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Price tags

Bad news seems to dominate these days but within the world of retail funds it is not looking as bleak as many would assume. Fund groups are reporting that, in the main, investors are staying put – particularly those using advisers – and redemptions are not as high as market conditions tend to suggest.

That is not to say that there are not complications and advisers have their work cut reassuring clients as well as seeking out opportunities.

According to some groups, the inflows into their funds are predictably first and foremost headed towards those with gilt portfolios. However, others are noting a pick-up or even a lack of slowdown in the sale of specialist mainstream equity funds.

Among the funds with increases in inflows of late are Schroder UK alpha run by Richard Buxton, Gartmore’s European selected opportunities managed by Roger Guy, M&G UK select, Investec UK special situations, Jupiter UK special situations and Axa Framlington UK select opportunities.

One of the easiest indications of where money is going is to look at fund flows and whether or not a fund is on a bid or offer basis, with bid showing that the funds are seeing more sellers than buyers.

Until recently, it has only been property funds that were predominantly on a bid basis. That is no longer the case, with a number of equity and bond funds seeing more sellers than buyers these days.

However, outside of property funds, the majority of retail fund ranges are single-priced Oeics, not dual-priced unit trusts, making it more difficult to determine whether a fund is on bid or offer.

But although an Oeic is generally priced at the mid-level, a group can swing an Oeic price to either end of the spectrum, depending on the number of sellers or buyers in a fund, or it can apply a dilution levy, in effect, an exit charge generally used to protect remaining investors from fluctuations when a big investor leaves.

Although there is no real advantage to one form of pricing over the other, knowing the current pricing basis can disclose interesting trends. For instance, the typical spread between bid and offer is 5 per cent, although it can be around 7 per cent between the creation and cancellation points on pricing (the points beyond bid and offer).

Schroders managing director UK retail Robin Stoakley says spreads have widened out of late with the volatility in markets, particularly at the small-cap end of equities. Bid and cancellation prices tend to be the same but at the moment, cancellation prices have moved out a bit, a sign that market-makers are not participating much.

Buying a fund that is on a bid basis can give an uplift to the investor as it is, in effect, buying the assets at a discount. However, Stoakley notes that the boost this may provide is likely to be washed away in any bull-run scenario.

Artemis product and communications director Nick Wells says pricing mechanisms of a fund could be notable if someone was trading in funds but, as they are long-term investments, it makes little difference. Wells points out that groups have three types of investors to consider in their funds – those joining, those leaving and those remaining – and it must be fair to all three.

Still, to advisers, knowing how a fund is being priced or how the range currently stands can show some interesting trends or moves by investors.

Groups which use dual-priced unit trusts such as Jupiter, Artemis and Schroders say their funds are in the main still on an offer basis, meaning that there are more buyers than sellers.

Stoakley says just four of its 30-plus retail range are on a bid basis, although he would not name which ones they were. He says the group only moves a portfolio to a bid basis if it is seeing heavy and sustained selling, adding that other companies may be more or less active in their moves to bid, and that a few of the group’s portfolios are seeing some net redemptions but not much.

Wells says Artemis’ range is currently priced on the full spread and he notes that its funds have seen net positive inflows in recent times.

Jupiter, which also declined to put exact figures to the number of its funds on bid, says the “vast majority” of its retail range are on an offer basis at the moment. Advisers may be surprised that among the funds seeing strong inflows, and therefore on an offer basis, is the group’s financials oppor-tunities portfolio.

HSBC, Fidelity, Premier, and JP Morgan say that their funds continue to be priced at mid and they are not swinging the price, nor have they applied any dilution levies.

Inflows into the groups’ funds, however, differ. Premier says its cash fund has done well in recent months for obvious reasons but while sales in its other funds have fluctuated throughout the months, they have on the whole been net positive month on month.

JP Morgan says its cautious managed fund has attracted assets in recent months and while it too has seen day-to-day sales fluctuations, on average, across the last month, 20 per cent of its retail range is net positive territory.

Standard Life Investments also has Oeics but it swings its price, so currently about 20 per cent of its funds are on a bid basis, with more sellers than buyers, while 54 per cent are priced at mid and the remaining 25 per cent are on offer. It has seen the strongest inflows into its gilt fund.

According to Cofunds, from October 1-December 11, the top 10 best-selling funds through its platform were dominated by Invesco Per- petual and M&G. Invesco Perpetual corporate bond fund is ranked first, followed by the group’s high-income portfolio. Invesco Perpetual income is ranked seventh while M&G has three funds in the top 10 – corporate bond, UK select fund and strategic bond.

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