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Sarasin creates income portfolio



Type: Unit trust

Aim: Income by investing in bonds, equities and cash

Minimum investment: Lump sum £2,500, monthly £100

Place of registration: Guernsey

Investment split: Bonds 70%, equities 20%, cash 10%

Yield: 4.5-5%

Isa link: No

Charges: Initial 4%, annual 1.25%

Commission: Initial 3%, renewal subject to negotiation

Tel: 020 7246 0430

The panel: Bruce Bulgin, Partner, Chadney Bulgin,
Bruce MacFarlane, Partner, Capital Trust Financial Management,
Gillian Colsell, Financial adviser, Capital Planning UK,
Nikki Foster, Investment director, Chase de Vere.

Suitability to market 7.3
Investment strategy 7.5
Company&#39s reputation 7.0
Charges 6.0
Commission 6.5
Product literature 6.3

The Sarasin CI income portfolio is a Guernsey-based unit trust that invests in a portfolio of bonds and equities managed on a thematic basis.

Assessing how the product fits into the market Foster says: “Many investors are currently unable to achieve the income levels they require from deposit accounts or equities. This fund will provide a good balance between low-risk bonds and medium-risk equities. To preserve capital, it is not aiming to provide an excessively high income and it will attempt to provide some growth for investors.” Bulgin says: “It fits between equity income and corporate bond funds. It is unusual in combining bond and equity funds within a single fund.”

Colsell says: “My personal view is that it fits well under current conditions. The bond element should offset the higher-risk equity exposure.” MacFarlane says: “The product fits well into the market and should prove popular for those seeking to maximise returns at a lower risk, through a mixed portfolio of bonds, equities and cash. The fund is actively managed and has a focus on risk management.”

Identifying the type of client the fund could suit, Colsell suggests risk-averse investors and those who would like to participate in the potential market pick-up through the equity exposure. MacFarlane says: “The fund is aimed at the cautious private clients looking for an alternative to cash deposits. The fund has a sterling bias, but being domiciled in Guernsey allows gains within the fund to roll up tax-free. Capital gains tax then only becomes payable when investors liquidate part or all of their investment.”

Bulgin goes for investors who are willing to accept a realistic level of income and the possibility of some underlying growth. Foster says: “Investors who are happy to take a lower income in return for the possibility of capital appreciation. It would also be suitable for investors looking to add balance to a heavily weighted high-risk equity portfolio.”

Highlighting the marketing opportunities the fund could provide MacFarlane says: “The fund may appeal to a number of clients who are looking to reduce their exposure to equity markets, while improving on returns currently available from the cash market.” Bulgin thinks it could be promoted as an alternative to with-profits and distribution bonds.

Foster says: “It would fit nicely into a mailing for either cautious growth or income. It could be aimed at cautious investors, in the aftermath of an intensely volatile period.” Colsell says: “The gross income is aimed at those with non-taxpaying spouses, historically at the lower end of the risk spectrum. The product could be useful for income portfolios and self-invested personal pensions.”

Looking at the main useful features and strong points of the product Foster says: “It isn&#39t aiming to provide a high income, therefore investors should not experience capital depreciation over the long term. There should be some capital appreciation due to the mix between bonds and equities. It invests mainly in the UK, providing a good bedrock, but it also has exposure worldwide for an element of diversification.”

Bulgin says: “The fact that the fund should produce income and growth makes it attractive. Gross income will appeal to some investors.” MacFarlane says: “It&#39s an attractive alternative to cash for those people seeking an untaxed income. The equity content allows for some capital appreciation when stockmarkets start to recover.” Colsell says: “It has a good quality, experienced management team. The strong points are the focus on capital preservation and appreciation, plus the investment-grade quality of the bond portfolio. The thematic approach for the equity sector is interesting.”

Discussing the drawbacks of the fund Colsell says: “Should the world markets recover sharply, this fund could be regarded as a bit of a plodder. People have a habit of changing their risk profile according to market conditions.” Bulgin says: “Some investors will be put off by the fact that the product is based offshore, and for basic-rate taxpayers, gross income can be inconvenient.”

MacFarlane points out that income is paid only on a half-yearly basis. Foster says: ” It isn&#39t going to produce huge returns. It aims to be a consistent performer at the low-risk end of the market, so if we do see a fast stockmarket recovery the fund will lag behind pure equity funds.”

Assessing Sarasin&#39s reputation Bulgin says: “Sarasin has a reputation as being innovative with its range of thematic funds, and its strategic alliance with the Dutch group Rabobank brings added financial strength.” Colsell and MacFarlane point out that Sarasin is better known by IFAs than the investing public. Foster says: “Sarasin has a strong reputation within the investment market, both as a bank and as an investment house. It is especially regarded in the management of themed funds, which it has pioneered. It does not run a large number of funds, which for some is a concern, as it could limit flexibility for switching funds.”

Moving onto past performance Bulgin says: “Sarasin&#39s funds are average to above average performers. There are few funds onshore, most are offshore.” Foster says: “It hasn&#39t been hugely successful, apart from the UK-based global thematic fund.” MacFarlane says: “Sarasin has proved a consistent performer through the recent volatile market conditions.”

Colsell is familiar with the sterling equisar global thematic fund and says it has been quite volatile, with a top quartile raking between 1996 and 1999 that dropped to third quartile in 2000 and fourth quartile in 2001. She thinks Sarasin has been more consistent on the balanced fund front with top quartile performance in recent years.

Considering likely competitors for the fund Colsell thinks the Sarasin fund is unique because other funds do not have large corporate bond weightings combined with global equity exposure managed in a thematic way. The rest of the panel go for bond funds, distribution bonds and global equity funds.

Turning to charges, Bulgin thinks the initial charge is greater than some equivalent investments, but feels the annual charge is average. MacFarlane thinks the charges are a little excessive and would prefer an initial 2 per cent charge and an annual charge of 1 per cent. Foster says: “They are pretty standard, but some companies are scaling down their charges and investors will probably be able to invest in the fund cheaper through an IFA or discount broker.” Colsell thinks the charges are fair.

On commission, the majority of the panel regard it as standard. But MacFarlane says: “Initial commission is high and renewal should be standard, not negotiable.”

Looking at the product literature Foster thinks it is clear and simply presented on a double sided fact sheet, with a supplementary booklet explaining the investment process. But he says there isn&#39t much about the fund&#39s offshore status and what this means to investors. Bulgin says: “The brochure gives a thorough explanation of the CI income portfolio and Sarasin&#39s approach to fund management. However, it seems to be more geared to the intermediary than investors. Many other companies&#39 offerings are more consumer friendly.” Colsell says the fund fact sheet is clear, to the point and well presented, but feels the brochure is repetitive. MacFarlane says: “It is excellent, attractive to the eye, easy to read and to understand.”


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