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Paying happy families

Schroeder managed balanced could fill the gal for a pension fund for Sipps, featuring a risk management system and the manager with the incentive of parents and friends invested

Sipps, both corporately and privately, are playing a bigger and bigger part in our business. At present, we are opening around a hundred a day although in the financial season this tends to climb to over 300.

Many clients, both corporately and privately, still want a pension fund with a balanced mandate but increasingly are finding that the insurance company’s offer is not that great.

One fund that has come to my attention and may well fill the void is the Schroder managed balanced fund. The fund split into two in 1998 having been a huge institutional fund. Since June 2003, the fund has been managed by Andrew Yeadon who joined Schroders in 2000, assisting the CIO on various projects relating to Schroders investment product. He formed the multi-manager investment team in 2002.

Andrew and his team do run multi-manager funds I should state that this fund is fettered to Schroder products. That may, of course, initially turn many of you off, but fettered funds do not all necessarily perform badly.

What they do have going for them is short lines of communication with the expertise all in house. Mr Yeadon, who can use both onshore and offshore funds has a considerable choice, with many top-performing funds in the Schroder stable.

The objective of the fund is to outperform the balanced managed sector by 2 per cent a year. This, coupled with a 3 per cent to 4 per cent tracking error, gives Mr Yeadon and his team of four enough latitude to produce outperformance.

Asset allocation is set relative to the balanced managed sector and will tend to deviate to a maximum of around 5 per cent. Like many funds in the sector, it is UK equities that are the key driver both to absolute and relative performance.

However, performance is driven far more by fund selection rather than asset allocation. The process involves a monthly group asset allocation committee which really tends to throw up a menu of ideas which can filter down to a more tactical asset allocation preference and here an intimate knowledge of Schroder funds is extremely helpful.

An in-house proprietary risk system called Prism (portfolio risk investment strategy manager) is used extensively to monitor risk which drills down to the stock level of the underlying funds. Prism can also be used to provide a “what if” scenario, that is, if they introduce a fund what happens to the overall risk and return characteristics of the portfolio.

All this filters down to a fund selection and Mr Yeadon and the team, unlike so many balanced funds, are relatively active. They are not afraid of selling down funds even if there is a potential conflict with Schroders’ more public image.

Mr Yeadon puts the unitholders first, which, in my view, is exactly right. For example, he sold down the Schroder European fund when the managers changed but put a big weighting into European alpha plus when Leon Howard Spink joined. Nor does he suffer from capacity constraints, in that he is able to buy into the Japan alpha plus fund, which is closed to others, and indeed this is where he has his full Japan weighting at present.

In the UK, his biggest weightings are in Schroder UK alpha plus at 20 per cent and the Schroder UK equity fund at 14 per cent. It is interesting that he has sold the Schroder recovery fund where fund manager Ben Whitmore has left for Jupiter. With the likes of Richard Buxton, Andy Brough and Nick Purves on the UK side and a strong European team, two of his biggest bases are extremely well covered.

I have already said that I think the fund suits pension default options very well but it does not have to be bought for a pension fund but just as easily it is an ideal core holding for any portfolio.

As much as anything can be nowadays, Mr Yeadon likes to think of his fund as a “buy and forget for 10 years” type of fund.

Finally, his real incentive for the fund is that his parents and friends are invested. I can think of no greater aggro than from this source so I am sure he will be kept on his toes in making sure this fund performs well.

Mark Dampier is head of research at Hargreaves Lansdown


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