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Old Mutual Asset Management focuses on UK smaller companies

Old Mutual Asset Management

UK Select Smaller Companies Fund

Product details

Type: Ucits

Aim: Growth by investing in UK smaller companies

Minimum investment: Lump sum £10,000

Place of registration: Dublin

Investment split: 100% invested in UK smaller companies

Isa link: No

Charges: Initial 4%, annual 1.5%

Commission: Initial 3%, renewal 0.5%

Tel: 0808 100 2715

Broker panel

Nigel Walker, Investment executive, Gee & Co, Michael Both,
Proprietor, Michael Philips, James Stratten, Financial adviser, Philip J
Milton & Co, Robbi Mays, Proprietor, Robbi Mays Financial

Broker ratings

Suitability to the market 6.8

Investment strategy 6.8

Company&#39s reputation 5.8

Charges 6.8

Commission 7.3

Product literature 7.0

Old Mutual Asset Management has introduced a Dublin-based Ucits
called UK select smaller companies, which invests in UK smaller

Commenting on how the product fits into the market, Both says: “With
77 funds in the UK smaller companies unit trust and Oeic sector,
competition is clearly fierce. Sister company Gerrard&#39s UK smaller
companies fund could be a problem.” Mays thinks that smaller
companies are better placed to take advantage of what she
anticipates as steady growth throughout 2002 following the downturn
in equity markets and the fact is now flat.

Walker agrees there is scope for a manager in a more specialised
area like smaller companies, especially one with a proven track
record. Stratten says: “With many existing UK smaller companies
investment trusts at discounts of around 25 per cent to net asset
value and only the buying or selling spread to pay, there seems little
advantage in investing in a comparative investment that has an initial
charge of 4 per cent and is at full asset value.”

Assessing the types of clients for whom this fund is suitable, Walker
reckons any investor because the manager does not follow just one
investment style. He believes it is unlikely to become one mainly
technology invested, for example. Mays says: “A younger and more
sophisticated investor who is prepared to take a higher risk for
long-term gain.”

Stratten says: “The literature states that the trust typically will invest in
companies which have a market capitalisation of below £1bn. It is
therefore suitable for clients who want exposure to the larger end of
the smaller companies sector.”

Turning to the marketing opportunities the fund will provide, the panel
are divided. Both says: “Without any particularly distinguishing
features, it is difficult to get very enthusiastic about it.” Stratten thinks
there is limited scope because of the competition trading at
discounts. However, Mays says: “Either high earnings clients or
those with inherited monies who are willing to accept the higher risk
of a specialist fund.” Walker says: “It gives the opportunity to promote
a fund from a manager that has delivered in the past.”

Next the panel analyse the main useful features and strong points of
the product. Mays says: “The Standard & Poor&#39s Fund Research AA
rating, the lower initial charge than its competitors and no one
holding exceeds 5 per cent, offering a wide spread of risk.” Stratten
mentions the fact that it can be held in a Pep or an Isa and it can
invest in smaller companies in any sector. “Both thinks there is
nothing outstanding.

Looking at the product&#39s disadvantages, Both says: “It is probably too
big to nimble.” Stratten says: “Although the fund is investing in
smaller companies, it is investing in stocks with a market
capitalisation of around £1bn. It is therefore missing out on the many
excellent opportunities offered by the smaller companies on the
market, say companies with market caps of £500m and below.

“By being Isa and Pep eligible, it is unable to invest in many stocks
quoted on Aim or OFEX, to which many smaller companies have
switched. Walker thinks the product has no drawbacks, although the
fund manager&#39s responsibilities will be increased due to the new
fund, because he will co-manage the UK select mid-cap fund. Mays
says it is a long-term investment for those prepared to take the risk.

Discussing the product&#39s flexibility, Stratten believes that the
restriction on Aim and OFFEX companies affects the fund&#39s flexibility.
Mays and Walker agree that flexibility is good. Mays says: “The fund
managers have a flexible approach, investing for growth and value in
order to achieve their aims.” Walker likes the wide range of funds for
switching, especially the fairly new corporate bond fund, which is
making good progress.

Commenting on Old Mutual&#39s reputation, Walker and Both say that it
has been very acquisitive over the years, swallowing up numerous
fund managers and stockbrokers. Both adds: “Whether the sum of
the parts is greater is still an open question, although the elimination
of rivals can&#39t have hurt Old Mutual&#39s bottom line, we have yet to see
how Old Mutual made its private clients significantly better off.”
Stratten says the company has a good solid reputation.

Moving on to Old Mutual&#39s past performance record, Walker says: “Its
mainstream fund UK growth has been little used, is below average
with unremarkable performance for a number of years. The new
manager brought in late last year may improve matters. Its European
fund used to be extremely good and is now managed by a capable
ex-Hill Samuel manager.” Both says: “I note that the lead manager,
Ashton Bradbury, has historically changed jobs every three to five
years. He has been with Old Mutual for four years now, so it will be
interesting to see if he stays longer this time.” Mays says that for the
majority of its funds, performance has been only average and time
will tell how this fund performs in the future.

When establishing which products will provide the main competition
to this fund, Stratten says: “The main competition will come
particularly from investment trusts as many of these are trading at
discounts to net asset value of 25 per cent. Perhaps in a limited way
venture capital trusts and enterprise investment schemes are
competitors.” Mays thinks the competition will come from higher
profile fund managers such as Schroders and Jupiter. Both reckons
Artemis, Baring, Merrill Lynch, Norwich Union and Rathbone will
provide the hottest competition. Walker also names Artemis and
Schroders as providing stiff competition.

The panel agree that charges are fair and reasonable. On the subject
of whether the commission is fair and reasonable, again the panel
agree. Stratten says: “As far as the average rates of commission go
the product seems about right. It is consistent with the industry in
general. However, I dispute the adviser&#39s right to renewal
commission where no after sales&#39 service or care is provided.”

Looking at the product literature, the panel approve. Mays says: “It is
well set out and easy to read and understand.” Stratten says: ” It
takes investors step-by-step through the investment procedures.”
Walker thinks it is quite client friendly and Both describes it as


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