The firm was previously known as Pharon Investment Management but was rebranded in 2004 as a specialist investment house dedicated to supporting IFAs. In December, it launched balanced, UK equity and cautious funds with the aim of providing above-average returns without the risk.The cautious managed fund is now £4.6m, the balanced managed fund £4.9m and UK equity fund £1.1m. The firm aims at small to medium-sized IFAs which have decided to concentrate on client relationships due to increased regulation. The funds have no correlation between them to avoid what the firm calls virus contagion between its products. For example, the balanced managed fund gets UK exposure through an 8.25 per cent investment in Lazard UK income among others. The other funds gain exposure through products from Jupiter and Baring. The aim is to provide diversification through a mixture of non-correlated funds. In the balanced managed fund, a 2.94 per cent holding in the Legg Mason Japan equity fund is complemented by a 6.61 per cent stake in the less volatile Schroder Tokyo fund. Head of multi-manager Alan Stokes says: “IFAs appreciate our aims, style and approach. It confirms that our claims to understand the investment attitudes of individual investors and what advisers want for information and servicing have been justified. We aim to double multi-manager sales next year.” Instrumental virtuosos The process of synchronising the rules throughout Europe for Ucits products has not been without hiccups. The industry has remained pretty much fragmented and is still dominated by local firms in many countries. The ability to create pan-European funds under Ucits III is widely anticipated to begin opening up the market and providing a far greater choice for investors. Many funds that previously did not hold distributor status have the potential to become widely available. The growing popularity of funds using derivatives and other instruments previously unavailable to more traditional long-only fund managers is an interesting development but should be treated with caution. These managers were previously restricted in the use of derivatives, typically only being allowed to use them in the efficient risk management of positions in place on portfolios. Now they can use them as a way of adding to performance. As more sophisticated tools are made available, a deeper understanding of the potential implications will be necessary. Whole new skill sets will need to be developed. The growth of strategic or absolute return bond funds is a good example. These can employ different techniques with the aim of generating returns, such as shorting stocks and markets and using currency hedging. These are a significant step away from traditional bond funds with the focus on total return rather than yield generation and capital preservation. Another area of interest is the way in which total expense ratios are reported. Funds must now report separate TERs for each share class. But while the institutional and retail share classes of a fund will report separate TERs, they will not necessarily split the variable costs other than equally between the two. The institutional share class is likely to be larger in size but with fewer holders than the retail share class, so the variable costs per investor should be lower, helping reduce the TER. This is not always the case at the reporting level, however. There will be many variations in TER across different types of fund. It is likely that big funds will have lower TERs than small or recently launched funds while funds investing overseas will typically have higher TERs. It is important to get a clear understanding of the costs of investing in a fund. This is something we do as part of our qualitative research process and enables us to manage the costs of our multi-manager funds carefully.