.” He adds that the fund should deliver more stable returns than a pure equity fund but will also underperform in certain market conditions.
Discussing the main competition Bulgin says: “There is little direct competition because the fund is completely different in structure from absolute return funds, which are often marketed on the basis of protected returns. It is also different from a traditional cautious managed fund, which has a 60/40 equity bond structure.”
He thinks the only fund with anything like a similar structure is Investec multi-asset protector. But this not available for Isas and the protection is likely to be lower for a multi-asset fund compared with a pure equity fund.
Suitability to market: Good
Investment strategy: Good
Adviser remuneration: Good