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Glasgow offers triple Isa



Type: Investment trust maxi Isa

Aim: Income and growth by investing in choice of three Glasgow investment trusts

Minimum investment: Lump sum £200 a trust, monthly £20 a trust

Maximum investment: Lump sum £7,000, monthly £583

Catmarked: No

Investment choice: Choice of shires income, shires smaller companies and Glasgow income trust

Charges: Initial 1%, annual 1%

Special offer: Initial charge waived

Offer period: Until December 31, 2003

Commission: Initial up to 3%

Tel: 0800 435 797

The panel: Stuart Smith, Deputy managing director, RJ Hurst & partners, Gary Bottriell, Director, Lewis & Co, Michael Posner, Principal, Charter Devon Law & Co

Broker Ratings: 5.3

Suitability to market 5.3

Investment strategy 5.0

Past performance 4.6

Company&#39s reputation 4.3

Charges 5.3

Commission 4.0

Product literature 5.0

The Glasgow Isa from Glasgow Investment Managers is an investment trust Isa that provides a choice of three trusts &#45 Glasgow income trust, shires income and shires smaller companies.

Considering how the Isa fits into the market Posner says: “It is an Isa investing in up to three investment trusts managed by Glasgow Investment Managers with dividends being paid monthly if all three are chosen.” Smith says: “It appears to be aimed primarily at the direct investor market, but having taken four years to launch since Isas were first introduced, it may well go completely unnoticed.”

Bottriell says: “In a crowded market this would need to shout loudly but does not seem to do so. Its most likeable feature is its low minimum monthly subscription of £20 a month. The initial charge of 1 per cent plus commission for the IFA is good but not exceptional.”

Identifying appropriate clients Smith says: “All three funds available within the Isa offer a high starting yield so it could be suitable for clients looking for above average income &#45 as long as they are prepared to accept the above average volatility.” Bottriell thinks it is suitable for those wanting to make a modest monthly contribution. He also thinks the more discerning investor might use the in-house Isa and Pep transfer wrapper as a cheaper alternative to a private client broker. Posner says: “Clients with a very adventurous risk profile, with a diverse existing portfolio of holdings, who wish to invest in something different and for whom most other avenues have already been explored.”

Discussing the Isa&#39s marketing potential Bottriell says: “It is limited for our business.” Smith says: “There is none in our opinion. There are better products available to suit the needs of our clients.” Posner says: “It may provide a subject for discussion, but only when most other topics have been exhausted.”

Highlighting the positive features of the product Smith says: “The high yields on offer are an obvious positive feature, as is the relatively low annual charge. Also useful is the low minimum lump sum of £200 or monthly savings of £20. This could make the plan attractive for some investors who could otherwise not afford an Isa.” Posner says: “Dividend income is paid monthly; it has an Isa wrapper and can accept Pep transfers and share exchange. It will also accept regular monthly payments from as little as £20.” Bottriell says: “One of the trusts has an impressive record.”

Evaluating the Isa&#39s investment strategy Posner says: “The smaller companies trust places more of an emphasis on growth from higher yielding smaller companies, although it can be loosely included in an income portfolio. By packaging three trusts in an Isa, the managers have achieved a potential regular income product, although one gets a feeling it is more as a result of accident.

“However, there is the possibility to unbundle the offering to exclude one or two of the trusts or to vary the percentage held in all three, so as to give a greater weighting to a particular sector.” Smith complains the investment strategy is not discussed in the main brochure while Bottriell says it is difficult to see past the short statement of the objectives for each fund.

Drawing attention to the product&#39s weaknesses Posner says: “This is a highly geared investment that places considerable stress on the growth potential in a bear market. If one feels the only way for markets is now up, then this is not much of a problem. I do not feel everything in the garden is necessarily rosy at the present, so I would be rather cautious committing to it. Losses in two of the funds have been fairly substantial over the last 12 months, but the past is not always a guide to the future, and the longer-term averages are not as frightening. These are highly volatile funds that are not for the faint-hearted. The returns from reinvesting the income look far more promising, especially over the longer term.”

Smith says: “The lack of a mini Isa option is a clear disadvantage as is the low profile of Glasgow Investment Managers. The range of trusts is limited and many potential investors have been put off investment trusts of all types as a result of the split capital trust debacle. One dealing day per week is another disadvantage along with a charge for encashment.”

Discussing Glasgow Investment Managers&#39 reputation Smith and Bottriell say they were unaware of the company before seeing the product literature. Posner says: “The Shires trusts have a long track record and Glasgow a relatively short one. I do not think that Glasgow&#39s reputation would be particularly influential in making a choice of this investment,”

Looking at Glasgow&#39s past performance Posner says: “This is very much a curate&#39s egg, with some elements that are reasonably good and others that are much less so. Glasgow income trust has performed relatively well, as has Shires smaller companies. Shires income has turned a pound into 84 pence over a year and the relative performance is worrying over 10 years. Looking at the performance over several periods provides a roller-coaster ride that might promise good future returns, but might also be a source of considerable heartache.” Bottriell says: “It is mixed. Clearly a bottom-up strategy has paid off in the case of the Glasgow income trust but not so for the Shires income trust which has underperformed.” Smith says: “The performance of Glasgow income and shires smaller companies has been excellent whereas shires income has struggled and is very poor.”

The panel consider which companies are likely to provide competition to the Isa. Posner says: “Aberdeen, Deutsche and Aberforth offer higher returns in each of the sectors, with a much lower gearing. Volatility in the sector is a major concern.” Bottriell suggests Foreign & Colonial and self-select Isas from private client brokers. Smith says: “Investment trust Isas offered by the likes of Fidelity and Henderson, but also all mainstream Isas &#45 in particular Skandia, Cofunds and Fundsnetwork.”

Commenting on the charges Posner says they are in line with the average for this type of investment. Smith thinks the initial and annual charges are fair, but points out there are other charges on top such as transaction charges and stamp duty. “Once the commission is added, the charges are nowhere near as competitive as they appear,” he says. Bottriell feels the charges are quite competitive.

Moving on to commission Posner says: “Commission is in line with industry averages, but allows flexibility as to the level chosen.” Bottriell says: “It is fair but an absence of renewable commission is out of line with market trends.” Smith thinks it is disappointing that there is no renewal commission and no commission for monthly savings.

The panel assess the product literature. It is regarded as clear and well laid out, although the main Isa brochure lacks any details about the investment trusts. These are included in a separate sheet but Bottriell would like more information on the managers.

Posner concludes: “The literature is awful and extremely tedious to read. I appreciate that with an Isa investment there is a need to economise on the presentation literature, but even the most parsimonious marketing department can try to include a content that imparts some detail over and above the terms and conditions pertaining to the contract. If the literature is intended as an incentive to invest in this offering I would consider that they have failed to achieve its objective.”.


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