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Guinness looks in the mirror

Guinness Asset Management

Alternative Energy Fund

Type: Offshore Oeic

Aim: Growth by investing globally in companies involved in alternative energy or energy technology sectors

Minimum investment: Lump sum £10,000

Investment split: At least 80% in companies involved in alternative energy or energy technology sectors, remainder in cash

Place of registration: Dublin

Charges: Initial 2%, annual 1.5%

Special offer: Initial charged waived

Offer period: Until May 2, 2008

Commission: None

Tel: 020 7222 5703

The Guinness alternative energy fund aims for growth by investing globally in companies involved in the alternative energy and energy technology sectors. The Dublin-based fund will mirror a portfolio that Guinness runs for US investors and will comprise 40-60 stocks.

Arch Financial Planning managing director Arthur Childs thinks the argument for investing in the alternative energy sector is strong because of the limited resource of fossil fuels. He believes the alternative energy sector is at the beginning of a period of massive expansion.

Looking in detail at the Guinness Asset Management Childs says: “I suspect this is not a name with which the majority of IFAs are familiar. At the end of last year Guinness Asset Management established Guinness Asset Management Funds, a Dublin based umbrella fund. The Guinness alternative energy fund is the first fund under that umbrella and has now been given FSA approval for promoting to UK investors.”

Childs observes that Guinness is a boutique fund management company that focuses on the macro themes it expects will shape the environment over the next 20 years – Asia, energy, innovation and alternative energy.

“The fund, as its name conveys, concentrates on alternative energy and is managed by Tim Guinness, his son Edward Guinness and Matthew Page. For the last nine years, Tim has managed the Investec global energy fund. The team has been managing the US-based Guinness Atkinson alternative energy fund since March 2006 and this new fund will normally have the same stocks,” says Childs.

The fund invests in companies that are involved in the manufacture and development of energy generation from non fossil fuel sources; and the improvement of energy use efficiency. It normally invests in companies with at least 50 per cent of their business in these areas with market capitalisations of over $100m.

“Although the fund does not apply any explicit ethical or green criteria to its investments, it should have an appeal to that sector of the market. Its clearly defined stock selection process will also suit those looking to invest specifically in the alternative energy sector,” says Childs.
At the outset, around 90 per cent of the fund is invested in four main sectors – wind, solar, hydro and geothermal. “The fund is not prohibited from investing in nuclear power but does not currently hold any investments. If such an investment is to be made, Guinness has stated that investors will be informed beforehand,” says Childs.

Childs feels that for retail investors, the fund’s charging structure is closer to the US ‘no load’ fund model than the more normal UK charging structure. He notes that the TER should not be greater than 2 per cent, which is good news for investors.

“There is a 2 per cent charge for redeeming shares within 90 days of purchase to protect long -term investors from the trading costs that short term investors would incur for the fund. I am very much in favour of that although it will make life difficult for the bigger fund supermarkets to include the fund,” he says.

The fund holds all investments in local currency with no hedging of the currency exposure and Childs points out that the rationale for this is that the fund managers see energy as a universal currency. “The aims is to be fully invested most of the time, but any cash balances are normally held in US dollars. This means that the exposure of the fund to the US Dollar is mainly limited to the size of the holdings in US stocks,” says Childs.

Discussing the potential drawbacks Childs says: “I have no issues with the fund itself. I think that a number of multi-asset multi -manager funds will seriously consider including it in their portfolios. However, the fact that this is an offshore investment is likely to immediately limit its use to the more specialist investment IFAs.”

He feels this part of the IFA market will want to be convinced that Guinness Asset Management is going to continue successfully given the major loss of income that the company has suffered following the recent transfer of the majority of its assets under management back to Investec.

Scanning the market for major competitors Childs says: “This is a very specialist area but it is easy to see that the main competition will come from the Investec global energy fund, the fund that the Guinness team have until recently been managing so successfully.

“The fund with the best track record in this area is First State global resources. Other funds to be aware of are Merrill Lynch new energy, Oceanic CF global resources and JPM natural resources.”

Summing up Childs says: “I feel that every investor looking for long-term growth should now have a proportion of commodities exposure. Commodities are real assets, have the ability to keep their value in inflationary times, and have little correlation with bond and equity indices, which makes them an attractive asset class in any portfolio.

“Emerging economies generate a disproportionate demand for natural resources and the world demand, driven by the Bric economies, is rising at a frenetic pace and the supply is finite and inelastic. You do not have to be a graduate in economics to work out that over the medium to long term commodity prices must therefore rise in real terms.”

BROKER RATINGS

Suitability to market: Good
Investment strategy: Good
Charges: Good
Adviser remuneration: Average

Overall 8/10

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