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Offshore security

Neville James has introduced the secure capital growth fund, an offshore Oeic that invests in traded endowment policies (Teps) and zero-dividend preference shares.

Looking at how the fund fits into the market, Ball is enthusiastic. He says: “It is excellent for the risk-averse investor looking for capital growth with minimal downside risk.”

Bulgin says: “This is for sophisticated investors wishing to capture capital gains in a flexible and secure manner.”

Stevens says: “The product fits into the market very well. There are not so many players in this area anyway but this may well change as more policies become available.

“The unfounded negative publicity on endowments means that more people will make unnecessary surrenders and let other investors in these types of investments benefit.”

Laymond is less positive. He says: “This is another product in what is becoming a crowded market.”

Turning to the type of client that the product is suitable for, Stevens says: “This is for low-risk, long-term investors and for those who have used up their Isa allowance and want low-risk, tax-efficient, income-producing investments.”

Laymond thinks that the fund is for those whose attitude to risk is low and cautious, while Bulgin says: “This is for anyone looking for secure capital growth and who is not averse to investing offshore.”

Ball identifies two types of potential clients. He says: “Firstly, this is for clients investing for growth to enable later retirement planning income by cashing within annual capital gains tax (CGT) limits. Secondly, it is for clients investing for children or grandchildren&#39s future educational needs, weddings or other plans.”

Looking at the marketing opportunities that the product provides, the panel differ. Stevens says: “We all need to be aware of the availability of new style investments and this is where seekers of independent advice will benefit. Only the informed client will get to know. This type of specialist or niche product is valuable for the IFA.”

Ball says: “There is a broad spread of clients looking for risk-averse growth. This may also be marketed to some clients requiring regular income.”

Laymond disagrees. He says: “This will have limited appeal, unless the client wants to accept low returns for the security.”

Examining the strong points of the product, Ball says: “There is the solid asset backing of Teps, the flexibility of cashing-in and tax-effective potential, the fact that it is Isle of Man based and so provides lower tax charges, the fact that it offers redemptions in any freely transferable currency and lastly the fact that it has open-ended investment flexibility.”

Bulgin says: “The main strong point is the combination of Teps and zeros in the one fund which should give more attractive returns than zeros in the short term. Also, active fund management should boost returns.”

Laymond says: “This product offers low-risk modest returns which are virtually guaranteed and which should return about 9 per cent net. This may not seem much to some investors but it will appeal to the cautious client.”

Stevens highlights three strong points. He says: “First, there is the combination of Teps and zeros, offering equity exposure and security combined. Second, there is no winding-up date. Third, there is the ability to buy into Teps and zeros without buying the securities piecemeal.”

Turning to the other side of the coin, looking at the product&#39s drawbacks, Bulgin says: “This product is offshore, which some clients do not like, and over the long term returns may be less than some other growth funds. However, this fund is more secure than a typical managed fund.”

Laymond says: “Investors cannot benefit from full exposure to equity markets and also returns may not keep up with inflation.”

Stevens points out that: “Active management is needed in case the rise in one asset class is cancelled out by the fall in the other.”

Ball says: “The negative points are that income has to be taken from capital growth only. There is a potential risk if the zeros fail to meet stated maturity values but this is considered a low risk.”

Evaluating the investment strategy, Ball says: “This is one of the best risk-averse strategies available today.”

Bulgin says: “The investment strategy looks sound. Neville James is experienced in the Tep market and Hill Osborne, the secondary investment adviser, appear to have good experience in the zeros market.”

Stevens says: “The investment strategy is very good but it needs careful management. Teps will improve if the equities market does really well, likewise zeros if gilts or corporate bonds do well.”

Looking at Neville James&#39 reputation, Ball regards it as a sound and able operator while Laymond thinks that it is excellent. Bulgin says: “Neville James is very good in the Tep market.”

Stevens says: “Neville James does not have much name awareness among clients but IFAs will do well to be aware of relative newcomers to the retail market, as this is where the new ideas often originate.”

Addressing the issue of charges, Ball says: “The charges are fair and reasonable, comparable with fund management risk, which is considered low.”

Laymond says: “The charges within this contract are fair and are near the maximum stakeholder charge of 1 per cent.”

Bulgin says: “Yes the charges are fair and reasonable, and appear fine for an offshore product, which are usually more expensive than the equivalent onshore products.”

Stevens adds: “The charges are fair and reasonable. We should not forget however that the with-profits office will be making a charge on the funds, so there is an element of double charging. Clients need to be aware of this.”

Turning to the commission, Laymond says: “The menu of 0 to 5 per cent is in keeping with many plans and even bonds. However, due to lower returns from this type of contract it would be against a client&#39s best interests to take more than, say, 2 to 3 per cent.”

Ball says: “It is a flexible commission. However, I would prefer a basic in-built commission which could be rebated to clients as considered appropriate, rather than a discretionary charge of up to 5 per cent being applied.”

Stevens says: “The commission is very flexible so that the IFA can set their own level. We would be likely to take 3 per cent initial and 0.25 per cent trail.”

Looking at the product literature the panel is positive. Ball regards it as attractive and well written, while Laymond thinks that the information is clear and concise.

Bulgin says: “The product literature is comprehensive and is of good quality.”

Stevens says: “The literature is good. It goes into detail to explain fully the two asset classes, which obviously helps to explain the investment to clients.”

Summing the product up, Bulgin says: “This appears to be an innovative product, which should prove popular in a niche market.”

Stevens concludes: “The ability to take what in effect can be a tax-free income is good. Capital gains tax is the only tax to look out for but most clients never make use of their full CGT allowances anyway.”


Axa – UK Opportunities Fund

Monday, 29th January 2001.Aim: Growth by investing in high risk UK equity stocks.Minimum investment: Lump sum £1,000, monthly £50.Investment split: 100 per cent in high risk UK equity stocks.Isa link: Yes.Pep transfers: No.Charges: Initial 3.5 per cent, annual 1.5 per cent.Commission: Initial 3 per cent, renewal 0.5 per cent.Tel: 01179 890808. 

Axa – European Opportunities Fund

Tuesday, 30th January 2001.Aim: Growth by investing in high risk European equity stocks.Minimum investment: Lump sum £1,000, monthly £50.Investment split: 100 per cent in high risk European equity stocks.Isa link: Yes.Pep transfers: No.Charges: Initial 3.5 per cent, annual 1.5 per cent.Commission: Initial 3 per cent, renewal 0.5 per cent.Tel: 01179 890808. 

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