Type: Oeic fund of funds
Aim: Growth of 3 per cent above the official bank rate a year and the preservation of capital by investing in investment funds, alternative assets, equities and cash
Minimum investment: Lump sum £1,000, monthly £50
Investment split: 49.71% investment funds, 24.85% alternative assets, 18.91% cash, 6.53% direct equities
Isa link: Yes
Charges: Initial 5%, annual 1.5%
Commission: Initial 3%, renewal 0.5%
Tel: 01603 786833
This absolute return fund of funds aims for 3 per cent above the official bank rate each year by investing in a multi-asset portfolio.
Putting the fund in to its market context, Chelsea Financial Services managing director Darius McDermott says: “With US and EU economic gloom spelling a volatile future for equities, and the outlook for bonds remaining gloomy, IFAs should be examining absolute return strategies for diversification.
“I am broadly in favour of funds of absolute return strategies, but IFAs need to tread carefully when assessing absolute returns. Not all of these products’ mandates and charges are the same.”
McDermott notes that as with all OPM retail funds, EFA OPM diversified target return is an unfettered fund of funds. “The fund will be run by Ross Henderson and Tony Yousefian, with an investment split comprising 49.71 per cent investment funds, 24.85 per cent alternative assets, 18.91 per cent cash and 6.53 per cent direct equities,” he says.
The fund will target an annual return of base rate plus 3 per cent, and aims to have a volatility lower than the IMA absolute return sector average. “This is a reasonable target if it can be maintained as rates push up. But perhaps it won’t catch as much upside as its peers when equity markets are frothier given the emphasis on the reduction of volatility,” says McDermott.
He points out that underlining the investment process is a focus on capital preservation, something he feels has been sadly lacking in a number of absolute return products over the years.
“The co-managers have a wealth of fund picking experience between them. This is evidenced in the selection of the top 10 holdings in the fund, many of which I would consider choosing as single strategy absolute return funds,” says McDermott. He regards adviser remuneration as in line with competition and notes that the fund features in a OPM’s range of six risk-graded model portfolios that will offer advisers an investment outsourcing service.
McDermott sees this type of fund as new territory for OPM and thinks the multi-manager firm clearly sees it as specialist tool that advisers will use in the post-RDR landscape.
Turning to the potential drawbacks McDermott says: “With traditional multi-manager funds there is a double-layer of charging, but with multi-manager absolute return products there is a triple layer of charging as the majority of single manager absolute return funds charge a performance fee.
“In this case, OPM has managed to keep the total expense ratio down to an acceptable level at 2.2 per cent, owing to the use of structured products.” He adds that IFAs always should check the total expense ratio of these funds.
Considering the main competition for OPM, McDermott says: “OPM faces stiff competition with a number of existing single manager absolute return funds having delivered healthy returns over the last five years – a period which has thrown up every market condition conceivable.
“For example, a fund that I recommended at launch, BlackRock UK Abslolute Alpha, has returned 29.9 per cent in that period. In terms of comparable alternatives, the Absolute Insight fund of funds, Gartmore absolute return multi-manager and IFSL Blacksquare multi-manager absolute return stand out.”
Suitability to market: Good
Investment strategy: Good
Adviser remuneration: Average