ELITE MONEYGURU INCOME WITH GROWTH TRUST
Type: Unit trust
Aim: Income and growth by investing in 20-24 high-yielding stocks
Minimum investment: Lump sum £5,000, monthly £100
Investment split: 100% in 20-24 high-yielding stocks
Isa link: Yes
Pep transfers: Yes
Charges: Initial 5%, annual 1.5%
Commission: Initial 3%, renewal 0.5%
Tel: 020 7332 2040
Paul Fothergill, Paraplanner, CRA Independent Financial Advisers,
Stuart Smith, Deputy managing director, RJ Hurst & Partners,
Andy Burnett, Partner, Bucklands,
Jaramy Marsh, Investment manager, Lupton Fawcett Solicitors.
Suitability to market 5.5
Investment strategy 5.8
Past performance 5.0
Company's reputation 4.0
Product literature 5.8
The Elite MoneyGuru income with growth trust is a unit trust that invests in a portfolio of between 20 and 24 UK stocks, and is based on the company's virtual income with growth portfolio.
Looking at the fund's market suitability Fothergill says: “In an environment of poor investment growth and low interest and annuity rates, any fund offering the potential for higher income and capital growth is bound to attract interest. Through its website, MoneyGuru seeks to differentiate itself from a plethora of similar funds by offering value-added services, such as access to detailed research reports.”
Marsh sees it as an attempt to fit in with the investor who requires a defined income that must be delivered. Smith says: “It appears to be a plain vanilla equity income trust, vying for attention among a crowded marketplace.” Burnett says: “This is a very specialist product, although more investment houses seem keen to offer this type of concentrated portfolio, based on stock-picking skills.”
Identifying the clients the fund could attract Smith says: “With a gross yield of just over 2 per cent, the trust is probably misnamed and is more suitable for investors looking for capital growth.” Burnett says: “Those prepared to take a fairly high level of risk in the small and mid-cap area. Not my typical client.” Marsh cannot suggest any clients for whom the product is suitable.
Fothergill says: “It best suits high-net-worth clients who wish to add to, or diversify within an existing portfolio, like to take an active interest in their investment and who are prepared to pay a premium for access to institutional quality research and analysis.” He adds that clients would need to accept an element of risk and that the ability to vary income, albeit at the risk of erosion of capital, would make it ideal for income drawdown.
Discussing the fund's marketing potential, Burnett thinks it is very limited. Fothergill agrees, but feels it could be a suitable investment for self-invested personal pensions and small self-administered schemes. Marsh can see no marketing opportunities. Smith says: “With plenty of other better-known providers offering funds with a similar objective, I cannot see us using this product at all.”
Discussing the fund's strong points Smith says: “The ability to view the justification behind each holding on the website is a development which I applaud and which I hope will be copied by other more mainstream providers.” Burnett highlights the concentrated portfolio of around 20 stocks, the small size of the fund and the predicted yield of 10 per cent above the FTSE All Share index.
Fothergill says: “The specialist nature of the company and its personal approach to clients. On contacting the company, I was put straight through to Ian Lancaster, the head of investment, who was happy to discuss his investment strategy. The customer-focused transparency also enables unit-holders access to full research reports and weekly updates via its website.”
Examining the investment strategy Smith says: “The fund appears to offer a stockpicking value style of investing, which has worked well for other groups during the current economic gloom, but which is likely to underperform growth orientated trusts as the recovery gets stronger. Nevertheless, the overall strategy seems clear and typical of equity income funds.”
Fothergill says: “It seems very sound, with an emphasis on well-researched small to mid-cap stocks with high yields and growth or recovery characteristics. The fund managers look to invest in companies with strong sales and earnings growth and in particular, a high level of free cash flow. This strategy should reduce volatility and provide a greater degree of security.” Marsh thinks it offers nothing new. Burnett sees it as high risk, but thinks it is quite clear in its objectives.
Moving on to the fund's drawbacks Burnett says: “It is chasing a market sector with limited suitable investment opportunities that is also being looked at as flavour of the month by other fund managers.” Smith says: “The most significant disadvantage is the low yield for the type of fund it purports to be. The charges also seem at the high end of the market and of course, there is very little brand awareness. I also have concerns over the resources which the fund manager can call on, particularly when compared to larger fund groups. The minimum investment levels are also on the high side.”
Discussing the company's reputation Fothergill says: “This is the first unit trust to be launched by this relatively new company. I am not aware of the reputation of the individual fund manager, although MoneyGuru has been supplying research material to the likes of Hargreaves Lansdown and private clients. It may take time for the company to establish its reputation beyond its existing client base.” Smith knows nothing about the company, but has concerns that an investment website believes it has the necessary abilities to become a fund manager. Burnett says: “It is too soon to tell, but the backgrounds of the key individuals do not particularly shine.”
Looking at the company's past performance record Marsh points out that it hasn't got one. Smith is not impressed with Way Fund Managers, who manage the fund for MoneyGuru. Burnett says: “Way Fund Managers has performed dismally since inception, with a high level of volatility and were particularly poor in 2001. However, 2002 has started better. MoneyGuru is less well known but its virtual fund, which predates this trust, performed well.” Fothergill feels this is difficult to assess but points out that the virtual portfolio has achieved growth of 56 per cent since its launch in November 2000.
Highlighting potential competitors Smith says: “Any equity income fund, but specifically Invesco Perpetual income, New Star higher income and Newton income, all of which have much stronger brands, in-depth research from a huge team of analysts and excellent past performance records.”
Fothergill says: “There is an extensive range of equity income funds available, may of which are well-established with a sound past performance record, such as those offered by Credit Suisse, LionTrust and Newton. Newcomers such as New Star's higher income fund clearly have large advertising budgets to raise their profiles. For high-net clients, discretionary unit trust and portfolio management.” He adds that discretionary unit trust and portfolio management services from Cazenove and Henderson may be more appealing for high-net-worth clients because they have lower charges.
Expanding on this point, Marsh says: “MoneyGuru attempts to do the function of a portfolio manager but is destined to fail.” Burnett suggests equity income funds from Solus, Quilter and Marlborough and focus funds from Gartmore, New Star and BWD Rensberg.
The panel agree that the charges are on the high side and that commission is standard, although Marsh thinks this is still too high.
Looking at the product literature Burnett says: “It is bland, not flash, but everything seems to be covered. Marsh thinks the literature is clear and Smith says: “It is fairly standard. The literature is clear, as it needs to be when aimed at the general public.” Fothergill says: “The literature is generally well presented and the MoneyGuru website provides a great deal more detailed information and insight into the fund managers and investment strategy.”
Summing up, Marsh says: “It is a nice story but too expensive and achieved with better results and lower charges by private client portfolio managers.”