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On balance

I confess I had not appreciated that an investment trust existed that provided exposure to the Ukrainian stockmarket. Not that the stockmarket out there is very big, containing as it does just 20 companies. Indeed, some 60 per cent of the Ukraine opportunity trust, which is managed by FPP Asset Management, is in private equity. Perhaps that is why the trust stands on a discount of 53 per cent to its net asset value.

After the seminar, which included some valuable views on both UK and US smaller companies as well as information on how to enhance income through both investing in preference shares and writing options, I felt that I needed to learn more about FPP.

The initials stand for Fabien Pictet and Partners and, according to the company’s website, Fabien Pictet worked for the eponymous Swiss private bank before setting up this investment operation some 12 years ago.

But back to the Ukraine. The manager, Christopher Edwards, who joined FPP from Henderson Global Investors some 10 years ago, complained that the discount failed to reflect the performance achieved, with assets up 28 per cent against a 22 per cent rise in the market.

And with the Ukraine now a member of the World Trade Organisation and enjoying a good relationship with the International Monetary Fund, he set the scene for a dramatic improvement in the economic fortunes of one of the poorest countries in the region.

Tempted as I was at the prospect of buying potentially fast-growing assets at less than half their price, I decided the risk profile of the trust probably suited a younger, more adventurous investor better.

But at least you knew what you were getting, which was not the case with a number of funds within certain IMA sectors.

The Cofunds round table centred on balanced managed but it was clear from the debate that concern exists over a number of sectors where managers had wide powers to vary the asset mix.

Take balanced managed. The IMA sector definition requires no more than 85 per cent in equities, with at least 10 per cent in “non-equities”.

People might assume that means bonds or cash but it does not say that. A portfolio run to a balanced managed mandate could, indeed, be very aggressive, yet the term implies a degree of caution.

Cautious managed funds are presently the most popular on the Cofunds platform, according to Michelle Woodburn, Funds group relations manager, accounting for around 30 per cent of sales.

While the definition laid down by the IMA was stricter – no more than 50 per cent in equities and at least 30 per cent in fixed interest or cash – it nevertheless allowed a fair degree of discretion to managers, with the result that performance in the sector varied greatly.

One of the problems identified by Jupiter’s Pete Lawery was finding a riskfree asset. It was not sovereign debt, in his view, while Gary Potter from Thames River felt a bond bubble could indeed develop. But the future remains clouded, with all the fund managers present (Neptune’s Douglas McDowell completed this most stimulating group) agreeing that expectations needed to be managed and investors made aware of the pitfalls. In the end, it must be the adviser who defines the likely outcomes. Relying on the name of the fund was simply not enough.

Brian Tora is a consultant to investment managers JM Finn & Co


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