Aim: Growth of 2% above Libor by investing globally in exchange traded funds
Minimum investment: Lump sum 1,000
Investment split: 100% in exchange traded funds
Isa link: Yes
Pep transfers: Yes
Charges: Initial 4.5%, annual 1.5%
Commission: Initial 3%, renewal 0.5%
Tel: 024 7623 6223
i-Funds, a franchise of Raymond James Investment Services, has received FSA approval for its fund of exchange-traded funds.The fund will invest in a range of UK, European and US-listed ETFs.
Hargreaves Lansdown senior analyst Meera Patel feels that by investing in passive ETFs, this fund will provide diversification for investors who already have direct exposure to equities or other assets, “The fund can hold up to 100 per cent in cash if the investment process suggests that market risk is too high. This flexibility helps limit the downside risk where possible which is sensible and can help provide total returns with low volatility,” she says.
Patel thinks the fund’s overall investment process is flexible as it allows the manager to invest in ETFs based on their own merits rather than because they make up a large proportion of the global market. She explains: “This tactical asset allocation may potentially add value over time in a fund like this, but the manager would have to be consistently good at asset allocation in order to make a success of the fund.”
Patel notes that when investing in ETFs there is normally very good liquidity so if the manager wants to sell quickly it is possible to do so, as ETFs can be traded easily. “As this fund invests in passive funds that track various indices around the globe it should benefit from rising markets, but the reverse can also be true,” she says.
Assessing the downsides of the fund Patel says: “ETF’s generally have low charges, with total expense ratios as low as 0.20 per cent a year. However, by investing in this fund, retail investors will not benefit from such low charges.”
She also considers the fund pricey side given the low charges on ETFs. “The only active management that investors are paying for here is asset allocating and even then, there is no guarantee that this will always be right, so I still believe the annual charge should be slightly less,” she says.
Patel points out that passive investments generally do well in rising markets, but they may not be as attractive in sideways moving or downward falling markets. Consequently, she believes both investors and IFAs need to bear this in mind when looking to invest in passive funds.
Looking at likely competition, Patel says: “Competition is light in the fund of ETFs. There are literally a few funds of this type so it is still a novel proposition but there are thousands of standalone ETFs listed on various stock exchanges. A fund of this type has potential to do well and attract investors, but annual management charges must be competitive too.”
Suitability to market: Good
Investment strategy: Good
Adviser remuneration: Average