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[Investment Brief] Fund fundamentals

The AITC&#39s “its” campaign is to start its second phase in January with the launch of another television campaign. Do you believe this is an effective method for getting the “its” message across?

RC: The “its” campaign has been more than effective in terms of creating name awareness of investment trusts. However, it would be an interesting exercise for some sort of polling to take place among those who now know of the term investment trusts to get their impressions of what one actually is.

We feel there is much to do in the personal financial press to unwrap the historic mystique of splits, zeros, etc to the man in the street or even, in some cases, the adviser.

MO: Speaking for this firm, we have not had a real inc rease in the number of enq uiries on investment trusts so from personal experience I have my doubts whether it is truly effective in getting the message across.

In the wider context, the AITC is demonstrating inc reased sales volumes and those participants in the campaign will now want to see further returns for the outlay involved. Given the role that IFAs play in new investment business each year, I still think investment trust companies should spend more time presenting their case.

I am aware that fund managers are trying more in this field to get in front of IFAs but there can still be further improvement.

TC: I think it is hard to judge its effectiveness. The AITC has said that the number of enquiries has been substantial but my experience so far is that few enquiries have come through to us, which the AITC assured us was one of the main aims.

The original adverts were quite obscure and went over the heads of many people.I gather the next phase is more down to earth, which is good. It has the potential to be effective but whether the campaign hits the mark, we will have to wait and see.

Scottish Equitable has lost a number of its top fund managers from its flagship US and technology funds. Would you advise a switch from these funds?

RC: We will certainly be keeping a careful eye on Scottish Equitable to see if its management adopts the same aggressive and effective technique that Henderson&#39s management has, to plug what would have been a hole in their fund management.

Insurers, in comparison with investment houses, tend to lack teeth in such dire situations. We feel that the two departing fund management teams have produced outstanding performance records in an otherwise stagnant stable of funds.

The board would be well advised to act quickly and complete a rapid lap of the City to avoid what will otherwise be a quick sell recommendation.

MO: We do not normally have a kneejerk reaction to fund managers leaving and if we did we would have been changing our portfolio cho ices every week!

However, there are certain cases where the impact is more severe and I feel that Scottish Equitable technology is a particular problem. Here was a very capable team, which had ach ieved considerable success and Scottish Equitable now has the unenviable task of trying to replace them.

There will, of course, be a temptation for investors to switch from Scottish Equit able technology to Henderson global technology and that is a switch we would advise, because it is going to be difficult for Scottish Equitable to find a real quality team to replace Paul Kleiser and Stuart O&#39Gorman.

For the American fund, we are suggesting a hold for the time being, having met Elaine Heaton-Armstrong. This fund was one of very few to have a AAA Standard & Poor&#39s Fund Research rating but it was built very much on a teamwork principle, which Elaine will retain, having worked very closely with Neil Sme aton, both at Scottish Equit able and previously at Edinburgh.

TC: Although this is a blow to Scottish Equitable, investors should hang on and see who takes over and how well they perform. Quite often, the new managers will want to make an impact and the funds should receive considerable attention. They may well continue to perform well.

John Duffield has agreed to poach no more Jupiter staff for six months. Are you worried that he will persuade more staff to move over in May, or do you believe Jupiter will be successful at keeping its fund managers?

RC: Bonham-Carter has no greater opportunity nor lon ger run-in period to assert his authority on Duffield&#39s old empire. With so many consistent top-quartile funds in his stable, it is hard to believe that there will be any item higher on his agenda than boxing in the talent that produced the numbers.

Equally, Duffield has succeeded in immediately accruing more than £1bn under management and his sole remit will be to build on that. Star fund manager acquisi-tion is a classic building block and Edward Bonham-Carter will have a formidable contender in John Duffield when the six-month grace period expires in May.

MO: If we were now involved with the management of Jup iter, we would, of course, be trying to tie down all the various fund managers with lucrative deals.

John Duffield could well go back there after six months, but our stance with Jupiter has been to remain with the company for existing business and we retain this view.

On balance, I think it is likely that Jupiter will succeed in preventing John Duffield from poaching further fund managers on a significant scale although you can never discount the possibility of one or two leaving. We have probably not heard the end of the story yet.

TC: This is the big question and it will not be fully ans wered until May. John Duf field is a force to be reckoned with and the managers will know just how influential he was on the success of Jupiter. This will have an impact on their decisions to join him or stay at Jupiter. Jupiter will be making every effort to keep their managers but my crystal ball is too
clouded at present to say for certain.

Gordon Brown has opened up the Pep transfer market with the relaxation of Pep transfer regulations. Do you think Pep transfers are set to become a more lucrative market for the IFA as a result?

RC: We do, and if it does not become so, it is only the fault of the IFA. Any constriction on investment markets is bad news for the investor and there is much work to do on appraising and realigning many portfolios that have simply languished through lack of market choice.

MO: I have always seen Pep transfers as an important market for the IFA. However, the alignment of Pep rules with Isas gives IFAs an opportunity to look at a tax-free pool of money and make asset allocation decisions on what can be a significant sum in these tax-free umbrellas.

I think we will see more hands-on management of Pep and Isa monies, perhaps hand in hand with the supermarkets, which will also have the advantage of ease of administration, less paperwork and favourable switching terms. There is no excuse for clients to display inertia on their Pep holdings.

TC: This is good news for IFAs and, more important, investors. They will now be able to construct balanced portfolios within their Peps and Isas. A lot of investors have invested in income funds under Peps and the performance of these has been poor compared with a lot of other funds, so investors can now select from a greater range of investments.

If investors were seeking income, the tax changes have made the returns less attractive, so the changes offer more opportunity, for example, by taking a barbell app roach using corporate bonds and growth funds.

The Government is to allow tied agents to sell the stakeholder and Cat-standard products of multiple providers from April next year. Do you think this move will be greatly detrimental to the future of the IFA market?

RC: We foresee no impact to the IFA market as both of the products referred to are, by their nature, limited advice vehicles which, on the whole, due to the low margins inv olved will not be the preserve of the advice-based IFA if he still wishes to eat regularly.

Isn&#39t it a shame that the Government has introduced a 1 per cent world which ens ures that the man in the street will be in no position to obtain advice unless he is paying in line with the high-net-worth individuals for whom the IFA will be normal and appropriate?

MO: We could do without it. The distinctive feature of an IFA is being eroded by these retrograde steps on polarisation. The potential changes are just a recipe for chaos and confusion but, as usual, IFAs will have to fight their corner.

There really needs to be a concerted attempt to put forward the merits of independent financial advice and highlight the brand but practically this will prove difficult.

As usual though, IFAs who adapt and respond to the changing environment will survive but the investing public will step back a few years and once again become highly confused.

TC: Not really, the tied agent is not independent and many investors attach considerable value to independence. It is also a very restricted fund selection, which means inv estors still receive best advise from the independent sector.

If anything, this will serve to confuse investors, probably leading to some thinking they are getting independent advice because there is a choice, when the reality is very different.

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