Type: Investment trust based maxi Isa.
Aim: Income and growth by investing in the Schroder split investment
Minimum investment: Lump sum £1,000.
Maximum investment: £7,000.
Investment split: 100 per cent in ordinary shares of the Schroder split
Types of share: Ordinary.
Redemption date: November 30, 2007.
Yield: 5.8 per cent.
Charges: Annual 1.5 per cent.
Commission: Initial 3 per cent, renewal 0.5 per cent.
Tel: 0800 718777.
Steve Laird, Senior partner, Laird Financial Planning,
Eric Woodward, EP Ward & Co,
David Divers, Principal, Sandringham Investments,
Roy Rutter, Principal, Aptitude Financial Planning,
Nick Upton, Consultant, Ian Cooke & Partners.
Suitability to market 5.6
Investment strategy 5.0
Past performance 6.3
Company's reputation 6.5
Product literature 6.1
The Schroder income Isa invests in the Schroder split investment
fund and aims to produce tax-free income of 5.8 per cent a year.
Looking at the product's market suitability Upton says: “This appears
to be a slight variation from the norm in that this investment has a
finite life. Although I don't understand the reasoning behind this, it
does stand out slightly from the pack.” Woodward says: “Clearly this
Isa season is not going to be easy for the investment groups. This
has a good dividend yield and will compete with some of the
investment grade corporate bond funds.”
Laird says: “At a time when split capital investment trusts are not
getting a very good press, this might appear a brave launch by
Schroders. The high income and prospect of both income and capital
growth will have broad appeal in the current interest rate climate.”
Rutter says: “There are a lot of income Isas in the market offering
higher headline yields. However, certain characteristics of this one,
plus the Schroders name should give it a share of the action.”
Divers says: “The last thing the market needs is yet another
investment fund, nor one that has such a limited life of six years.
Clients looking for income are not likely to be turned on to a yield of
5.8 per cent when corporate bond funds yield between 7 and 10 per
Identifying the type of client the fund would suit Divers says: “It is of
limited use to those who don't use part of their Isa allowance to get
their cash balances into tax-free situations.” Woodward says: “People
who are needing a good level of initial income and also are prepared
to take some risk with the hope of getting some capital growth.” Laird
says: “An income-seeking investor prepared to accept the additional
risks associated with split-cap trusts.”
Upton says: “Those looking for tax-free income have, of late, typically
looked to higher income and corporate bond funds, whereas this
fund seems to be offering a reasonable quarterly income plus capital
growth potential. So this should appeal to those requiring income,
which is the retired market.”
Assessing the marketing potential for the Isa Rutter suggests
cautious clients and feels there are plenty of those post-September
11 yet to use their Isa allowance. Woodward says “Certainly some
amongst savers who are concerned about how low interest rates
have come from ordinary deposits. I think this will appeal to quite a
wide selection of investors.” Divers says: “Not everyone, even IFAs, is
fully comfortable with investment trusts so the market appeal is
Highlighting the strong points of the fund Laird says: “It is a high
income for a fund that is mainly invested in equities and it has
perceived low charges.” He also mentions the UK securities-only
policy and that the Isa avoids interest rate risk.
Divers says: “It's difficult to be positive about a product that you don't
rate highly. For those who are attracted to it, it is a mix of ordinary
shares and fixed-interest securities which is a good each way bet for
risk and reward.”
Looking at the investment strategy Laird says: “It is intended that 75
per cent of the fund will be in equities and managed by Ian McVeigh
who looks after the Schroder income fund. He has a good track
record. The other 25 per cent will be in fixed-interest securities to help
boost the income.” Rutter thinks the strategy is fine and should
benefit from Schroders' experience in the UK equities market. Divers
says: “The investment mix will limit capital growth and income so it is
a compromise. My personal view is that this compounds what was a
poor product to start with.”
Discussing the disadvantages of the product Rutter says: “Seeking
out good dividend yields has become a tougher task in recent times.
Some investors will not see it as a true income Isa as the
distributions are quarterly, not monthly. But this is only a minor point.”
Laird says: “Although the new Isa will have both ordinary and zero
dividend shares, the latter are not available to new investors. They
are reserved for holders of the Schroder split fund, which is being
restructured. The annual management charge is to capital and no
income, creating a false picture in my view.” Divers says: “Everything
really. It has a limited life and has a poor design all round. It is only
open to maxi Isa investors. Schroders is clutching at straws to come
up with anything worthwhile here.” Upton feels some investors might
want to invest beyond the six year life-span of the Isa.
Assessing the company's reputation Woodward says: “Schroders'
reputation is quite good in both income unit trusts and its previous
split trust was not a bad fund either.” Upton says: “Very good. The
investment team has a strong reputation. The contract has stated that
it will not invest in securities of other split capital investment trusts.”
Rutter says: “After some difficult times in the late 1990s when it
seemed to read the market the wrong way, it is returning solid
performance. Its fixed-interest, smaller companies and mid cap
funds are its strength. The Schroders name is well established in the
Discussing Schroders' past performance Upton says: “I think
Schroders has, overall, a good sound reputation. Naturally, the funds
quoted in the managing director's statement mention its best
performing funds.” Rutter thinks it is good in the fixed-interest and UK
market. He also points out that it is experienced in investment trust
Identifying the potential competition Divers pinpoints providers with
wider investment choice. Woodward says “Income investors are likely
to look for funds with lower risk profiles after the recent market
performance. So I can see that some competition will be from funds
that offer a capital guarantee and fixed-interest funds.” Upton says:
“Equity income funds, although these do not seem to offer the level of
dividend yield at present to compete with 5.8 per cent.” Rutter is more
specific as he goes for Fleming, Clerical Medical, Newton and Credit
The panel agree that the charges are fair and the majority feel the
commission is standard.
Looking at the product literature Woodward feels it is designed to be
as simple as possible to understand and is clear about its aims. But
he found it a little light on information about classes of shares. Upton
says: “I like it, nice and simple. Although I could not find all the
Laird says: “It is generally okay and simply laid out. The small print
has been saved for the key features document. However, split-capital
trusts are complicated enough, without incorporating the
restructuring of an existing one. Clients are unlikely to read this much
detail, so the onus is one the IFA.”
Divers says: “Bland to say the least. This industry could do with a bit
more creativity in design and marketing. Rutter feels Schroder should
be commended for good use of plan English.
Summing up, Upton says: “This product is launched as an
investment trust as opposed to an Oeic without any real explanation.
Given recent comment in regard to certain split-capital investment
trusts and those borrowing, I would like a few more background facts
to feel completely comfortable.”