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Passive positivity from Product Innovations

Structured product provider Product Innovations has established its two Oeic funds for high net worth clients that take a passive investment approach to eight asset classes.

Since Product Innovations was formed in 2002 it has launched 15 structured investment products and also provides white labelling product design services for Keydata, Bristol & West and Newcastle. Its new overture Oeic range consists of the Frontier conservative and Frontier moderate funds, which are managed on Product Innovations behalf by Frontier Capital Management.

Frontier was founded in 2004 by Mike Azlen who has over 17 years investment experience including hedge funds, proprietary trading, structured products and equity derivatives. Between 1999 and 2004, he was founder and UK chief executive officer of Asset Alliance International a global hedge fund management company.

Frontiers investment philosophy starts with the belief that asset allocation is responsible for the majority of risks and return in multiple asset class portfolio. It believes combining non-correlated asset classes can produce potentially higher returns and lower risks, while passive investing outperforms the majority of actively managed funds because the underlying charges are lower.

Many active managers outperform, but Frontier and Product Innovations argue that charges eat into the returns, so the end result for investors is not so good.

In contrast, the Product Innovations funds will invest in index trackers and derivatives which will be managed according to a benchmark of 25 per cent global bonds, 22 per cent global equities, 15 per cent commercial property, 15 per cent hedge funds, 8 per cent commodities, 5 per cent emerging equities, 5 per cent emerging bonds and 5 per cent managed futures.

Although not actively managers, Frontier will apply a tactical tilt to the asset allocation, avoiding underperforming asset classes in favour of those that are outperforming. Product Innovations estimate this will create additional 2-2.5 per cent, which should cover the annual management charges and performance fee.

While a multi-asset approach may provide more consistency and less volatility than relying on one or two asset classes to perform well, some investors may feel that active management, with the ability to outperform indices rather than follow them, is worth paying for.

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