CAUTIOUS MANAGED PORTFOLIO
Aim: Income and growth by investing in equities and fixed-interest securities
Minimum investment: Lump sum £1,000, monthly £100
Investment split: Equities 50%, fixed interest 50%
Isa link: Yes
Pep transfers: Yes
Charges: Initial 4%, annual 1.5%
Commission: Initial 3%, renewal 0.5%
Tel: 0800 3283191
The panel: Gary Bottriell, Director, Lewis & Co,
Alan Buswell, Proprietor, Glenburn Financial Services,
Bruce MacFarlane, Partner, Capital Trust Financial Management
Suitability to market 5.7
Investment strategy 5.7
Past performance 6.0
Company's reputation 7.0
Product literature 5.4
The M&G cautious managed portfolio is an Oeic fund of funds that invests in equities and fixed income securities through a range of externally managed funds.
Assessing the fund's market suitability Bottriell says: “It fits perfectly well. Many new fund of funds offerings are on the market, but this one stands out rather well.” MacFarlane says: “Fund of fund products are very much in vogue and a must have product for the marketing departments of a lot of investment companies. As far as the market for the cautious managed portfolio is concerned, the product slots in rather anonymously. It offers no more and no less than other providers in the same sector.” Buswell says: “There are several funds of funds on the market but the combination of M&G and Cazenove will give this fund more credibility than most as both companies have sound reputations.”
Highlighting possible clients the fund could attract, Buswell suggests a cautious investor who is looking for performance above the returns available from building society accounts, but adds that everyone is looking for that at the moment. Bottriell says: “The bruised equity investor looking to reduce and manage risk in his or her portfolio. Many investors have had their confidence in their own abilities knocked by the market and are now looking for advice and management for the best time to invest.” MacFarlane says: “Funds of funds provide a diversified portfolio from both an asset allocation and geographic allocation point of view. The cautious managed fund is obviously aimed at investors wanting long-term capital gains combined with a modest income at a lower level of risk.”
Considering the marketing opportunities the fund could provide MacFarlane says: “None, as there is nothing particularly marketable about the fund that sets it apart from others in the cautious managed sector.” Bottriell says: “We do not think the fund in itself warrants its own marketing trivia but it is a good fund to place on a best buy list.” Buswell says: “Marketing opportunities will be based on the M&G and Cazenove names. Both are old well-established companies with sound reputations.”
Turning to the positive features of the fund Bottriell says: “It has three features that set it apart from other funds of funds. These are M&G's good reputation plus Cazenove's sector experience, its 4 per cent initial charge which is very competitive and the risk controls give transparency to the management style.” Buswell believes that truly diverse investment can be selected through the range of underlying funds.
MacFarlane says: “The concept behind the fund of funds is that the fund manager should have he ability to select via a process of research and elimination the best funds available for their clients' money. If this is the case, the correctly selected funds should provide outperformance over the longer term. The fund is available for Isas and Pep transfers, allowing investors the opportunity to switch existing investments to the fund if they deem it suitable.”
Discussing the investment strategy MacFarlane says: “Cazenove has an asset allocation team which uses a bottom-up micro view and top-down macro view to decide the overall asset allocation. It is also very important that Cazenove gets close to the fund managers of the external funds they are using to make sure their investment decisions are compatible going forward.” Bottriell says: “It is okay, but it is a bit of a bandwagon at the moment. All talk of value versus growth is hokum if you cannot pick the holdings well. But I think it is likely to meet its objectives.” Buswell says: “In a normal economic climate, I would say the strategy is solid of unspectacular. But given world markets at the moment, who knows?”
Examining the downside of the fund Buswell says: “With world stockmarkets at, or near, eight-year lows, this is probably not the best time to be launching this type of product. But to quote an old favourite song of Mr Blair's, things can only get better, so maybe a slightly more interesting product should be used now.” Bottriell says: “The yield is well below the market average and at a shake, all income seeking investors are alienated.” MacFarlane says: “The fund is expensive due to the double charging nature of such contracts. Furthermore, if equity or bond yields fall and there is insufficient income to cover the annual management charge, the shortfall will be taken from investors' capital.”
Assessing M&G's reputation Bottriell says: “It is first class, although the admin could be better.” Buswell says: “After a really bad patch in the mid to late 90s, it seems to be improving. Its reputation remains sound.” MacFarlane says: “I feel the partnership of Cazenove and M&G compromises both their reputations, but especially that of M&G. The fund would perhaps have been better branded as the Prudential Cazenove fund of funds.” He also wonders why Cazenove needed M&G to act as its marketing department to launch the product.
Moving on to past performance Buswell repeats his earlier comment about its bad patch in the mid- to late 90s, but adds that every company has been hit by poor performance over the last three years. Bottriell says: “Again, pretty good all round. But of course the M&G link-up with Cazenove is new and we have yet to see how this works.” MacFarlane says: “I know little of Cazenove's past performance record with selecting investments, but it will be the performance of the underlying funds it selects that will ultimately determine investors' returns.”
Identifying the likely competitors for the fund Bottriell says: “Most funds of funds and equity and bond funds that produce a realistic yield.” MacFarlane says: “All the other funds in the cautious managed sector that may outperform the fund. This fund is currently ranked 34 out of 35 funds in the sector, so it will be interesting to see how it performs given time after its recent launch.” Buswell says: “With markets as they are, they main competition will be mattresses and building society accounts.”
The panel offer mixed views of the charges. Bottriell says: “The 4 per cent initial charge is very good, though I do not like to see a annual charge of 1.5 per cent. This is far too high in the current economic climate where real returns are turning negative.” MacFarlane thinks the charges are generally in line with other funds of funds, but feels the annual management charge could be rebated back into the fund. Buswell says: “I think most of these companies charge far too much for what they do and this is no exception.”
The panel agree that the commission is standard.
Casting an eye over the product literature MacFarlane says: “The literature explains the concept of fund of funds well and clearly provides the case for Cazenove as the fund manager. But it is too bland and cheap looking. The comic-style layout does little to enhance Cazenove's image as private wealth managers of the highest repute.” Bottriell says: “It is good - plain and simple. M&G does succeed in not overcomplicating its literature, which has to be applauded.” Buswell thinks it is clear and concise.
Summing up MacFarlane says: “I cannot fathom why M&G would want to get involved with a product that in effect promotes the investment funds of other investment houses over its own funds especially the managed growth and income funds.”