NEW STAR INVESTMENT FUNDS
MANAGED DISTRIBUTION FUND
Aim: Income by investing in bonds and equities
Minimum investment: Lump sum £1,000, monthly £100
Investment split: Bonds 65%, equities 35%
Isa link: Yes
Pep transfers: Yes
Yield: 5% net a year
Charges: Initial 5%, annual 1.25%
Commission: Initial 3%, renewal 0.5%
Tel: 0845 6088702
The panel: Mike Gilbey, Managing director, HHPG,
Bruce Bulgin, Partner, Chadney Bulgin,
Roy Andrews, Senior partner, Andrews Gwynne & Associates,
David Divers, Principal, Sandringham Investments.
Suitability to market 8.3
Investment strategy 9.0
Past performance 8.0
Company's reputation 8.0
Product literature 7.6
The panel assess the fund's market suitability. Bulgin says: “It is an income provider with the added attraction of potential capital growth. It competes with distribution bonds and with-profits bonds. The estimated yield is equivalent to that of many funds so the fund will be an alternative to pure bond funds.”
Andrews sees it as a means of bonds and equities within one holding. He thinks it is useful for smaller clients with limited funds as it offers a better return than building societies. Divers thinks it is a near-perfect product for the current market. Gilbey says: “The product is arguably defined as lower risk and has a part to play in any portfolio as a part of the low to medium risk element. It has wide appeal for both small and large portfolios.”
Identifying the clients the fund could attract, Gilbey thinks would appeal particularly to older or retired clients though Isas or Pep transfers. Andrews says: “Small clients requiring an income better than building societies and for larger clients as part of a core holding.” Divers says: “All those seeing diminished building society returns, those scared of the current state of the stockmarket and those concerned about the outcome of a Middle East war.” Bulgin says: “Good for anyone seeking income or a relatively low-risk fund where growth can be obtained by reinvesting income. The bulk of clients will probably be aged fifty or above and will be relatively cautious.”
Discussing the fund's marketing potential Divers says: “Every IFA can see marketing opportunities, not just for what this product is, but the first-class team behind it.” Bulgin says: “It can be promoted to income seeking investors who have been disappointed with returns from with-profits bonds. It could possibly be used as a direct mailing to clients.” Andrews says: This will help to target new investors and also those disillusioned by recent gyrations of equity markets.”
Highlighting the positive features of the fund, Andrews cites a realistic target yield, the ability to use a wide range of investment vehicles and access to the diverse skills of bond and equity managers. Bulgin says: “The headline level of interest is attractive and the approach of combining equity income shares with bonds in the same package. The managed distribution funds has a string management team, bringing together some of the top names in the industry. ” Gilbey highlights the credibility of the fund managers, the relatively high income yield, capital growth and relatively low level of risk.
Assessing the investment strategy Divers says it is pretty faultless. Andrews says: “An attractive and convincing approach. Any fund improved by Theo Zemek's strategic thinking is worth more than a second look.” Bulgin says: “Set against the objectives of the fund, the strategy appears sound with a focus on income-producing shares, where yield prices have increased as share prices have collapsed. The bonds secured will have to produce a slightly higher yield than that available from most investment grade and government bonds.” Gilbey thinks it is sound but was initially concerned by the barbell income and growth split structure that has caused problems with split-capital investment trusts. However, he concludes that the design could work well for investors in this fund because it is not geared and is transparent.
Focusing on the fund's disadvantages, Bulgin thinks there are few, but adds it would be possible to replicate the fund by buying corporate bond and equity income funds separately. Divers says: “I don't see the fixed-interest area as being the best place to be looking forward but the investment split between equities and bonds might be right for now. I would hope you might have the choice to increase income as capital gains are made. There should be a wider income choice.”
Gilbey says: “If it is going to be a roaring success it will need to compete with the currently over-popular corporate bond sector. Clearly it is an excellent product but there are too many guaranteed products out there for it to be an instant hit this Isa season, surrounded by potential war and chaos.”
Discussing New Star's reputation Andrews says: “John Duffield is building successfully Jupiter mark II, but without the baggage.” Gilbey says: “John Duffield has certainly pulled together a team of established Stars and this team is no exception. I am more interested in experience and track record when looking at reputation rather than the latest performance figures - we have all seen, bought and regretted buying one hit wonders. New Star is a recently established investment house but with a lot of established experience and expertise.
Bulgin says: “In its relatively short life, New Star has built a strong reputation and has a high profile in the industry. The funds, with few exceptions have performed well but time will tell s to just how good it is.” Divers says: “Too many people knock the star fund manager approach, but if the past is any guide to the future, an individual's track record is the best there is. Ask fans of Anthony Bolton.”
Turning to past performance Divers says: “It has not been going for long enough to give a qualified opinion. But to date, it has more credibility than most. John Duffield is a man of rare insight.” Bulgin says: “Most funds have performed well but they have not been in existence long enough to provide meaningful statistics. During this period, almost everything has fallen in value, New Star funds have fallen less than average.” Andrews says: “Mixed, although the managers for this fund have excellent records.” Gilbey says: “New Star is arguably too new to deserve a credible past performance record but that is to deny the obvious quality and expertise of the managers involved.”
Considering the competition the fund will face, the panel cite Insight, Newton, Jupiter, HSBC, M&G, Henderson, Skandia, Fidelity, CoFunds, Artemis, Norwich Union, Legal & General and Invesco Perpetual. They agree that the commission on the New Star fund is standard.
Divers and Gilbey think the charges are standard. Andrews thinks they are high and Bulgin thinks only the initial charge is high. Bulgin notes the charge are taken equally from income and capital and argues that it seems unfair to penalise those who have income reinvested by making an initial charge instead of offering accumulation units.
Casting an eye over the literature Bulgin says: “It is clear, concise and eye-catching and there is a strong focus on the fund management team. Pin-ups of the fund management world? Methinks not.” Andrews regards it as clear and easy to read. Divers says: “It's got New Star's clarity and readability without blinding people with alpha and beta jargon that nobody's interested in. I like its approach - stylish.” Gilbey likes the fact that caveats and conditions do not complicate it.
Summing up Gilbey says: “A good well balanced product that appeals in today's volatile markets. Its lower risk structure and relatively high income will make it a product to be considered in the coming Isa season. If it wasn't for the abundance of protected and guaranteed short life products currently available I might even be tempted to tip it as a winner in the forthcoming Isa season.”