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New Star Wars

Do you believe the spat between Jupiter and John Duffield&#39s New Star will damage either of the two firms&#39 reputations?

Adam: The fallout with Jupiter and New Star, I believe, is having a different effect on both firms. It is making clients question Jupiter and the stability of the investment team but for New Star it highlights them as an alternative and gives greater credibility (ie, son of Jupiter) than any other “new” fund management group could get.

Both: It certainly will not enhance it. Duffield is likely to be the bigger loser, since starting a new venture under a cloud, especially at this less than auspicious time, could divert his attention at a time when he can least afford it. It is impossible for an outsider to know what is really going on.

Yearsley: Yes I think it probably will. It makes both groups look childish the longer this particular row goes on. I can see both sides of the argument. It is obvious that Jupiter employees do not want their own money managed by New Star, equally John Duffield does not want to lose funds under management from a newly created business. The danger is that IFAs and the investing public will avoid them both entirely because they will think that they are spending too long in the court rooms and not enough time managing money and looking after their clients&#39 best interests.

While Isa sales were floundering, venture capital trust sales rose by more than 50 per cent during the 2000/01 tax year, taking more than £423m. What do you believe have been the main reasons for their success?

Adam: VCTs have been helped by last year&#39s technology bubble. People who have had significant gains in their portfolios with technology stocks have looked at ways of deferring their CGT liability.

In addition, I believe that although VCTs are really for the high-net-worth, more sophisticated investor, clients in general are becoming much better educated.

There has also been a better quality of launches recently and greater use, certainly initially, of good smaller companies funds giving a slightly lower risk profile than previously available, such as Edinburgh/Northern Ventures and Artemis.

Both: Our own year-on-year figures saw a far greater percentage increase than that but it was from a very low base compared with Isas. Clients are now more familiar with the concept and many who were nervous of a relatively new product last year were more comfortable with testing the water this time. We found that, as pensions are becoming less attractive for retirement planning, the benefits of VCTs have made them relatively appealing, especially as part of a portfolio. In time, they could become a much more mainstream investment vehicle, but only after a few key developments.

Yearsley: If you look at the easiest sellers this tax year, it was the VCTs with the established names and good track records. In addition, Aim-based VCTs also sold with relative ease. Another very important factor was that the national press started getting interested, so much so that an article in the Daily Mail helped contribute millions to the fund raising of the Friends Ivory & Sime Aim VCT. When all the financial press are extolling the virtues of VCTs, investors started knocking down the doors of their IFAs demanding entrance.

The returns achieved from Aim-based VCTs and some of the more specialised tech VCTs also helped fuel the 50 per cent increase in sales. On a more negative note, it is unlikely that sales this year will be as high, simply because it is unlikely that there will be as many gains to shelter.

Do you believe the AITC is right to ditch TV advertising if it continues with the “its” campaign?

Adam: Yes, TV advertising is mass market awareness and very expensive. More focus on other media would be more rewarding and access their target markets for better use of their budget.

Both: I cringed every time the TV adverts appeared. I am actually extremely keen on investment trusts, and have used almost every type extensively for years. I was so embarrassed by the adverts that I hoped that none of my clients ever associated what I was recommending with what they saw on TV.

I hold the AITC in very high regard but feel that the TV adverts did nothing to enhance anyone&#39s professional reputation. If I were an AITC member, I would be furious at the monumental waste of money which could have been spent to much better effect. They should look for a new marketing director immediately.

Yearsley: Personally, I do not think that the TV adverts have done that much to encourage investment. The adverts are rather irritating, rather than entertaining and I think that they would put more people off rather than encourage them to invest. If the AITC wants more people to buy investment trusts, then the best way to do it is to get IFAs to sell them. You only have to look at how many unit trusts they sell to see the potential.

Do you support Autif&#39s move to speed up the introduction of single pricing across the unit trust industry?

Adam: Yes, the single-pricing issue must be a priority for the industry. It is clearer both for clients and advisers to understand charges and costs. It is also easier for clients to see what their investment manager is being paid and how much their adviser is charging them.

Both: I am in favour of anything which makes my life easier if it also costs the consumer less and is simpler to explain. The way that single pricing appears to be working at present does not conspicuously achieve any of those aspirations any better than the current system although the attractions for the fund manager are obvious.

A clear and limited set of permissible charges would be nice. I would have been more impressed if some form of electronic trading, either EMX or an alternative, really worked in practice for all open ended investment funds. Now that really would deliver tangible benefits all round.

Yearsley: I think that speeding up the process of moving to single pricing is a good thing for the industry. Unit trust charges are not transparent, with many investors not realising that the difference between the buying and selling price is more than the initial charge. This makes accurate comparisons to singlepriced funds more difficult.

Do you believe investment houses should be allowed to advertise past performance figures after a fund manager has left a fund?

Adam: Definitely not. But if the rules are changed to avoid this, the marketing gurus will still be able to conjure up some way of highlighting the strengths of their organisation&#39s performance, even if only for the short term.

I think it is immoral for investment houses to use performance stats in the way they do. Unfortunately, as long as people are attracted by headline figures, whether slanted or not, then I do not see what can be done. I think the expression is “the public gets what the public wants” – showing my age.

Both: There will always be abuses of statistics, which can be difficult to interpret at the best of times. Past performance is not necessarily a guide to the future for many reasons, of which a different manager is an import one, but ever-changing market conditions count for even more.

I think fund groups should definitely be able to advertise past performance but should indicate when the senior fund manager changed and make it easy to discover who it was for all the times they are advertising. I am put off by funds who cannot hold on to their manager and managers who keep job hopping.

Yearsley: Generally, I would have to say no, fund management groups should not be able to advertise past performance if the key individual has left. If the returns have come from the team-based approach rather than an individual, then one person leaving would not make the team&#39s past performance inaccurate.

Obviously, in the case of someone like William Little-wood leaving Jupiter, then the fund performance was all his. At the end of the day, all investors have to treat any fund past performance with a pinch of salt because figures can be manipulated to make your fund look superb if the right time period is chosen.

Alan Adam,consultant,Alan Steel Asset Management

Michael Both, partner,Michael Philips IFA

Ben Yearsley, investment manager, Hargreaves Lansdown


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