Type: Unit trust fund of funds
Aim: Growth and income by investing in funds which invest in equities and fixed-interest securities mainly in the UK
Minimum investment: Lump sum 1,000
Investment split: 39% UK equities, 28% UK bonds, 11% global bonds, 9% global equities, 9% specialist investments, 4% cash
Isa link: Yes
Pep transfers: Yes
Charges: Initial 5%, annual 1.35%
Special offer: Initial charge reduced to 4%
Offer period: Until October 28, 2005
Commission: 3% initial, 0.5% renewal
Tel: 0845 6088702
The New Star cautious portfolio is a unit trust fund of funds that aims for growth and an estimated net income of 3.5 per cent a year while preserving investors original capital. It will invest mainly in regulated funds that in turn invest in equities and fixed-interest securities. It also has the ability to hold other investment vehicles including investment trusts, exchange traded funds, property funds, unregulated funds, money market instruments and derivatives.
Flowers McEwan director David Flowers says: This is an addition to New Star’s range of fund of fund offerings aiming squarely at the dissatisfied cautious investor. New Star has aggressively built up a good team and track record in just five years and has once again launched a good product at a good time.
Flowers admits the literature is not to his taste but finds it clear without being too simplistic and informative without being too detailed. It is a standard unit trust package but well priced for a fund of funds, with an annual management charge of 1.35 per cent, which includes a 0.5 per cent renewal commission, he says
Discussing New Stars performance record Flowers says: New Star has produced good performance fairly consistently, even if only a short time frame, so one would expect this fund to also perform well.
In his view, New Star is riding three waves at once with this fund. Firstly the move to fund of funds rather than IFAs selecting their own portfolio of funds; secondly the increasing awareness of the wisdom in diversifying funds between fixed interest and equities; thirdly by tapping into customer dissatisfaction with with- profit funds and poor performance over the last five years, he says.
He believes that if an IFA understands and agrees with these three issues, then this product will be an easy sale.
Considering the possible down sides of the fund Flowers says: I find it inconsistent for an investment manager to preach the virtues of diversification, specifically the efficient frontier theory and then allow themselves the scope to change the diversification balance as they go along.
That strikes me as an attempt to time the markets while basing the investment philosophy on the opposite principle – one can’t time the markets and therefore you should diversify in scientifically adjusted proportions and hold to it.
Neither is Flowers a fan of New Stars knocking the alternatives in its literature. It is simply not good enough to say with-profits have not delivered. We all know that, and no advice or direction is forthcoming from New Star to explain how an investor extracts themselves from the with-profit conundrum, he says.
Flowers notes there has been poor performance in the last five years but feels that is often more a reflection of markets than the fund manager. He thinks a simple switch to New Star will not necessarily guarantee a rosy future.
Looking at New Stars competitors in the fund of funds market Flowers says: Stiff competition is to be found in the more sophisticated and better priced manager of manager funds – for example those offered by MLC/Pivotal and SEI. Frank Russell offerings are also available through fund links with Scottish Widows although they charge too much for the privilege.
Flowers points out that funds of funds are increasingly coming onto the market and feels Skandia and Fidelity are two obvious competitors with offerings and track records to compete.
He concludes: Nevertheless, I suspect New Star has targeted this well and it is certainly well priced for a fund that offers diversification, managed risk with some growth and income.
Suitability to market: Good
Investment Strategy: Average
Adviser remuneration: Average