From the raft of new fund launches that we are now seeing and can expect to see over the coming months, Gart more's Focus funds are an interesting proposition.
Basically, they are “best ideas” funds which remove many of the benchmark constraints often inherent in more mainstream funds. Good stock-pickers have the opportunity to deliver very strong returns when they can run concentrated and less restricted portfolios.
This is the opportunity provided by these new funds and Gart more can certainly demonstrate stock picking ability. Initial and trail commission is standard at 3 per cent and 0.5 per cent respectively.
But IFAs have something else to consider. Gartmore is so confident it will be able to deliver top-quartile performance that it is making a link between performance and the level of annual management charge levied.
For the first year, the AMC is 1.5 per cent. From February 1, 2002 it increases to 2 per cent. But the funds must show first-quartile performance against all relevant competitor funds at the end of each month on a rolling 12-month basis. If this target is not met, then the AMC will be reduced for that month to an annual equivalent of 1.25 per cent.
The bottom line is that Gartmore has to deliver top-quartile performance or its income is dramatically cut. The full 2 per cent charge is quite hefty but it does give a big incentive for the fund managers to deliver consistency month after month.
If that is the price for consistent top-quartile performance, it might well be worth paying.
James Dalby is head of research at Bates Investment Services