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Season tickets

Do you think there is a danger that split-capital investment trusts have been missold by IFAs in the past?

Michael Owen: I believe that IFAs who have sold splits will have explained that they are still risk investments and are not guilty, therefore, of misselling. I am concerned that misselling seems to be a term being applied in some quarters to anything that goes wrong, as opposed to the case here, which I believe to be IFAs genuinely recommending products for the right reasons.

Admittedly, there could be problems in the zero market if IFAs have emphasised their conservative merits and, as we seen with even the collectives, such as Exeter, there have been big falls. Exeter has even used the word “secure” for some time in its literature.

Paul Ilott: The split-capital investment trust is a far less used investment product than conventional investment trusts and any misselling of split-capital investment trusts must only represent a tiny proportion of all investment sales.

Precious few IFAs advise clients on either capital or income shares – it is a highly specialised market. There is a question mark over some individual zeros of splits with highly geared structures investing in high-octane assets but, again, relatively few IFAs use them.

The biggest problem has been with some open-ended funds investing in zeros where the investment house has promoted them as low risk and the composition of the underlying assets has not been adequately disclosed.

Alan Adam: Splits have certainly been oversold by advi-sers, probably more than missold. Frankly, I have doubts that the majority of advisers understand splits but they have been willing to put clients into these type of holdings because of the press coverage they have had.

They are now in the difficult position of trying to explain the performance to clients when they fail to understand it themselves. People really should stick to what they know. For instance, we as a firm, will not give any mortgage advice because we do not keep up to date with that marketplace.

Institutional multi-manager giant Frank Russell has joined up with Scottish Widows for its entrance into the UK retail market. Do you think the alliance will prove to be popular in the retail arena?

Michael Owen: Frank Russell has a lot to offer in the multi-manager field and I like the way it embraces companies which are not always accessible to UK investors, such as some of the American companies. Therefore, it is a positive move for Scottish Widows and could prove popular although I think Scottish Widows must work harder on its own fund range to convince IFAs that it is once again a force to be reckoned with.

It is an immensely competitive market and Scottish Widows has virtually had to start again, replacing its fund management team and regrouping.

Paul Ilott: The multi-manager concept has become very competitive over the past year, with Jupiter buying Lazard&#39s multi-manager service, Credit Suisse launching a similar service and SEI&#39s entrance to the market. Frank Russell will bring enormous experience in this area to Scottish Widows and, yes, I believe it will prove to be popular.

There is still ample room for other multi-manager services from other investment houses. Its strength is that the investment manager continually assesses the fund&#39s holdings in a way that a small IFA without a well-fed research department cannot hope to emulate.

From the client&#39s point of view, poor performing funds are ejected from the multi-manager pool, saving on the need and costs of switching to another provider&#39s fund.

Alan Adam: The Frank Russell link-up will not prove to be a winner with clients, as most of them will think that he was the guy on Call My Bluff with the bow tie. Seriously though, the market is moving towards multi-manager and fund of funds because all investment houses go off the boil at some stage or other.

There is certainly a feeling in this part of the world that Scottish Widows is after a major share of the investment market. It has recruited a number of impressive people to strengthen its own investment performance and this tie-up will make the industry sit up and take notice.

Several fund management firms have expressed their pessimism over Isa sales in the first quarter of 2002. Do you believe we will see an Isa season this tax year?

Michael Owen: Yes, I believe we will see an Isa season but nowhere near the record volumes of previous years. Much will depend on how the market opens and if we see another major fall then all bets are off. However, with interest rates at nearly 40-year lows, money has to go somewhere and there must be opportunities for IFAs to use Isas for their clients in the first quarter of 2002. We must emphasise the advantages of buying into markets way off their all-time highs.

Paul Ilott: I do not think we will see a traditional Isa season dominated by a particular theme or sector. All but the most experienced retail investor tends to invest with both eyes firmly glued on the rear-view mirror. This time round, investor sentiment will be influenced by two consecu-tive years of negative stockmarket growth.

IFAs will need to have more realistic expectations this year and take a more educative role in helping clients to build and maintain well-balanced portfolios.

As time passes, the annual headlong rush of investors into Isas in the final four months of the tax year will, I believe, start to abate as more and more IFAs convert their clients to the idea of investing in Isas earlier in the calendar year.

Alan Adam: The Isa season will, I believe, happen but it will be very late. A lot of investors did not use last year allowances and I think, not before time, that people are starting to think longer term and are keen not to miss out on another year&#39s allowance. In addition to this, I anticipate we will be starting to see signs of more positive news about Western economies before the end of March, which will also give investors confidence.

ABN Amro was ranked as the most popular Isa provider in a recent IFA poll. Which fund managers will be at the top of your best buy lists in the first few months of 2002?

Michael Owen: In Isa terms,I think most monies will go to equity income funds or corporate bond investments. This would tend to suit the risk profile of investors, appealing to income seekers in particular.

On the equity income side, I expect Liontrust, Newton and Credit Suisse to prosper and, on the bond side, strong fixed-interest houses such as Standard Life, M&G, Five Arrows and Royal & Sun Alliance should benefit. We all know that clients are underweight in America but it will be difficult convincing investors who are generally becoming more risk-averse.

Paul Ilott: We use a broad palette of investment houses and, as always, we envisage a wide distribution of funds throughout. However, among the bigger investment houses, Fidelity is likely to be prominent due to its strength across a number of different funds.

Also, some UK equity income funds now provide income yields in excess of those currently available from cash but with the added attraction of potential capital growth. UK equity income fund providers such as Invesco Perpetual and Rathbone are likely to do well.

Alan Adam: Bill Mott is a fund manager who, I believe, should not be ignored in any portfolio. He has a proven track record but it is his stockpicking skills that make the Credit Suisse income fund a good buy. Fidelity is another worthy of mention with stars such as Anthony Bolton and John Muresianu running slightly more aggressive funds with UK and US emphasis respectively. A fund that could be worth a punt although its not a “widows and orphans” holding is Exeter&#39s new hidden value portfolio. The fund is very small and I have been impressed by Geoff Miller who will be involved in the management and stockpicking. Given our outlook for the markets, it could be an excellent time to buy in.

Invesco Perpetual had a troubled 2001, with the departure of several fund managers and IFA concerns over the firm&#39s stability. Are you still happy to recommend the firm&#39s funds or, like Hargreaves Lansdown, are you keeping the range on hold?

Michael Owen: Invesco Perpetual has not just suffered from fund managers leaving but also from poor fund performance, particularly in European and global funds. In the UK, the income funds have held up and so we will be retaining the funds we have managed by Neil Woodford and Graham Kitchen.

However, as far as new money is concerned, we are sitting on the fence and watching developments, particularly with regard to fund managers and, hopefully, evidence of recovery in some of the funds that have had such a difficult 2001.

Paul Ilott: It is inconceivable that the marriage of two big investment houses should proceed without a hitch. I think it is inevitable that this size of undertaking is going to lead to some fund managers moving on to pastures new as a perfect fit between funds and managers in the new enlarged group is simply unrealistic.

As with all new partnerships, there needs to be a settling-in period. In the meantime, we will continue to monitor the situation and will only make a decision to change our stance if the facts merit it. That notwithstanding we will continue to support Neil Woodford&#39s income fund, as we did throughout the tech boom when some were advi-sing clients to bail out.

Alan Adam: Invesco Perpetual is a company we have been shying away from for some time, although we have never recommended any clients sell their holdings. Some of its best funds cause us concern due to the funds being of a size that is very difficult to manage actively. In other areas, there has been insufficient information about change of managers but we are convinced it is all part of the amalgamation process and the new company will get its focus back soon.

Michael Owen, joint managing director,Plan Invest

Paul Ilott,senior investment adviser,Bates Investment

Alan Adam,consultant,Alan Steel Asset Management


Julian Gibbs

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