Type: Multi-manager Oeic
Aim: Income and growth by investing globally in equities using a manager of managers approach
Minimum investment: Lump sum £1,000, monthly £50
Investment split: 100% in UK equities
Isa link: Yes
Pep transfers: Yes
Charges: Initial 5%, annual 1.5%
Commission: Initial 3.5%, renewal 0.5%
Tel: 020 7220 3531
Skandia Investment Management’s UK best ideas fund is the second in its best ideas range. It employs 10 fund managers from different groups to choose their 10 best stock ideas, thereby taking a manager of managers approach.
Arch Financial Planning director Arthur Childs thinks the UK best ideas fund has a great name and a great story behind it. “It is a concept that hardly has to be sold because it is intrinsically appealing. We all want the best and although our clients may like the sound of the cautious managed funds we have been placing them in, they may soon get fed up with what they will perceive as sluggish performance compared to their expectations of investing in the stock market,” he says.
In Childs’ view, Skandia’s new fund is a multi-manager product with a difference and that difference is seen both in the mandates given to the 10 underlying managers and the managers themselves. “The list of managers reads like a ‘Who’s Who’ of the investment management world – Ashton Bradbury, Anthony Nutt, Carl Stick, George Luckraft, Mark Tyndall, Stephen Whittaker, Roger Whiteoak and so on. In this respect it is effectively a manager of manager approach rather than a fund of funds, where the individual managers have few constraints apart from the FSA regulations. They are able to change the stocks within their portfolios as they see fit. It is as if Skandia has asked each of them to pick a handful of stocks into which they would invest their own money,” says Childs.
Childs explains that each manager will pick the 10 stocks that he believes will produce the best overall return and Skandia will bring them together in one fund. “An individual manager can, for example, have up to 25 per cent in any one stock and hold up to 20 per cent of his small portfolio in cash. Skandia will control the overall asset allocation, initially by allocating a higher percentage to some managers than others to stop the fund from being too heavily into small caps, and then by means of the cash flow to the various managers. The maximum that the fund can invest in any one stock is 8 per cent and Skandia will closely monitor this – although there are no sector maximums,” says Childs.
Childs points out that the managers have been chosen for their blend of styles so that all sectors of the UK market are covered. “Skandia estimates that there will initially be around 44 per cent invested in FTSE 100 stocks, 35 per cent in FTSE 250 and the balance in small caps including around 12 per cent in Aim. Although this is a UK fund, each manager has been given the ability to invest up to 20 per cent outside of the UK if they find the right opportunities. There is bound to be some informal competition between this group of managers which could give the fund a real edge,” says Childs.
Childs notes that the forerunner to this fund, the global best ideas fund launched in June, has already attracted more than 10,000 clients, taken £150 million and added around 14 per cent investment growth in less than four months. He believes this makes it likely that Skandia’s hopes to raise £30-£50 million for the UK fund within the first six months will be achieved.
“This is an exciting product because it seems clear that the fund managers themselves are enthusiastic about using their skills in this highly concentrated way. Some of the largest IFAs have warmed to this concept and are already asking Skandia to devise similar funds in other market sectors,” says Childs.
Although the annual management charge and total expense ratio are higher than many multi manager offerings, Childs believes this is justified. “Clients will have to accept that they are choosing to invest in a high octane sports vehicle rather than a family saloon. The initial commission is 3.5 per cent, but it hardly seems necessary to provide more than 3 per cent. I would have preferred to see a slightly lower initial charge than the extra 0.5 per cent commission.”
Looking at the potential drawbacks of the fund Childs says: “All the press comment that I have read has been very positive and a number of high profile IFAs are clearly excited about this fund. The lesson of history is that in view of this, a rather more cautious approach is to be recommended. I seem to remember the same kind of excitement when themed funds were launched in the late 1990s. How many of us got excited about funds such as Framlington new leaders, Aberdeen global champions or Merrill Lynch global titans, all of which will have disappointed our clients.”
Childs’ main concern is that the fund is appealing to the speculator rather than the long-term investor. “ I am concerned about the tendency towards short termism that may affect the fund in due course. Imagine the ignominy of being the first of the 10 managers to be dropped from the fund. This will surely put pressure on the managers to choose stocks which have already started to shine rather than those which are expected to come good in one, two or even three years’ time. For example, I cannot see M&G’s Tom Dobell being included in such a fund, yet the recovery fund he runs seems to have everything that any investor could ask for. It just takes patience to achieve.”
In terms of likely competition, Childs regards the fund as unique. He thinks competition will come from the whole universe of already highly successful multi manager products because IFAs have bought into the concept of asset allocation as being more important than simply choosing the best funds. “Groups such as 7IM, MLC – which has a manager of managers approach – and Cazenove’s excellent diversity fund will easily undercut the Skandia TER. That fact, together with their diversity of asset classes, will still be a priority for many investors,” he says.
Childs concludes: “It is difficult not to feel supportive of this fund because by intention or not it is bound to be a standard bearer for active management. While trackers have their place, I am sure that IFAs put most of their own money with active fund managers so none of us will want to see this fund fail. But we do need to warn our clients that this is an aggressive fund which at times will be well out of line with UK markets generally, so they will need to be prepared to stick with it for the long term.”
Suitability to market: Good
Investment strategy: Good
Adviser remuneration: Good