View more on these topics

Govett goes for offshore bond fund

GOVETT INVESMENTS

CORPORATE MONTHLY INCOME FUND

Type: Offshore open-ended investment company.

Aim: Income by investing in corporate bonds.

Minimum investment: Lump sum £1,000, monthly £50. Isa lump sum £500.

Place of registration: Dublin.

Investment split: Securitized 6.9 per cent, banking 2 per cent, basic industry 5.4 per cent, capital goods 4.4 per cent, communications 23 per cent, consumer cyclical 11.6 per cent, consumer non-cyclical 10.8 per cent, energy 3.4 per cent, finance 3.4 per cent, real estate 7.8 per cent, services cyclical 6.8 per cent, utility 8.8 per cent, other 5.7 per cent.

Isa link: Yes.

Charges: Initial 3.5 per cent, annual 1.25 per cent.

Commission: Initial 3 per cent, renewal 0.5 per cent.

Tel: 0800 0151646.

The panel:
David Cowell, Associate, Andrews Gwynne & Associates,
John Holian, Certified financial planner, Maunby Investment Management, Brian Pack, Principal, Brian Pack Financial Services

Suitability to market 3.7

Investment strategy 3.4

Past performance 3.5

Company&#39s reputation 4.7

Charges 5.7

Commission 6.4

Product literature 5.0

The corporate monthly income fund from Govett Investments is an offshore open-ended investment company that invests in fixed interest securities mainly in the UK. It also invests in European and overseas bonds.

Looking at how the product fits into the market, Cowell says: “The market is already well served with corporate bond funds. This one tries to make a virtue of its offshore tax position. Tax tails should not, however, wag investment dogs.”

Pack says: “It fits very well in a market with a steady increase in demand.” Holian says: “There is always a demand for income products particularly those paying higher-than-average income.”

Moving on to the type of client the fund might suit, Pack says: “Those seeking above average interest without taking a high risk.” Holian says: “High income seekers willing to take more risk with their capital to pursue higher yields.” Cowell says: “Someone requiring high regular income and who is willing to take appreciable risks to achieve it.”

When asked about the possible marketing opportunities for the fund, Holian can find no particular opportunities. Cowell says: “Very few. The sales literature doesn&#39t appear to tell the whole story and the fund performance is likely to lead to a reduction in capital.” Pack says: “There may be some interest among my safety-minded clients.”

Identifying the strong points and useful features of the fund, Cowell is not impressed. He says: “The only useful feature is the monthly income.” Pack goes for the special tax rates and target rate of 7.4 per cent.” Holian points to the tax advantages it has as an offshore fund.

Analysing the investment strategy, Pack says: “It is fairly sound.” Holian says: “As with a lot of high income bond-based products, the portfolio contains some better quality investment grade bonds, with some lower quality to bolster the yield. The danger would be if the US goes into recession, some of these may default even if they seem unlikely to now.”

Cowell says: “It is an odd contradiction. The literature majors on the use of high quality investment grade bonds, then says it will have up to 20 per cent in sub-investment grade bonds to enhance the yield. Is this perhaps a touch underhand?”

Discussing the drawbacks of the fund, Holian reiterates his earlier thoughts on the possibility of default in the event of a recession in the US and adds: “Being based in Ireland, it will not feature among unit trust data and so it may be overlooked by IFAs.”

Cowell and Pack both pick up on the same feature. Cowell says: “The annual management charge is levied on the capital which could well lead to an erosion of capital.” Pack simply says: “The annual charge is taken from the capital.”

Turning to the company&#39s reputation, Pack says: “It has a good name within the industry but there is a lack of public awareness.” Holian says: “It is not as high profile as some providers of these types of funds.” Cowell says: “It has been extremely quiet for a number of years and I do not think this offering will enhance its reputation.”

Moving on to past performance, Cowell says: “In the bond sector, it has been poor. Its corporate bond fund has been third or fourth quartile over periods of up to three years. The offshore UK high income fund is similar.” Pack thinks it is average.

Holian says: “Govett&#39s existing corporate bond fund does not show startling performance in its sector. But with a low yield, it appears to be a lower-risk product than this new fund.”

Identifying the potential competition for the fund, Pack opts for Scottish Widows, Foreign & Colonial, Legal & General. Holian says: “Other high yielding bond funds such as Aberdeen fixed interest and Invesco Perpetual monthly income plus.”

Cowell says: “Those adopting a more realistic attitude to corporate bond investing. Now is not the time to go income hunting in sub-investment grade bonds as they are currently overpriced. The likes of M&G and Threadneedle are preferred with the much smaller Old Mutual fund set to surprise.”

Assessing the charges, Cowell says: “At 1.25 per cent, Govett is charging equity prices for bond investment and taking it from capital.” Pack says: “The charges are slightly high, but not excessive.” Holian says: “The charges are fair and reasonable, but the charge to capital for the annual management charge could cause a drag on the fund.”

Discussing the commission, the panel agree it is reasonable. Looking at the product literature, Pack thinks it is adequate. Holian says: “The literature is simple. It explains corporate bonds and their risks quite well.” But he feels the capital risks of this fund should be made clearer in the main brochure rather than hidden away in small print at the back.

Cowell says: “It is not very comprehensive. It makes great play of the running yield and the tax position, but doesn&#39t mention the likely redemption yield. This is a very material figure.”

Summing up, Cowell says: “I rang its marketing department to clarify a tax point and was told someone would ring back with the answer. I am still waiting &#45 perhaps they aren&#39t sure.”

Recommended

Robert Clifford

Lives: Belper, Derbyshire. Born: March 9, 1968 in Nottingham. Age: 33. Education: South East Derbyshire College,A Level Maths, Psych-ology,Theatre Studies and Art. FPC1,2,3, Cemap. Career: Marketing manager Advance Mortgage Systems 1989, director ofmortgage services at Whitechurch Securities 1991, partner then managingdirector of MP between 1992 to 1997, group managing director forBishopscourt Financial Holdings between 1997 […]

Real story behind Equitable with-profits figures

Warning to Equitable mem-bers, IFAs, tied agents and Money Marketing. Likemost people, I have read in the papers and some financial publicationsheadlines such as Equitable cuts values by 16 per cent plus they will losean extra 7.5 per cent if they move. The implic-ation is that a person whostays loses 16 per cent, a person […]

Teacher&#39s add up discount

Teacher&#39s Building Society has introduced a five-year discounted rate mortgage that is available for loans of up to 95 per cent of valuation.The movemaker mortgage plan has a 0.75 discount for the first five years, giving a current payable rate of 5.99 per cent. There is no arrangement fee and borrowers who redeem during the […]

iShares restructures European fund

iShares is rebranding and restructuring the iFtse ExUK fund.The new name for the exchange traded fund will be the iShares FTSE Euro 100 fund to reflect its new investment stance.The benchmark for the fund will change from the FTSE Ex UK index to the FTSE Euro 100 index. The main differences are that the fund […]

Tech winners keep on winning

By Ali Unwin, chief technology officer & fund manager, Neptune Artificial intelligence, driverless cars, big data. As technological advancements – and disruption – increasingly dominate headlines, Ali Unwin sets out six key themes he is watching in 2017. Read more Important Information Investment risks Neptune funds may have a high historic volatility rating and past performance […]

Newsletter

News and expert analysis straight to your inbox

Sign up

Comments

    Leave a comment

    Close

    Why register with Money Marketing ?

    Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

    News & analysis delivered directly to your inbox
    Register today to receive our range of news alerts including daily and weekly briefings

    Money Marketing Events
    Be the first to hear about our industry leading conferences, awards, roundtables and more.

    Research and insight
    Take part in and see the results of Money Marketing's flagship investigations into industry trends.

    Have your say
    Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

    Register now

    Having problems?

    Contact us on +44 (0)20 7292 3712

    Lines are open Monday to Friday 9:00am -5.00pm

    Email: customerservices@moneymarketing.com