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GAM Stars in American Focus



Type: Ucits
Aim: Growth by investing in large and mid-cap US equities.

Minimum investment: US$5,000, Euro 5,500, £3,500.

Place of registration: Dublin.

Investment split: 100 per cent large and mid-cap US equities.

Isa link: No.

Charges: Initial 5 per cent, annual 1.5 per cent.

Commission: None.

Tel: 0800 919927.

The panel: Luke Gibbon, Proprietor, Independent Personal Financial Management,
Bruce Bulgin, Partner, Chadney Bulgin,
Godfrey Bloom, Investment director, TBO Corporate Benefit.

Suitability to market 7.3

Investment strategy 7.7

Past performance 6.0

Company&#39s reputation 6.4

Charges 5.0

Product literature 7.7

Global Asset Management&#39s GAM star American focus fund is an offshore fund that is set up as a Dublin-based Ucits. It invests in a portfolio of between 35 and 50 stocks in the S&P 500 index, which covers companies in the US and Canada.

Looking at how the product fits into the market, Gibbon says: “The product is an open-ended equity investment focusing on a small selection of 35 to 50 companies predominantly from the largest 500 companies.” Bloom points out that the fund joins 57 other funds in the same sector, while Bulgin says: “This fund is aimed at the American sector and adopts a bottom up approach to stock selection, focusing on up to 50 stocks. It will comprise of larger companies in the main.”

Identifying the type of client the fund is likely to attract, Bloom says: “Clients who like to weight their own portfolios or private clients with segregated portfolios who want medium risk exposure to North America.” Bulgin says: “Anyone looking for American exposure, active management and also growth.” Gibbon thinks the fund will be suitable for clients who have a broad portfolio and are prepared to take a medium to high risk with this portion of their capital.

Assessing the marketing potential of the fund, Bulgin says: “It would be worth mailing investors with an exposure to US markets or those who would be first-time investors in this area.” The other two panel members are uncertain that it will provide any new marketing opportunities. Bloom says: “I would think it would provide few opportunities to the retail end of the market, but there would be a marketing opportunity for private fund managers.” Gibbon says: “This fund is mainly going to be for clients who have an existing portfolio who understand equities and their risks. I therefore feel it will not provide any marketing opportunities, other than to talk to clients about diversification.”

Considering the main useful features of the fund, Bloom highlights the daily dealing and free switching between other GAM funds. Gibbon says: “The fund manager, James Abate, had an excellent record at Credit Suisse, which is advantageous. The fund will invest in a concentrated number of shares selected on their individual merit. Also, being an open-ended fund, switching between funds is free.” Bulgin says: “The structure in being able to undertake free switching is useful and many investors will find the offshore base attractive with different currencies offered, namely sterling, US dollars and euro.”

Discussing the drawbacks of the fund, Bulgin says: “It looks sound but we will have to see how the fund performs. Its performance will be down to stock selection and I like the idea of concentrating on a relatively small number of stocks. This means that the manager should understand what he is buying.” Bloom can see no obvious disadvantages, but he does point out that the fund is entering a crowded marketplace.

Gibbon says: “The investment strategy could make the fund mediocre or poor as the number of underlying investments is limited. It would not take many to underperform in the market for the fund to be below average. Also, the investment cannot be made via an Isa to protect against capital gains tax.”

Assessing the company&#39s reputation, Bulgin says: “It has a good reputation with IFAs but less in the way of a profile with the investing public.” Gibbon says: “GAM is not a company widely known in the UK, although it is coming to attention more often than it has in the past.”

Looking at the potential competition the fund will face, Bloom says: “Although the fund structure is different, the two main funds we would look to here are Aegon where the style and objectives are similar or perhaps Threadneedle American growth.” Bulgin says: “Mainstream established funds such as those offered by Fidelity, Credit Suisse, Threadneedle and Framlington.” Gibbon goes for other American unit trusts, Oeics and investment trusts.

Considering GAM&#39s investment past performance, Gibbon says: “Many of GAM&#39s unit trusts have performed well against their peer funds. However, as the funds are generally quite small and are often only two or three years old, it is difficult to make an objective medium term appraisal.” Bulgin says: “There is a wide range of funds and some, but by no means all, are above average performers. The US funds in particular look good.”

Weighing up the charges, Bloom says: “They are in line with a market which is probably overpricing itself in bear markets and where there is reduced equity expectation.” Bulgin agrees with Bloom since he feels the charges are on a par with those of the competition.

However, Gibbon puts forward an opposing view. He says: “I think that as the product does not pay commission to advisers, the charges are high. It also does not allow fee-based advisers to reduce the cost to the client by rebating commissions into the fund.”

The panel review the product literature and offer mixed opinions. Gibbon is its most vocal critic. He says: “I found that you have to go to different booklets to find various information. We were sent three booklets, two pamphlets, an application form and a CD. I suspect a client would find this daunting.” Bloom felt the literature was good and Bulgin was impressed. He says: “The product literature is first class and is well above average. By and large, it is comprehensive and clear.”

Summing up, Bulgin says: “The fund should do well as the fund manager, James Abate, has a good track record in the US sector. But the offshore status may put some investors off.”

Bloom concludes: “Although Mr Abate has a sound record of managing stocks, he is new to GAM. Fund managers do not always shine in a new environment, but time will tell.”


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