iBLOOMBERG EUROPEAN TECHNOLOGY
Type: Exchange traded fund.
Aim: Growth linked to the Bloomberg European investable financials index.
Minimum investment: Subject to negotiation with stockbroker.
Maximum investment: None.
Investment split: 100 per cent linked to the Bloomberg European investable financials index.
Place of registration: Ireland.
Isa link: Yes.
Pep transfers: Yes.
Charges: Annual 0.5 per cent.
Tel: 0845 3577000.
Bruce MacFarlane, Partner, Capital Trust Financial Management,
Nick Upton, Consultant, Ian Cooke & Partners,
Nigel Foley, Principal, Nigel Foley Financial Services.
Suitability to market 6.0
Investment strategy 5.5
Company's reputation 6.0
Product literature 7.0
The iShares iBloomberg European technology fund is an exchange traded fund that aims to provide income and capital growth by tracking the Bloomberg European investable technology index. This index invests in technology companies in Europe including the UK.
Discussing how the fund fits into the market, MacFarlane says: “The iShares fund should fit into the market well. Given time, it could prove to be a successful alternative to existing unit trust and Oeic tracker funds due to its lower cost structure. It can be viewed as a hybrid between open and closed-ended funds, providing many of their best features, while overcoming many of the inherent problems such as discounts or premiums associated with investment trusts.”
Upton says: “It offers a product for those wishing to invest in shares making up an index via a new market called extramark, so essentially this is an index fund.”
Foley says: “It gives the client an opportunity to invest in the technology sector, investing across a broad range of stocks. Technology as a sector, of course, has of late been volatile to say the least. In my experience, clients are loathe to commit lump sum investments, preferring instead to invest in this area by regular sums.”
Identifying the type of client that the fund is likely to attract, Upton says: “The product is modelled on a US concept known as exchange traded funds, whereby trading is possible anytime during market hours. So, as such, it might interest those wishing to trade regularly. Bearing in mind the underlying asset base is technology, plus the fact the base currency is euros, this fund may be more attractive to the investor in the medium to high risk category.”
Foley suggests clients with a better than average understanding of equity investments and their principles. MacFarlane support's Foley's view. He says: “The fund would currently be suitable for the more sophisticated investor. However, as exchange traded funds gain more mainstream acceptance, I believe iShares will become popular with the general investing public.”
Moving on to the fund's potential marketing opportunities, Foley says: “It may tempt investors back into this sector, who view the fund as a long term investment of at least five years.”
MacFarlane says: “I would not consider the iShares fund as a product that will offer many mass marketing opportunities. I do, however, see it as a useful investment tool and as a complimentary investment to existing client portfolios.” Upton says: “This may interest specialist investment brokers focusing on high net worth clients.”
Assessing the useful features and strong points of the fund, MacFarlane says: “It is a very cost effective way of tracking an index of European technology stocks. For the more sophisticated investor, this exchange traded fund can be actively traded in real time or used as a hedge for existing portfolios by selling short. For passive investors, it can be held via a Pep or Isa.”
Other strong features Upton identifies are: “The annual management charge seems to be low in comparison to other products plus the daily disclosure to brokers and fund managers of the portfolio holdings.” Foley says: “It appears to offer good flexibility and access to a wide range of investments in this area.”
Turning to the disadvantages of the fund, Foley says: “It may prove to be a strange concept for some investors and they may not be able to differentiate between a regular pooled investment and this type of concept.”
MacFarlane says: “It is unlikely to be widely marketed by the IFA community due to their perceived extra level of complexity. iShares funds are more likely to be popular with stockbroking business that can charge stockbroking fees for the buying and selling of such investments. The products in the iShares range are all index trackers and as yet, there is a low level of awareness of them within the investing community.”
Upton says: “This fund will invest within the parameters of an index and has its base currency in euros.”
Examining the flexibility of the fund, MacFarlane says: “The greatest flexibility offered by an iShare is the ability to trade at real time and go short.”
Upton says: “There is no mention of any discount on transaction costs for moving between funds.” Foley says: “Flexibility would appear to be most relevant in the easy tracking of iShares, such as you would normally expect from this type of collective investment.”
Moving onto the company's reputation, MacFarlane says: “Barclays Global Investors has an excellent investment track record and reputation for launching innovative products.”
Upton says: “The management of the fund will be by Barclays Global Investors which is the same as Barclays funds, which seem to be quite unimpressive.”
Foley says that it is a new name to the UK.
Discussing past performance, Upton points to his earlier comment about the company's reputation and adds: “In my opinion, most reputations are built on the back of UK performance.”
MacFarlane says: “Past performance is not an issue with a passive tracker fund.” But he points out that if the iShares fund had tracked the recent dramatic falls in the European technology sector, its performance would have been dismal. Foley does not know much about the company's past performance.
Identifying the likely competitors, Foley says: “Other specialist technology funds with a longer experience in this area. It very much depends on the reputation and experience of the particular fund manager.” Upton points to existing unit trust and Oeic funds that invest in the European technology market and MacFarlane suggests other tracker funds.
Considering the charges, MacFarlane says: “The charges are low and for purchases or sales, will be dictated by the stockbroker's rates.”
Foley says: “The charges appear to be very competitive, with a 0.50 per cent annual management charge resulting in an acceptable 0.60 per cent reduction in yield.” Upton thinks the annual management charge is good.
Looking at the product literature, MacFarlane says: “It is complex and designed for the adviser. It is not client friendly.” Upton says: “The literature is quite good. It gets the main points across well. It has a nice blue cover similar to my recently decorated living room.”
Foley says: “It is reasonably interesting, although compared with other offices' literature for investments in this area, it could have been more eye-catching.” Summing up, Upton says: “Call me an old Jonah but I can't see this one being an overnight success.”