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iShares gets resourceful

iShares – iBloomberg European Resources

Type: Exchange traded fund.

Aim: Growth by tracking the Bloomberg European investible
resources index.

Minimum investment: Subject to negotiation with stockbroker.

Maximum investment: None.

Investment split: 100 per cent tracking the Bloomberg European
investible resources index.

Place of registration: Dublin.

Isa link: Yes.

Pep transfers: Yes.

Charges: Annual 0.5 per cent.

Commission: None.

Tel: 020 7668 8007.

iBloomberg European Resources Fund

Suitability to market 7.0

Investment strategy 5.7

Past performance 5.0

Company&#39s reputation 6.0

Charges 8.7

Product literature 5.0

iShares has introduced the iBloomberg European resources fund,
which tracks the Bloomberg European investable resources index.
The fund is a part of the growing iShares range of exchange traded

Looking first at how the fund fits into the market, Buswell says: “This
is a new investment product. The concept of exchange traded funds
has been available in the US for about the last ten years. Effectively
iShares are shares in a fund which can be bought and sold like any
other shares. The advantage with iShares is that the client&#39s money
is spread across a wide range of companies within the fund.”

Macfarlane says: “iShares should fit into the market well and indeed
given time could prove to be a successful alternative to unit trust or
open-ended investment company tracker funds due to their low cost
structure. iShares 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 the investment trust sector.”

Woodward says: “This is the latest addition to a stable of funds which
tracks various index figures. The specialisation of sectors appears to
be increasing and obviously aims to capture a share of the
index-tracking market.”

Moving on to the type of client that the fund is suitable for, Macfarlane
says: “iShares would currently be more suitable for the sophisticated
investor. However, if they gain more mainstream acceptance I believe
that they will become more popular with the general investing public.”

Woodward says: “This will be for those looking to track the market
without added risk. This fund, like the previous telecoms and tech
fund from iShares, is aiming to give specific exposure to precise
sectors of the market at low cost when compared with ordinary retail

Buswell says: “Initially this will probably be suitable for the more
sophisticated investor who knows, or is advised to, place his or her
money in a particular sector. This particular fund is in the European
energy and basic materials sector.”

The panel disagrees about the marketing opportunities that the
product will offer. Woodward says: “This offers opportunities as a
core holding, particularly with the low cost base, which is useful in
discretionary funds managed on a fee basis.”

Buswell says: “As a new type of investment to the UK there should be
plenty of marketing opportunities. And being launched at this time,
with markets so low, could be seen as an excellent time in which to

However, Macfarlane says: “This is not the sort of product that will
offer mass marketing opportunities. I do however, consider it as a
useful investment tool and complimentary investment to existing
client portfolios.”

Evaluating the strong points of the product, Buswell says: “By
choosing a particular sector in which to buy and sell it is a fairly
specialised investment, but this can work both for and against it. On
the positive side, should the particular sector show good growth then
there could be some spectacular gains.”

Macfarlane says: “iShares provides a very cost competitive way of
backing a range of indices, in this case the energy and basic material
sectors of the European markets. For the more sophisticated investor
iShares can be actively traded in real time or used as a hedge for
existing portfolios by selling short. For passive investors iShares can
be held via an Isa contract. Given their structure there is greater
potential for iShares to be traded at or near their fair value.”

Woodward says: “Cost is one obvious advantage and now the index
choices offered is far wider than the typical range offered to retail
investors via unit trusts. It gives market exposure without added risk.
Another advantage is that the pricing is live and should always be at
or close to net asset value.”

Turning to the other side of the coin and looking at the disadvantages
of the fund, Buswell says: “Should the market in this sector fail to
perform, there could be some spectacular losses.”

Woodward says: “The main disadvantage is that most people at the
retail end of the market will not have heard of an exchange traded
fund, so a greater degree of explanation of what it is and who is
behind iShares will be needed.”

Macfarlane says: “The fund has no distinct disadvantages. However,
iShares themselves are unlikely to be widely marketed via the IFA
community due to their perceived extra level of complexity and the fact
that no commission or renewal is available. iShares will be far more
popular with stockbrokers who can charge clients a stockbroking fee
on both the purchase and the sale of such investments. The low
awareness of this product within the investing community will mean
that it will take some time before this type of contract gains

Moving on to what the panel thinks of the investment strategy,
Buswell says: “The strategy is interesting. The idea of going for a
particular sector has long been in the domain of the individual
shareholder. With this fund it opens the market to many more

Macfarlane says: “The iBloomberg European resources fund is
passive, investing in a basket of stocks that make up the European
investible resources index. Investors will receive their returns based
on the movement of this index.”

Woodward says: “Other than offering a greater speciality to another
sector and exposure to different markets, there is no specific
investment strategy.”

Casting an eye over the reputation of iShares, Macfarlane says:
“Barclays Global Investors, which will manage the investments, has
an excellent track record and a reputation for launching innovative

Woodward says: “I don&#39t think that it has a reputation other than for
providing index vehicles. Few people will make the connection
between iShares and Barclays Global Investors.”

Buswell says: “As a brand new enterprise, it really is too early to tell.
However, Barclays Global Investors, which manages the fund, has
been around for a long time and has a sound if unspectacular

Woodward and Buswell both think that the charges are very
competitive. Macfarlane says: “The charges are very low and the cost
of purchase and sales will depend on the stockbroker you decide to

Looking at the product literature, Woodward says: “This is best
described as unexciting and functional. If I was a marginal buyer of
an index product I do not feel that the literature would persuade me
this was the best choice.”

Macfarlane says: “It is eye-catching and attractive but is likely to
confuse the unsophisticated investor. The literature would be more
appealing to the investment adviser.”

Buswell agrees. He says: “The literature is very technical and is not
for the ordinary investor. Parts do need to be simplified.”

Finally Woodward sums up: “Clearly there are two markets here, the
discretionary fund managers and professional investors who would
be attracted to this as well as retail investors. The retail distribution is
more tricky since it does not pay commission and does not have any
real charges, so there is no easy way to market it without adding to
the costs.”

Alan Buswell, Proprietor, Glenburn Financial Services, Bruce
Macfarlane, Partner, Capital Trust Financial Management, Eric
Woodward, Managing director, EP Ward Investment Services.


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