M&G BALANCED PORTFOLIO
Aim: Growth by investing in international equities
Minimum investment: Lump sum £1,000, monthly £100
Investment split: UK equities 55.41%, European equities 3.78%, North American equities 12.12%, Japan 1.96%, Pacific 0.89%, UK bonds 9.95%, UK corporate bonds 9.98%, cash 5.92%
Isa link: Yes
Pep transfers: Yes
Charges: Initial 4%, annual 1.5%
Special offer: 1% discount on initial charge
Offer period: Until April 5, 2003
Commission: Initial 3%, renewal 0.5%
Tel: 0800 389 8600
The panel: Michael Both, Proprietor, Michael Philips,
Barry Laymond, Certified financial planner, Barry Laymond Financial Services,
Simon Clements, Director, S&G Financial Management
Suitability to market 4.3
Investment strategy 4.6
Past performance 6.0
Company's reputation 5.3
Product literature 5.0
The M&G Cazenove balanced portfolio is an Oeic fund of funds that aims to provide growth by investing in a range of funds from different fund managers.
Looking at the fund's market suitability Laymond says it is just another new product among an already overcrowded market, with too many providers and too few investors. Both says: “There is no shortage of balanced managed funds. The question is, will this one achieve what investors really crave, namely consistency of performance of at least 2 to 3 per cent above building society deposit rates without obvious volatility? There is not the slightest reason to think it will.” Clements says: “The fund falls into the balanced managed sector and offers another way for investors to put around 20 per cent into bonds and 80 per cent into equities in one fund.”
Identifying the type of client the fund could suit Clements says: “It would suit a relatively cautious investor seeking potential for absolute return over the medium- to long-term in excess of that available from deposits. It has a wide spread of investments to reduce volatility and risk.” Laymond says: “Any client willing to invest in the current market.”
Considering the fund's marketing potential, Both and Laymond can see no new opportunities. Clements disagrees. He says: “The M&G Cazenove fund of funds concept has tremendous marketing appeal. Investors can participate in a range of industry-leading funds from top investment teams with a low minimum investment of £1,000.”
Highlighting the main useful features and strong points Laymond says: “It is a simple concept and with a minimum investment of £1,000, may attract those who are deterred from making larger investments at present and who cannot invest in many similar funds because their entry level is higher.”
Both says: “The perceived safety of the M&G and Cazenove brands, and the fact that, being a new fund, there is no embarrassing track record to show if performance had been poor in the current bear market.” Clements says: “The fund selected by Cazenove gives access to some of the most respected investment managers in all sectors. The selection process of Cazenove and the expertise of the underlying fund managers provide layers of management and great diversification. This should lead to greater consistency and lower risk.” Laymond goes for the asset allocation.
Assessing the fund's investment strategy, Both thinks it is destined to disappoint. Clements says: “The investment strategy is consistent with the standard balanced managed fund approach. Around 73 per cent will go into UK equities and 17 per cent in the US. Very little is invested in Europe, Asia, Japan or emergency markets. However, there is a good spread of investment styles within the UK and the overall mix seems sensible given the low equity prices and reasonable dividend yields currently available.”
Laymond notes that the fund's portfolio currently includes Schroder Tokyo and says: “To invest in Japan, whose situation is dire, is a waste of what could be invested elsewhere.” Both thinks the fund could end up resembling an index tracker with the managers just following benchmark indices.
Clements says: “The main disadvantage is the element of double charging that applies to two layers of fund management. The management charges of the underlying funds have to be added to the costs of M&G and Cazenove, resulting in hefty reductions in investment yield.”
Discussing the reputations of M&G and Cazenove Clements says: “M&G has a sound reputation, although this product actually relies on the reputation of Cazevove and the track records of the underlying fund managers.” Both thinks they have good reputations. Laymond adds: “M&G is an established name, which may assist the fund.”
Moving onto past performance Laymond says: “M&G has not enjoyed the best past performance.” Clements says: “Neither M&G's or Cazenove's past performance record is directly relevant to this product, although Cazenove's own balanced portfolio fund shows nothing particularly spectacular. The key point is that the investment records and managers of the funds chosen by Cazenove are of the highest pedigree.”
Both says: “As a whole, M&G and Cazenove are very good, but in parts they are very average. Cazenove's existing balanced managed funds are likely to be strong indicators of future strategy and their past performance over the last few years shows very strong correlation with the sector. In other words, the herd mentality has turned the benchmark into the strategy. Even with these low expectations, the Cazenove balanced portfolio is very unimpressive against its peer groups.”
Identifying likely competitors, Both suggests Invesco Perpetual world income, Schroder managed balanced and Marks & Spencer worldwide managed. Laymond says: “Any multi-manager funds such as those from Skandia, Selestia where similar holdings can be held and Newton's higher income fund. Also F&C's higher income, blue and with-prospects funds.” Clements says Credit Suisse, Jupiter and Scottish Widows all offer multi-manager products that are worth considering.
Assessing the charges, Both and Clements think they are reasonable. Laymond thinks the annual management charge should be reduced but finds the initial charge reasonable.
Turning to commission, the panel agree it is in line with the rest of the market.
Casting an eye over the product literature Laymond says: “The spin-free guide is one of the best I've seen. As for the rest, the key features and application forms are bland and boring in comparison.
Clements says: “The literature is simple and easily readable but more detailed information about the funds selected would be useful.” He also points to an inconsistency in that the key features document says all or part of the annual management charge is taken from capital, while the spin-free guide says it is taken from income. He says a call to M&G confirmed the charge is taken from income.
Summing up, Laymond says: “I do question M&G's remarks in its guide, “If shares in one company take a dive, the shock can be absorbed by the other shares in your fund.” If that was possible, how come the workwide UK markets have made a loss for virtually all fund managers?” Both says: “I think this is a missed opportunity. A fund manager as large as M&G should be able to afford the research to pick instruments well enough to beat the benchmark, but I have no confidence that it will. I suspect few investors will give it the benefit of the doubt either.”